How To Determine If Your Investment Advisor Is Legitimate

Any smooth talker can put on a suit and offer advice, using a stack of official-looking papers as his or her prop. The question is, how sound is that advice really? Unfortunately, con artists are everywhere, and many find it very lucrative to masquerade as investment advisors. Why? Because consumers literally hand over their money to these professionals and let them do what they will with it. If you plan to be that trusting with your financial advisor, do your homework ahead of time to ensure that he or she is truly trustworthy. Read on for tips on how to find a reputable consultant.

Know Exactly What You’re Paying For

Paying an investment advisor is nothing like paying your attorney or buying a product. The fees fluctuate depending on how much activity the advisor conducts on your behalf and how much he or she earns for you — at least, that’s how it is today. Most advisors have switched from a transaction-based model to a consultative one, which ends up saving clients in the long-run. When you research any investment advisor, one of the first things you should do is look at what kind of model he or she uses. Though transaction-based models are not an indicator of a shady consultant, it may be an indicator that said consultant is old-school and not exactly up-to-date on investment best practices. It may also be a sign to come that you’ll pay more for the contract than you will the actual services.

Make Sure the Fee Schedule Is Transparent

Regardless of the industry you’re dealing with, hidden fees are always a sign of shady business undertakings. When discussing fees with the advisor, make sure he or she is as transparent as possible. Don’t be afraid to ask questions that you may think border on personal, such as how much the advisor plans to make for each investment he or she makes on your behalf. If the advisor plans to generate revenue from successful endeavors, you may want to continue your search. Reputable advisors do not plan to profit off your investments; rather, they are happy to consider your fee as their source of income.

Check To Ensure the Advisor Is a Fiduciary

Fiduciaries take on any legal liability for any recommendations they make to their clients. This gives clients peace of mind that their fiduciaries act in their best interests and their best interests alone, reassurance that is especially appealing when a fiduciary has higher-ups. When shopping around for financial advisors, check to ensure that the one that you choose is certified as a fiduciary. This will give you peace of mind that any fees he or she receives are from clients alone, and that any advice offered is 100% unbiased.

Advisors who are not certified as fiduciaries typically end up conflicted. Without the legal obligation to act in clients’ best interests, consultants find it difficult to avoid the allure of using another person’s money to put toward a risky investment. They also often fall victim to insurance companies, mutual funds, and their own employers, all of whom whisper in the advisor’s ear in exchange for additional revenue.

Know What Services You Should Be Receiving

Before you agree to work with any one advisor, know which services the advisor should be offering you. At the very least, your advisor should conduct an annual, in-person review with you and provide ongoing portfolio monitoring services. For an increased fee, you may be able to receive quarterly reviews. However, most advisors require you to have a substantial sum of money to invest before they’ll agree to regular reviews. Likewise, the more money you give your advisor to manage, the more services you’ll be privy to.

Before you hire an investment advisor, make sure he or she is reputable. Use the tips above to find the right person to manage your portfolio and your wealth.

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