Selecting a Broker or Asset Manager
In my 20+ years in the financial world, I have seen many changes in investor attitudes, techniques and philosophies. Investors today are much more hands-on when it comes to taking charge of their financial futures. They travel across the country to various financial conferences like the upcoming San Francisco Money Show to learn more about the economy, markets and individual investments. They tune in to radio and television programs for the latest financial news and many – like you – subscribe to publications such as Financially Fit, to gather even more information to add to your financial education, with the ultimate goal of helping you to improve your investment performance.
But one area that often still remains a dark mystery, is how to find a good broker or asset manager. Fortunately, that process is not as difficult as most investors believe. The key ingredient is asking questions.
In our recently released report, the Top 12 Online Brokers for Individual Investors, we covered some of the procedural questions that investors need to find out from their potential brokers and brokerage firms, including:
- Additional fees for asset transfers, closing accounts, IRA annual fees, inactivity charges, wire fees, and charges for not keeping a minimum balance in your account.
- Customer service: How long do you have to wait on hold?
- Availability of banking services such as money market accounts (and yields) , credit cards, check writing and bill payment services, ATM’s
- Minimum to open an account
- If they offer additional investments including bonds and options
- Can you purchase no-load mutual funds through them?
- If trading online, and the system jams, how else can you place a trade: By touch-tone, perhaps talking to a real person (although that option seems to be getting pretty rare these days!)
- What other services, such as research, do they offer? Keep in mind that the more products and services offered, the higher the commissions will be.
Additionally, in that report, we did the leg work for investors who are interested in online trading, and compiled a comprehensive look at the commissions and fees, mutual fund offerings, customer service ratings, trading tools and research offered by twelve of the most popular online trading firms.
Those questions and analyses should be asked and performed by all investors who deal directly with brokers, whether or not they prefer online, in-person, or telephone trading. Of course, many investors rely on asset managers or investment advisers to place their trades, but although these investors don’t directly deal with brokers, it wouldn’t hurt to ask these questions of your investment professional, from time to time, to ensure that he knows that you are interested in maintaining your accounts at companies that best suit your financial needs, not necessarily those that most benefit him.
The responses to these questions will help you narrow the field to the firms who offer the products that will best suit your personal financial planning requirements, as well as the execution times and procedures that will help you maximize your own portfolio returns.
In addition, it is of utmost importance that investors – whether they are dealing directly with a broker, asset manager or investment adviser – ensure they are working with a professional and firm of integrity. And that requires a little bit more research.
At the top of the list of things to do is to check out the background of any firm or individual broker or investment adviser that you intend to hire. Fortunately, brokers and registered investment advisers must file disclosure forms which detail their histories as well as disciplinary problems, with the agencies that regulate them. Here are two sites that you may find helpful with your investigation:
Investment advisers:
http://www.adviserinfo.sec.gov/IAPD/Content/IapdMain/iapd_SiteMap.aspx
Broker checks:
http://www.nasd.com/
Additionally, you will want to be as precise as possible in conveying your requirements and expectations, as well as finding out exactly which services your broker or adviser are willing to provide for you.
Here are some questions to ask and actions to take that should help you determine if the broker or adviser is the right one for you:
Does your broker or financial adviser have the right experience, qualifications and educational background needed for your requirements? Are his investment strategies and philosophies in line with your own goals? If you need an adviser who is experienced in all levels of financial planning, including tax planning, investments, estate planning, insurance and retirement planning, you need to know if the person you are considering has that experience as well as the proper qualifications and designations. Conversely, if you only need someone to execute transactions, your requirements will not be as comprehensive.
The following organizations can help you determine if he is the right person for your job.
Certified Financial Planner Board of Standards, Inc.
www.CFP.net/search
National Association of Insurance Commissioners
www.naic.org
Financial Planning Association
www.fpanet.org
National Association of Personal Financial Advisors
www.napfa.org
American Institute of Certified Public Accountants/Personal Financial Planning Division
www.aicpa.org
Society of Financial Service Professionals
www.financialpro.org
What steps does your adviser or broker take to keep his education current? Is he up on the latest trends, laws, and regulations?
Find out your broker or investment adviser’s past performance. He should be able to offer you a finite measure of how his advice has benefited his clients, and that measure should be compared to some benchmark such as the S&P 500 index. Additionally, I would encourage you to request client references so that you can speak to others who have used his services.
Get it in writing. Ask for a written agreement as to which services the adviser or broker intends to perform. This agreement should also cover his – and your – responsibilities in the relationship, what role you expect him to perform (for example, will he have discretionary power over your account?) , the circumstances under which your relationship will be terminated, and how he will be paid.
For a broker, payment will come in the form of commissions. Investment advisers may charge you fees based on hourly or flat rates, or a percentage of your assets. In addition, if they handle your transactions, you will most likely pay commissions for those executions, too.
But you also need to find out – in the case of both brokers and investment advisers – how much, of any, of his commissions are being paid by third parties, such as mutual funds, insurance companies, his own brokerage firm, to steer you to proprietary products, which may or may not be to your best benefit. You want the broker or adviser working for you – not just to beef up his take-home pay. And it is no secret that the regulators have disciplined many firms and financial professionals for puffing up their commissions and fees without regard to their clients’ best interests.
Along that same refrain, your agreement should offer clarification of any close relationships or partnerships that your financial professional has with any of the companies with whom he expects to use when conducting your business. This should do the job of disclosing any potential conflicts that may impact your accounts.
Will someone else in his firm also be working with you? If that’s the case, that person’s experience, background and qualifications are also important to know.
As you can see, there is more to choosing an investment professional than just reading the often-hyped performance claims in his promotional literature. Your money is important and most of you have worked very hard for it – why not take a little extra time to make sure that you are protecting it for your golden years or for your heirs, as well as maximizing its return to secure your future?
I’ll leave you with a few other sites that may be helpful in your pursuit:
Investor alerts of the latest con schemes, fraud and important financial news:
http://www.nasd.com/InvestorInformation/InvestorAlerts/index.htm
Investment adviser questionnaire
Checklist for interviewing a financial planner
http://www.pueblo.gsa.gov/cic_text/money/financial-planner/10questions.html
About the Author
Nancy Zambell, Contributing Editor to BrokerAdviser.com's Financially Fit, has enjoyed a diversified career in the financial services industry.
Read More
(click a star)
Enter comment: