You wouldn’t consult an electrician about heart surgery, a dentist to do your taxes, or a plumber for legal advice. Since the investment decisions you make today critically affect your future, wouldn’t it make sense to work with an experienced investment specialist?
For some reason, it has always been easier to lose money than it is to make it and keep it. The FBI calculates that in recent years there were more than 4,400 victims of fraud in Utah, totaling a net losses of $1.4 billion dollars (www.fbi.gov).
Properly managing your investments is critical to your long term financial success. It is not optional. First, it requires a time commitment to research and track your investments. Second, it requires discipline to stick with your strategy through challenging times. Third, and most difficult, it requires you to remove emotion from your investment process.
Most successful people recognize the need for a relationship with an accountant and a lawyer. However, many have not yet discovered the benefits of working with a financial adviser. Based on the variety of investment options and the myriad of people that call themselves financial advisers, it is easy to understand why. Figuring out who to work with is often so confusing that people give up and try to manage their money themselves.
Though finding the “right” adviser is much more difficult than most people realize, studies have shown that investors are better off with the help of a financial adviser. Most investors hire someone they “trust.” However, trust is very intangible, and difficult to quantify. And, contrary to popular belief, the size of the firm or familiarity of the brand name does not indicate the quality of the advice provided.
Part of the problem is that titles for financial sales reps are completely unregulated. This means that brokers, annuity salesmen, and insurance agents are all free to call themselves financial advisors, planners, or whatever else they prefer.
To make sure you don’t get stuck with a salesperson when you are really looking for an adviser, make sure look at these 5 critical areas:
♦ Fiduciary. This is critically important. You should only hire a true fiduciary adviser. Fiduciary advisers have a legal obligation to put your interests ahead of their own. Sales reps selling insurance or other financial products are not fiduciaries. Surprisingly, less than 15% of all financial advisers even meet the fiduciary requirement. To start your search only talk to registered investment advisors who do not receive any commissions. This will increase your probability for success.
♦ Experience. How many years have they been managing money? Because markets are difficult to navigate and constantly changing, your adviser should have several years’ experience investing in both good and bad markets. In the final analysis, you are paying an adviser for their experience.
♦ Track record. Legitimate advisers will be able to show you a clear report of what they’ve done for their clients over the years. Showing you the track record of a mutual fund, a hypothetical model, or anything else that they have recently started selling does not count. They need to show you their own track record, which would be a composite of the results of their previous clients’ investments. Any adviser who refuses to show you at least a ten-year track record of their performance should be crossed off your list.
♦ Conflict of interest. Many commission-based salespeople are honest individuals. However, when it comes to the financial services industry, the worse the product, the higher the commission. The easiest way to avoid “bad products” and to eliminate potential conflicts of interest is to avoid salespeople who receive commissions. By working only with advisers who are paid through management fees and not commissions you can make sure their interests are aligned with yours.
♦ Surrender charge. If there is a surrender charge, there was a commission. If there is a commission, you are not dealing with a fiduciary adviser. You should be free to move your money out of an investment if you are dissatisfied. You should never be trapped in a product with a surrender charge.
As I mentioned at the beginning of this article, money is slippery. It is easier to lose than it is to make. Building wealth is difficult, but by following these tips you can find a great adviser to help you grow your money.
Disclosure: Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Do not rely upon this information to predict future investment performance or market conditions. This information is not a substitute for consultation with a competent financial, legal, or tax advisor and should only be used in conjunction with his/her advice. Past performance is not a guarantee of future results.
Dave Young founded Paragon Wealth Management in Provo, Utah 29 years ago. His investment methods have attracted national and local attention. He has been interviewed by BusinessWeek, CNBC, the Wall Street Journal, the Deseret Morning News and other national and local media