Questioning your financial advisor

A few questions you should be asking.

If you are just now beginning to think about starting an investment plan or are a seasoned investor have you thought about what questions to ask the person selling you those investments? As a seasoned investor did you ask questions or did you trust the person across the table from you because of the company name on the door? Maybe you’ve never asked your investment advisor questions because you didn’t know what questions to ask. The United States Securities and Exchange Commission (SEC) is a great place to start. There are many questions the SEC recommends asking in their publication titled “Ask Questions” here are a few of them:

  1. Are you registered with our state securities regulator? Usually we assume since they are in the position they are in they must be registered but this leads into a follow up question. Have you ever been disciplined by the SEC, state regulator, or other organization. You can then check yourself at Broker Check by Finra.
  2. How long has your firm been in business? How many arbitration awards have been filed against your firm? Once again there is a place to check out the firm you are speaking with.
  3. What training and experience do you have? How long have you been in business? What other firms have you been registered with? What is the status of those firms today? Asking these questions will give you an understanding of how long the advisor has been in the investment game. You have to decide on whether or not you would want to invest with someone who is fairly new to the business.
  4. What is your investment philosophy? Asking this question will help you to determine if you investment goals line up with the advisors philosophy and if they don’t can you see yourself still working with them.
  5. How do you get paid? By Commission? Amount of assets you manage? Another method? Knowing how an advisor gets paid will help you determine if he has your investment goals in his best interest.
  6. Do you make more if I buy this investment rather than another? If you weren’t making extra money, would your recommendation be the same? Remember, advisors should be recommending investments based on you investment goals and risk tolerance. You have the right to say no to recommendations.
  7. Are you participating in a sales contest? Is this purchase in my best interest, or are you trying to win a prize? You may not believe this happens but it does. Some companies have been known to offer luxury trips based on sales in specific categories concerning investment types. Ask this question every time an investment recommendation is presented to you.

Make sure you are comfortable with the answers you have received regarding all of your questions. Remember, investing involves risk and the possibility of losing money, make sure your advisor fits with your risk tolerance and retirement goals. Investments aren’t the only passenger on your road to retirement, questions are too.

Michigan State University Extension offers financial management and home ownership education classes. For more information of classes in your area, go to either Michigan State University Extension events page or MI Money Health.

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