Finding the right investment advisor means doing more than just letting your fingers do the walking
If you’re looking for investment advice, the first thing you need to do is make a quick self-assessment.
“Investor, know thyself,” said investment adviser Richard Loth of Mentor Investing during a free investment seminar called “A Critical Look at Investors and Their Advisors,” held Wednesday night at the Vail Public Library.
That self-assessment should help you determine what level and type of investment advice you’ll need. It’s a function of how much time you have, how business-savvy you are, the complexity of the investments you want to make and what you want to achieve with your investment. Most want to secure money for retirement, but they can make a very common mistake, Loth said.
“There is a fantasy out there that you can bet market,” Loth said. “That’s very, very hard. The first rule of investing is to protect your capital. Studies proved most investors are overconfident.
“Not making mistakes is 50 percent of the game,” he said.
Once you determine what you really want to do with your investment, you’ve got to start by asking some common-sense questions of an investment adviser, Loth said.
“Match the advice to your needs,” Loth said. “The more you know, the better. One of the first questions you should ask an investment adviser is “How much will this cost me? And what will you do for me?’
“Fees and costs are a drag on investment return,” he said. “That’s an important consideration because in the decade ahead, returns will be much more modest than they have been. Investment advice should not be free, but it shouldn’t be expensive. You need to assert yourself. It’s your hard-earned money.”
Learning to play the investment game without getting hurt requires some work, and for most people, some help from an expert and other sources, Loth said.
“The more you know, the better,” he said. “You need to know certain basics before you get advice. If you don’t understand all the information it’s like trying to read Russian. Education should precede advice. You need to participate at some level because you’ll always look out for your money better than anyone else.”
Finding an adviser that meets your needs requires more questions and a healthy dose of skepticism, Loth said. He provided a list of phrases that he said can spell trouble for an investor: “It’s a sure thing.” “We’ve gotta move on this.” “My research people tell me…” “Options. Annuity.” “You can beat the market.” “Better-than-average.” “It’s a new concept.”
“If these are mentioned, walk out the door,” Loth said. “If you feel like you’re being sold, you probably are.”
Some of the most dangerous investment advice, he joked, can come from brothers-in-law.
“They’ll get you in trouble,” he said.
“It’s an issue of stewardship of your money versus salesmanship,” he added. “It’s a symbiotic relationship.”
But after determining what your investment needs are, what should you look for in a good investment advisor?
Gray hair counts
Loth said it’s probably a good idea to seek an adviser who has gray hair because experience counts more than almost anything else, he said.
But you need to ask more questions, including what the adviser’s and firm’s investment philosophy is, how much experience the advisor has, what investment credentials and training the adviser has as well as what fees – both direct and indirect – will be assessed on your investments.
On top of that you also need the Credentials Registration Depository number of the firm. You can use that to research its history with regulators to see if any disciplinary actions have been taken against it by the state. The Colorado Division of Securities can provide that information, too. It’s available by calling (303)894-2320, Loth said.
But there’s an interpersonal aspect to choosing an adviser, too, he added.
“You need to know the person,” he said. “Trust and rapport are the keys. Trust comes with time.”
Cliff Thompson can be contacted via e-mail at firstname.lastname@example.org or by calling 949-0555 ext. 450.
More questions to ask an adviser
– How long has your firm been in business?
– What training and expertise do you have? How long have you been in the business? What other firms have you been registered with? What is the status of those firms today?
– Have you personally been involved in any arbitration cases? What happened?
– Describe your typical client. Can you provide me with some names and telephone numbers of your long-term clients?
– How do you get paid? By commission? Another method?
– Do I have choices on how to pay you? Should I pay you by the transaction? Or a flat fee regardless of how many transactions I have?
– Do you make more if I buy this stock (or bond or mutual fund) rather than another? If you weren’t making extra money, would you recommendation be the same?
– Are you participating in a sales contest? Is this purchase really in my best interest or are you trying to win a prize?
– You’ve told me what it costs me to buy this stock (or bond or mutual fund); how much will I receive if I sell it today?
– If your broker changes firms, ask: “Did they pay you to change firms? Do you get anything for bringing me along?”
* Source: U.S. Securities and Exchange Commission
Investment advisor Richard Loth will present a final, free investment seminar “Using the Library to Improve Your Investment Know-how,” at 5:30 p.m.,. March 3 at the Vail Library. For more information, call 827-5591.