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How to Choose an Investment Advisor
It is one thing to invest your first $10,000and another to successfully invest and manage more substantial amounts of money. First of all, when you first start out investing it is often more important to get you financial house in order than pick the right stocks! But, now what do you do with an inheritance of a quarter of a million or more. Or what if you have sold a successful business for tens of millions of dollars? At this point you are thinking that you need some sound advice about how to invest your money. This brings us to how to choose an investment advisor.
How to Choose an Investment Advisor: What Do You Really Need?
Families with huge fortunes are concerned about preserving their wealth from one generation to another. There are various financial strategies to help avoid losing money to estate taxes with each generation. But regarding year by year investments, the point is to first stay ahead of the corrosive effects of inflation and then generate a predictable yearly return.
Above all the goal is to avoid losing everything that great grandpa built and passed on! And a big part of any long term strategy is to avoid having the cost of managing your funds eat away at your return on investment!
How to choose an investment advisor starts with deciding, in general terms, what you need. Are you are happy with an absolutely guaranteed return year after year? If that is the case you may simply want to buy US Treasuries and then ladders of CD’s at several banks. If that sort of absolute security is your goal you do not need to pay someone a fee to manage your money!
How to Choose an Investment Advisor: Brokers, Mutual Funds and Fiduciary Responsibility
In medium.com Richard Reis offers advice about this issue and says to be skeptical of financial advisors.
There are over 200 (!!) designations for financial advisors (e.g.: “wealth managers”, “investment consultants”, “financial consultants”, etc.)
According to Tricia O. Rothschild (Morningstar’s CPO), there are something like 310,000 financial advisors in the U.S. now!
He makes the point that if you are going to hand over control of your investments to someone you need to trust them. He uses the Bernie Madoff pyramid scam as an example.
But, avoiding a crook is not the only issue. Fees and commissions can kill you. Mr. Reis notes that Mutual Funds commonly do not beat the market even before they charge you money to manage your funds. The big issue with investment advisors is that all too often they are stock brokers in disguise. They take your funds and charge a small fee. Then they churn your account. This means they repeatedly trade stocks. And every transaction makes money for them and reduces your account.