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It’s worth doing homework when selecting an investment advisor

Some people put as little time and research into choosing an investment advisor as a dry cleaner. But unless you want to get taken — to the cleaners — it’s worth doing your homework and asking plenty of questions before settling on an investment advisor.

“Number one, the broker or investment advisor should share a similar philosophy to the investor,” said Arty Finkelberg, senior vice president of investment for A.G. Edwards in Jackson. “There are people in my business who are very aggressive, and people who are very conservative. What an investor looks for is someone who shares a similar philosophy.”

Finkelberg said good chemistry between the planner and investor is also important.

“Without the correct chemistry, you aren’t going to get a good match,” he said. “There should be a certain chemistry because communication is a very important part of the financial planning process.”

He also advises checking the educational background of the financial planner. See whether the advisor has gone to the extra effort to become a Certified Financial Planner or a Chartered Financial Consultant.

“This is a rapidly changing business, so people who stay current in this business have a certain edge,” Finkelberg said. “Experience is very important. It’s hard for someone who is new to this business to see the market and investments from all sides. I think that only comes from experience.”

Logan B. Phillips Jr., senior vice president at Morgan Keegan & Co. in Jackson, agrees that experience and compatibility are important.

“Be sure that the philosophy of the investment advisors meet your criteria, that you think alike,” Phillips said. “It is good to ask for referrals. One of the best ways to select an investment advisor is to talk to someone else who has used a person or persons.”

Phillips said that judging a financial advisor by performance of the investments selected by the advisor might not be the best route to take. For example, if a client is very, very averse to risk, performance is not going to be great.

“You need to look at performance versus a client’s objectives and risk parameters,” Phillips said. “As long as those two match, the investment advisor is delivering along the client’s objectives.”

Investors should look for advisors who have realistic expectations and emphasize lower-risk investments, said Dan Daily, an investment representative with Edward Jones & Co. in Vicksburg.

“I would look for someone who, when they explained the investment, didn’t promise you too high of a return,” Daily said. “Some of the returns which are being advertised are unrealistic. It is important to know what you are investing in. People need to find a financial advisor who understands the risks, and is able to develop a good plan with the person’s risk tolerance in mind.”

Daily thinks it is a good idea to deal face-to-face with an advisor. He said most people feel more comfortable dealing with a financial advisor in their hometown, someone the investor can develop a long-term relationship with.

“Most of my clients like to be able to look me in the eye,” Daily said. “I’m the same way. I would be leery of the phone calls you get from out of state promising tremendous returns on investments. I don’t personally know any people who got rich quick. All of my clients got rich by investing slowly in high-quality investments over the long term.

“Magazines and newspapers are advertising tremendously high rates of returns. People are wanting to believe it is possible to make 30% to 40% consistently, and they aren’t understanding the full risk of what they are investing in. They need to hear the rest of the story about what they are putting their money into.”

Daily said a bad sign is an advisor who recommends buying and selling a lot, and who calls frequently with the latest hot stock tip. “I think a buy and hold strategy over the long term is best for 99% of people,” he said.

Laura S. Brown, vice president and branch manager for Charles Schwab & Company Inc. in Jackson, said their company is set up in a way that puts the investment advisor on the same side of the table as the client. Schwab investment advisors are paid a percentage of assets under management versus a commission on the actual trade.

“We feel like there is a conflict of interest when you implement a financial plan through brokeraged, commissioned products,” Brown said. “We are all set up on salary, and so we have a totally different look at how we do business.

“We will sit down with a customer and do an asset allocation model, then implement it using no-load mutual funds they select. Or we can provide research reports and let them decide which individual stocks to buy. We give them tools to help them decide.”

Brown said Schwab’s research on individual companies and mutual funds is available mostly free of charge. Through a Schwab Web site, customers can look up their stock or mutual fund balance, place orders and read about different companies.

Brown recommended that investors only do business with advisors who are registered.

In Mississippi, call the Secretary of State’s office at 1-800-804-6364 to determine if an advisor is registered to sell stocks and bonds in the state.

“If you have any doubts about a proposal or company, or just a question in general, for starters call us and make sure the person is registered with our office,” said Secretary of State Eric Clark. “And then if you have suspicions about someone’s behavior, we will be glad to investigate it.”

Clark said if a deal sounds too good to be true, it probably is. “Obviously that is a clich


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