There are many things you cannot control; choosing the right investment
professional is not one of them. If you are considering hiring an investment
professional, such as a broker or financial advisor, you need to take
the time to look into his or her background. You are going to be putting
your trust into this person and you need to ensure that your best interests
will be looked out for.
Even if your friend or family member recommended the investment professional
to you, you still need to do your research. There are a lot of great resources
available that are easy to use, which will provide valuable insight into
a broker or financial advisor’s background and record.
How to Find Information About a Broker or Brokerage Firm
Financial Industry Regulatory Authority (FINRA) has a free tool that gives investors the capability to look up
brokers and brokerage firms. This program, known as
BrokerCheck, provides access to the Central Registration Depository (CRD) database.
Through BrokerCheck, you can look up information about most brokers and
their firms. You can view records of previous complaints or regulatory
actions. If a broker is reluctant to provide you with his or her CRD number,
that should be a red flag and an indication that you might want to think
twice about hiring this person.
How to Find Information About a Financial Advisor
Some investment advisors will also show up in the CRD database, because
they are registered as a broker-dealer or associated with one. Investment
advisors are required to register with either the
Securities and Exchange Commission (SEC) or a state securities regulator, which is dependent on the amount
of client assets they manage. As you begin checking out a financial advisor,
you should request his or her Form ADV. This form contains details about
the firm’s business and whether there have been past problems with
regulators or clients. Form ADV will also describe the broker’s
services, fees and investment strategies.
Choosing the Right Financial Advisor to Avoid a Ponzi Scheme
Ask friends and family. There's a good chance that someone you know is working with an excellent
advisor. Ask around, and keep a list of possible leads.
Meet in person. You can learn a lot about a person when you meet face to face. Get to
know the potential advisor's core values, investing style, and respect
for risk tolerance.
Check up on your potential advisor. Start with the Financial Planning Association, the Certified Financial
Planner Board of Standards, and the National Association of Personal Financial
Advisors. Follow the advice we give above on how to find information.
Look for hidden fees. Understand how (and how much) your financial advisor will be paid. Ask
about additional fees and how they might apply to your circumstances.
Understand the role of the custodian and the manager of your money. A custodian holds your investment account and sends statements. A manager
actually executes transactions. It makes sense, then, that securities
fraud happens when the same person is both your manager and custodian.
Make sure you know who is who.
What To Do If There Is a Problem
Even after doing due diligence in the selection of an investment professional,
problems can still arise. Sometimes brokers and financial advisors act
negligently, which can lead to their investor clients’ financial
loss. If you have lost money due to broker misconduct or investment fraud,
an experienced broker fraud lawyer at Meyer Wilson may be able to help you.