As more Americans seek to venture back into the investing waters, they are doing so with perhaps more hesitancy and caution than in the past. Certainly one of the reasons for this is that the economic collapse taught many that investing in securities markets is not entirely a no-brainer, to say the least. For the previous few decades before trouble struck this last time, things were, for the most part, fairly reliable and productive; now, a person who is growth-oriented in his risk tolerance realizes he cannot simply throw money at any collection of companies out there and expect the kind of almost mindless appreciation that we came to see for so many years.
The other reason for the bit of trepidation is that the economic collapse uncovered a mountain of nefarious dealings on the part of (supposedly) regulated investment professionals throughout the country. We realized that shady con men in the world of investing could be very adept at presenting themselves and their companies in the most sophisticated, sober, and seemingly-trustworthy of lights. It was no longer easy to tell a bad guy from a good guy simply on the basis of a cursory look at who he is or how he worked. Given that, it’s worth a bit of an examination to see what you should be looking for when you think about hiring a financial pro to help with your investing.
Be VERY careful about dealings with advisors who “promise” or “guarantee” returns. It is generally against the law for an advisor to promise or guarantee a return, unless he has in place a hard-and-fast mechanism, vetted by regulatory authorities, to honor such guarantees. The simple reality is that securities markets themselves offer zero assurances of how they will perform in the future, so it is not possible for an advisor to guarantee a rate of return. Beyond that, if you combine this warning with the one mentioned in the previous paragraph, that is a sure sign of trouble; in other words, if you talk to an advisor who not only claims you can earn significantly more than a representative asset class benchmark, but guarantees that high figure…run like the wind.
Always check ‘em out. While conducting a background check on your considered financial professional does not mean that you will come to know everything you should, it’s a good component to include in the evaluation process. Before the Internet age, it was more difficult to learn about historical regulatory issues and other problems a financial advisor might have had, but with the mechanisms available through the online homes of regulatory agencies, you have an easy opportunity to look and see if your guy has had any dust-ups with previous clients or securities authorities. Here are a few places to look:
North American Securities Administrators Association https://www.nasaa.org/about_nasaa/2062.cfm
Financial Industry Regulatory Authority https://www.finra.org/Investors/ToolsCalculators/BrokerCheck/
U.S. Securities and Exchange Commission https://www.sec.gov/investor/brokers.htm
The good news is that it’s generally not as hard to spot a rat as one might think; even if he’s dressed in a silk suit, carries a briefcase, and maintains a luxurious office in a very public place, there are identifiable behaviors and traits that are common to most that make it easy to pick them out. If you are being quoted curiously high returns, promises of same, and/or note that your prospective advisor has had problems in the past, we would suggest that you resist your inclination to give him the benefit of the doubt…and just move on.
James L. Paris and Robert G. Yetman, Jr.
Christian Financial Planner
None of the information contained in the above article is intended to be, nor should be construed as, a solicitation or recommendation to buy or sell any security, or engage in any financial transaction whatsoever. It should be noted that, at any given time, the author(s) may or may not own any of the securities or other financial products mentioned in this column. Furthermore, it is strongly suggested that you seek the advice of an appropriate financial professional before making any changes or implementing any decisions with regard to your personal financial profile.