How to Get Investment Advice You Can Trust

No matter how much of a do-it-yourself investor you may be, there are times when you'll want to get some investment advice. Yet with all the horror stories of financial professionals whose job seems to be to fleece unsuspecting investors of their hard-earned life savings, you don't want to make the wrong choice and end up with a bad advisor.

So how can you assess whether the person you've picked to give you investment advice isn't trying to take advantage of you? Read on to learn about some things to ask about and some warning signs to watch out for.

1. Measure the pressure in the first meeting.
Most reputable advisors will give you an initial session at no charge in order to exchange information and define the scope of their relationship with you. Many people in your position will use that meeting to try to get as many nuggets of investing wisdom as possible, and then gauge their response based on the information they get.

Instead, though, the best use for that initial meeting is to get a feel for any sales tactics the advisor uses. If you feel pressured to sign an agreement or turn over assets, you shouldn't hesitate to end the meeting, and under no circumstances should you commit to a relationship without taking time after the meeting to think things over. If your advisor resists your decision, that too should make you wonder about the true motivation the advisor has.

2. Consider the investments.
Once you decide to go past the first meeting to put together a formal investing strategy, the next step is to figure out which investments your advisor wants to recommend. First and foremost, if the advisor is reluctant to discuss the particulars of the investments and instead tries to convince you that you should trust that they're good choices, beware -- good advisors understand that they have to earn your trust. Similarly, if an advisor talks down to you, make it clear that you want explanations at your level.

Once you have the ground rules set, look at the investments themselves. Take the time to research them independently, and if they're full of high fees and hidden costs, take your business elsewhere or ask for investments that are better-suited to your needs. In some cases, your advisor will refuse to use no-load mutual funds or low-cost ETFs, pressuring you toward high-fee load funds or other commission-generating products. That's your sign that a continuing relationship will be a waste of time.

3. Get a second opinion.
If you're still not sure whether you should trust the investment advice you get from a particular advisor, another smart thing to do is to ask another professional the same questions. Obviously, you may not be able to trust the second advisor either, but by comparing their styles and motivations, it's often easier to get a feel for which one is more trustworthy.

4. Don't overweight credentials.
Plenty of investment professionals seem to have more letters after their names than they have letters in their names. With myriad organizations more than willing to give out credentials for a fee, you shouldn't automatically assume that someone knows what they're talking about just because they have a professional designation.

That goes even for the more reputable distinctions like the Certified Financial Planner professional designation. It's true that becoming a CFP involves a lengthy process of education and testing, but in the end, a pro is only as good as the knowledge you get as part of your consultations.

5. Trust yourself.
Finally, never let yourself feel pressured to do anything you don't want. Choosing an advisor is an emotional decision as much as a rational one, and you should never hesitate to reject someone on what may seem totally irrational grounds. There are enough pros out there that you'll eventually find the one who'll give you investment advice you can truly trust.

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Read/Post Comments (5) | Recommend This Article (7)

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  • Report this Comment On December 15, 2012, at 10:12 PM, gskinner75006 wrote:

    One should consider using a fee based advisor over a commission based advisor. You really should go in looking for a life plan first and investment ideas second.

  • Report this Comment On December 16, 2012, at 12:19 PM, beetlecat77 wrote:

    Does anyone have experience with Fisher Investments? I have seen their advertising on MF, their fees are based on assets under management, but I was burned several years ago buy a financial advisor that was fee based on assets under management. He put some of me into Countrywide at the same time MF was saying "GET OUT". Kind of lost faith at that point.

  • Report this Comment On December 16, 2012, at 2:04 PM, NickD wrote:

    Mitt Romney knows how to make money hire him.

  • Report this Comment On December 17, 2012, at 1:40 AM, Investor451 wrote:

    @beetlecat77 I'm not impressed with the mailings I've received from FI. Until recently my portfolio wasn't large enough to interest FI. I figure any firm not interested in helping me at 25K doesn't deserve my business @ 50K.

  • Report this Comment On February 15, 2013, at 2:46 PM, mrsulli wrote:

    It seems that Finanacial advisors make the rules and very few base fees etc. on performance.

    They always get theirs no matter what.

    Who made that rule perhaps a con(gress)man.

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