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Max's Investment World Stock Market Challenge

Doing Due Diligence on Your Financial Consultant

Many investors choose to purchase stocks, bonds, mutual funds, annuities and other assets through brokers, bankers, life insurance agents and others. While investors may carefully think about the types of investments they are purchasing, they often fail to ask the right questions about the person who is advising them on the purchase.

Like all industries, the financial sector has its share of bad apples--people who are not very knowledgeable or are downright deceptive. Here are some key questions to ask the next time you talk to your broker, banker, life insurance agent or other financial consultant:

1. Have you ever been disciplined by any of the stock exchanges, any state or Federal agency or been in an arbitration case? Virtually all brokerage firms make clients sign contracts that forces them to take complaints to arbitration rather than to court. This is often far less costly and time-consuming than litigation.

2. Besides commissions, how else do you make money off my account? Many firms give incentives to their financial consultants, such as vacations, bonuses, "trailing commissions" on mutual funds, etc…

3. What courses or industry seminars have you taken to develop your skills?

4. How many clients do you have?

5. What is your investment philosophy?

6. How long have you been with your current firm and what is your prior experience?

7. Can you give referrals of happy customers?

8. What does your own portfolio consist of?

9. How many stocks do you personally follow?

10. What is the portfolio turnover rate of your clients accounts? Some unscrupulous brokers churn their clients accounts, buying and selling stocks and other assets in order to generate commissions.

Of course asking these questions won't necessarily yield honest answers, but it will begin to give you a feel about what to look for--or what not to look for in a financial consultant.

An excellent resource to consult is the Securities and Exchange Commission's web site: http://www.sec.gov/index.html. There you can find information about what investors should know and look up disciplinary actions against stock brokers and others. You can also call the relevant state regulator, usually the state banking commissioner, which also publishes names of people who are up to no good. The Wall Street Journal regularly publishes the names of firms and individuals who have been disciplined as well.

Bottom line: invest not only in assets but people-know who your advisors are.

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Name Percentage Gain
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