What you should know about investment advisors

Part of being a successful investor, is knowing about the person or firm who is advising you. If you are hiring someone to be an investment advisor, it is just as important to know certain facts about them, as it the investments you are considering. Understanding who your investment advisor is and what they can and cannot do, will ultimately contribute to whether you are successful with your investments. Do not make the mistake of not taking the time to do the needed research. Here is what you should know about investment advisors-

Understand how your investment advisor gets paid-It is crucial that before you hire any sort of financial professional, you should find out specifically how they get paid. This is important whether you are looking at a stockbroker, financial planner, or investment advisor.

You need to keep in mind that how a person gets paid, will ultimately influence what investments they recommend. Most investment advisors, get paid in one of the following ways-

1. They receive a percentage of the value of the assets that they are managing for you.
2. They receive an hourly fee, that they bill for the time they spend working for you.
3. They receive a fee that is fixed.
4. They receive a commission on the investments that they sell.
5. They receive some combination of these payment methods.

It is important to understand that each of these payment methods has both benefits and downfalls. However, this will depend on an individual's needs. It is important to ask any investment advisor, you are considering hiring, to explain the differences to you. This way you can get several different opinions before you do business with them. You should also ask if any of the payment methods are negotiable.

• Understand what different registrations mean-Investment advisors will have to register with the SEC or their state securities agency. This will be dependant on their size, and the state in which they do business. A general rule of thumb is that investment advisors who manage over $25 million dollars in assets, must register with the SEC. For those investment advisors who manage that less then that, they will register with the securities agency, in the state where they are doing business.
• Understand whether the investment advisor you are considering hiring, has a clean record-It is crucial to find out if an investment advisor has had problems, with a government regulator-You will want an investment advisor who has a clean disciplinary history. It is important to know that most investment advisors must fill out a form that is known as "Form ADV". This form must be filed with either their state's securities agency or the SEC. Again, this will depend on the amount of assets that they manage. This form will consist of 2 parts. The first part will contain information about the advisor's investment business. It will also state whether there have been problems with either customers or regulators. The second part of the form will detail the investment advisors, services and fees. It is always important that that you ask for and thoroughly read both parts of Form ADV, before you make a final decision about hiring someone to be your investment advisor. It can also be helpful to contact your state securities regulator to find out whether or not there have been any complaints about this investment advisor. You should also ask them to check with the Central Registration Depository. If the investment advisor is registered with the SEC, you can do a quick search online, for the process of how to check with them. The bottom line is that by taking the time to carefully check out who you are hiring to be your investment advisor will be time well spent.