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Financial Advisors and the Insights of an Investment "Dummy"

Updated on January 11, 2011

As a self-identified investment dummy and someone new to the investment world, I know my own limitations. I would not begin to claim to understand the movements of the market nor how to read between the lines of the bullish and bearish activity.

It is precisely because we investment dummies do not have crystal balls nor the training or licensing in market trading that we rely on the guru otherwise known as the Financial Advisor. This is a crucially important person who supposedly holds this wealth of information and can be the gatekeeper of your portfolio.

You may think that it is the title, the licenses they hold or the abundance of facts floating around in their heads that make them worth their hefty commissions. This is not the case - or at least it shouldn’t be. Their value should be measured by their commitment to maintaining the right kind of background knowledge, enabling them to advise their customers to make the best possible decisions for their portfolio.

But, just because customers should be able to trust the advice of a financial advisor does not mean that it is always wise to do so.

A good financial advisor is worth every penny of their commission. How do you recognize the earmarks of a good financial advisor? Who is going to steer you in the right direction and make your money work for you – as it should do?

I am an investment dummy but here are some of my thoughts about how you might be able to distinguish the pearls from the pellets where financial advisors are concerned.

1. A good financial advisor will know more than you and be willing to share what they know.

This may seem obvious but there are different kinds of financial advisors. Some are really just stockbrokers who wear a financial advisor hat. They are like clerks in a grocery store. All they do is process the transaction because their licensing allows them to do this. They may sit in the chairs of their big offices and have nameplates on the door that say they are a financial advisor but they really don’t know much more about what is really going on in the market than you do. However, when you want something, they are happy to talk with you and process your transactions to get their share of the commissions.

You want someone who does truly know what is going on in the market and will share what they know to help you make the right decisions. This leads to the second idea about what constitutes a good financial advisor.

2. A good financial advisor is dedicated to doing their homework/research.

This is not so that you don’t have to but so that you can discuss what you have discovered with them in an intelligent way. A good financial advisor should keep up with news, know what is going with the companies, what is happening behind the scenes, what is on the horizon and how this will impact their customers. With the commissions and fees they charge, I would not think this is too much to ask.

3. A good financial advisor is objective about the companies.

A piece of good advice that my financial advisor gave to me was not to become too attached to one company. It is tempting to want to invest in a company in which you have a personal interest such as where your father or favorite uncle works, your car manufacturer, the pet food that your animals love, or the makers of what you think is the best shampoo in the world.

In the same way that you can become attached to a company, you can also dislike a company for emotional or irrational reasons not founded in anything that can be quantified such as performance, profitability or their strategic approach.

4. Finally, and related to all of the above, a good financial advisor looks out for your interests – not just the ching-ching of the transaction and their commission.

Obviously, the aim of a financial advisor is to make money and they have to earn a living. But, if they are a true financial advisor, they should see that when their customers win, they win. The more money their customers make, the more money will be re-invested in the long run and both the financial advisor and the investing customer benefit from the transactions.

To ensure that you find a financial advisor who is right for you, it means doing some homework.

Find out about the ethos of the company that they work for.

Find out the fee structure for the transactions.

When you meet with a financial advisor for the first time, do a little research on some companies that you may have thought about investing in. Bring some questions about current trading news – as current as possible – and ask them about it to see how much they keep up on what is going on.

You may feel awkward about quizzing or grilling them but it is your right to do so. In fact, they may not like it. If they try to make you feel stupid or insignificant or that you don’t know what you are talking about, that is your clue to walk away and keep searching. They owe you both the respect of you as a person and of your money. After all, it is your money! Once it is lost through bad advice, you can’t get it back again. So, it is worth taking every step you can to protect yourself in advance.


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    • M Selvey, MSc profile image

      M Selvey, MSc 6 years ago from United Kingdom

      Hi Stock Market,

      Thank you for your comment! I am glad the information was useful. You might get some good information from Lots of resources there to get information about stocks and "advice".

      All the best!


    • profile image

      Stock Market 6 years ago

      very good post, i was really searching for this topic as i wanted this topic to understand completely and it is also very rare in internet that is why it was very difficult to understand

      thank you for sharing this.


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