Tuesday, June 9, 2009

Part I -How to Find a Financial Adviser - Investing

Types of Investment Advisers

Recently I asked a group of very bright women in what subjects they were most interested in their financial lives, and one question was "how to find a financial adviser."

When thinking about that subject, that simple question became a very complex answer, so we'll discuss this in the form of a series of articles.

Personal finance is generally split into categories that include:
  • Budgeting and Spending
  • Risk Management (Insurance)
  • Investing (capital markets and real estate)
  • Estate Planning (wills and trusts)
  • Tax Planning

We'll start with Investing, since that's the category most women equate with having "Financial Advisers." There are many types of financial advisers available for investors, and the first way to narrow down that huge number is to ask, "How much work do YOU want to do?"

Do you want a person to manage the entire process for you? That person will be very different from (and charge much more than) a person who just buys and sells what you tell them to.

1. Full Investment Management

This person will

  • Determine your financial goals
  • Determine your tolerance for risk
  • Suggest a portfolio that reflects both your goals and risk tolerance
  • Suggest when it is appropriate to reconfigure your portfolio
  • Periodically review your progress and answer any questions you may have.

Examples of this type of manager include advisers with Investment Bankers such as Goldman Sachs, JP Morgan and Raymond James.

2. Discount Broker

A person will be available for you to ask periodic questions, but research assistance is provided primarily through source material for you to use independently. Investors who are best candidates for this type of service will know

  • The type of investor she is (growth, value, modern portfolio theorist)
  • The level of risk she can tolerate (maximum level of price fluctuation she will accept before being tempted to sell)
  • Both when to buy and when to sell an investment, and how to best replace it when selling

Examples of this type of service are Fidelity and Charles Schwab.

3. Deep Discount Broker

Assistance is provided in the form of research material, but no advice is given. Investors best suited for this type of broker are experienced investors, generally those with at least ten years' experience in investing for themselves and make all their own decisions. Some clients of deep discount brokers will employ a "Fee Only" financial planner every year of so to review her portfolio.

Examples of deep discount brokers are Scottrade and eTrade.

Now that you have made a categorical decision about the type of advisor you may wish you employ, we will discuss the level of training you can likely expect and some questions to ask that advisor before employing her in our next installment.

Please feel free to comment and share your experiences, and we do encourage you to subscribe to this blog as well.

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