in How and What

Tools You Can Use to Avoid Problems With Your Investment Advisor

Most people tend to think of investment advisors as a wealthy lot that does not have personal or financial problems. Actually, after the 2008 financial crisis, many have fallen on hard times just like many other individuals who got caught up in the sweeping tide of financial losses that followed. If you have a broker or investment advisor who is directing your account, it may be time to check on their records and avoid problems with your investment advisor. Chances are nobody else will.

Employers typically pull up the credit report of potential hires in an effort to try to spot possible danger signs, as these are people who will be entrusted with money from their clients.

However, once hired, brokers only have to fill out an annual questionnaire detailing their personal financial situation and certify that the information is true, then the questionnaire is filed with the Financial Industry Regulatory Authority (FINRA).

Investment advisors who have serious financial problems, such as foreclosures, judgments, or bankruptcies, may not be that forthcoming in order to protect their jobs or reputations, while some may even lie.

Why would your investment advisor’s personal situation matter to you, the investor? Assets under management by major brokerage firms have fallen by 25% since 2008, and smaller firms may be under even more dire predicaments, thereby seriously crimping their incomes.

Brokers under financial duress may be tempted to augment their income by engaging in possibly fraudulent practices, such as churning, which produces extra commissions and raises your expenses.

Tools You Can Use

  • The Central Registration Depository (CRD): This computerized database contains relevant information about investment advisors as well as their employers. Disciplinary actions and customer complaints are all reported. CRD can be accessed through the FINRA website or your state securities regulators. In some instances, state securities regulators may even have more detailed information than FINRA, since legal actions against investment advisors may originate at the state level.
  • Investment Advisor Public Disclosure (IAPD): Form ADV contains two equally important parts, so read them both.
  • Advisor Check: This website includes reports from the Better Business Bureau, where complaints may be filed. Another option is the fairly new FA Beetle.
  • Social Media: In this day and age of online socializing, angry investors may vent their frustration in this forum.

Very few employers of investment advisors conduct full annual reviews of their employees, with Raymond James Financial Services among the few exceptions. Therefore, it is incumbent upon you, the individual investor, to conduct your own annual reviews, thus avoid problems.

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