In the modern era of the financial markets, specifically since the Reaganomics time in the 1980's when money became easy, the banking industry grew faster (except for Technology) than any other industry. The growth of the banking industry led to legislation to de-regulate the Glass-Steagall Act to allow banks, insurance companies, and investment banks to merge. This has been the top of mind or all of those on Capital Hill to determine what is best for the financial markets.
While all of this was going on, the financial media does not talk much about how much the financial advice industry has boomed. In today's era, everyone is giving financial advice (and making a ton of money doing it) from branch banks, insurance representatives, advisors in discount brokerage houses, large investment banks, registered reps in the accounting field, and many others. This means that you can leave your house to go to the grocery store and chances are you've passed at least five different places to get financial advice and park your investments.
What this means is that the loose regulations has allows just about anyone to obtain a Series 7 and Series 66 Licenses (Investment Securities Licenses necessary in order to legally get compensated) in order to make money offering one's expertise.
Here's the catch! It's not so much how much experience (however, it's very important) the financial advisor has and how successful he/she is, it's what the framework of the "business model" is as to where this advisor is giving you advice.
Remember this: The financial advisor that you speak or meet with face-to-face giving you the advice is spending most of their time selling to obtain commissions or recurring revenues. This means that there may likely be a centralized model that has been designed and they are just executing on the model for sales purposes.
The questions that need to be asked are as follows:
1) What are all the different investments that you offer to clients (irregardless of compensation)?
2) How much do you get paid (absolute amount and/or % of assets) regarding the different offerings at your firm?
3) If you are confined to only certain types of investments for clients to invest in, why is this the case and please provide the detailed research as to why you made this choices? What are the relationships between these investment choices? Are the proprietary or third-party? Please explain the details on differences of compensation.
***This parts gets tricky because if you receive the data from the financial advisor, most of you will not understand what it means. You will need to consult with a "trusted" expert that understand this information and they can help you make sense of it.
4) If you leave the company, who will be handling my assets? (This question is important because if they answer the question with ease, that means you are a tiny part of a big system. You need to be aware of this if you want a long-term personalized relationships.)
These are just some of the questions to consider, however, I don't want to provide too much information all in one published article.
Always keep in mind that the business model of the place you invest in is the most important indicator of your long term experience. ALWAYS do your homework and find an independent person you trust to help answer your questions. It's a complicated financial marketplace so it's always nice to have someone simply it for you.
Take care and Avenge-
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