5 Steps for Selecting an Investment Pro

The investment professional (or team of professionals) you decide to work with will depend largely on your investing goals and the types of products and service that can help you meet those goals. Your financial needs, and so the professionals you work with, are likely to change over your lifetime. The amount of money you have to invest and your investing priorities also will likely change.

What doesn't change, though, is the best way to find help. Here are 5 key steps for choosing financial professionals:

  1. Identify your financial needs, starting with your goals.
  2. Understand the different types of people or firms you could work with, and what each can (and cannot) offer.
  3. Search for possible candidates, asking the questions we list below.
  4. Check the work background and disciplinary history of your finalists.
  5. Make sure you read and understand any paperwork you’re asked to fill out or sign.

Searching for Possible Candidates

One place to start is by talking with your friends, neighbors, relatives, and colleagues—especially those who have some experience as individual investors. Here’s what to ask:

  • What are the names of the investment professionals you have used?
  • How long have you done business with those individuals?
  • How much or how little have you relied on their advice?
  • Have you ever had a problem with that professional? And, if so, how well and how quickly was the matter resolved?
  • How often does your investment professional contact you? Different people like to interact in different ways and on different schedules, so this question can help you assess whether the relationship would work for you.

If you do not know anyone who could recommend an investment professional, find out whether your employer, trade organization or labor union, or local consumer or investment groups can provide referrals. Regulators might also be a helpful resource, although they often cannot recommend firms or individuals. For example, if you are looking for a securities broker, FINRA has a list of firms we regulate —or if you are looking for an accountant, your state's Board of Accountancy might be able to help.

Questions to Ask Your Candidates

When you interview investment professionals, here are some questions you'll want to ask:

  • What experience do you have working people who are like me?
  • What licenses do you currently hold? Are you registered with a state, the SEC, or FINRA? If so, in what capacity?
  • What relevant professional designations do you hold?
  • Do you have any special areas of expertise?
  • How long have you been with your current firm? Where did you work before?
  • What investment products and services do you recommend to your clients? Why?
  • Are there any products or services you don't recommend? Why?
  • How much will I have to pay for your services? What is your usual hourly rate, flat fee, or commission?
  • Are you compensated any other way for handling my account? If so, how and how much?
  • Do you or your firm impose any minimum account balances? If so, what are they? And what happens if my portfolio falls below the minimum?
  • How frequently will we meet to discuss my portfolio and the progress we are making toward my investment goals?
  • How will you communicate investment performance results to me?
  • For brokerage firms, is your firm a member of SIPC?
  • Who else in your office will handle my account?
  • Have you or your firm ever been disciplined by the SEC, FINRA, a state securities regulator, or another federal or state financial regulator?
  • Have you ever had a professional license revoked?

You might also want to ask whether the professional will provide a list of clients you can contact as references. However, the professional is not required to do so, and there may be company policies about privacy issues that prevent him or her from sharing this information.

Remember, too, that in an interview both people normally want to know something about the other. You should be prepared to answer some or all of these questions:

  • How much money do you have in savings and investment accounts? Where is that money—in the bank, in mutual funds, individual securities?
  • How much do you plan to add to these accounts each year?
  • Do you have specific financial goals?
  • Do your goals have specific time frames?
  • How much investment risk are you comfortable taking?
  • What other investment professionals are you working with?
  • Do you have life insurance? How much?

At the initial interview, obtain a copy of the account agreement, fee structure, and any other documents you would be asked to sign if you were to open an account. That way, you can take the paperwork home to read carefully at your own pace, and make comparisons if you are considering investment professionals at several firms. If the prospective professional pushes you too hard to open an account on the spot, this might be an indication that he or she will be overly aggressive in pushing you toward certain investment decisions in the future.

Check Your Pro’s Background

Be sure to check out your final candidates before you do business with them. BrokerCheck should be your first stop—especially for brokers and investment advisers. You’ll also want to do a general Internet search for the person and his or her firm. To learn more about any credentials or designations the person holds, use our Professional Designations database.

Read Before You Sign

While some investment relationships require a signed agreement between you and the person or firm you're working with, many do not. If you are asked to sign something, read it carefully and ask questions about anything you don't understand before you sign. If you are in doubt about any part of the document, ask your lawyer to review it first. For example, most brokerage accounts require you to agree in writing that any disputes with the firm will be handled by arbitration rather than litigation.