Before you invest or pay for any investment advice, make sure your broker, investment adviser, and their adviser representatives have not had disciplinary problems or been in trouble with regulators or other investors. You should check to see whether they are registered or licensed.
Here are ten rules to follow to decrease the chance of being a victim to an unscrupulous advisor.
1) Agents are not qualified to recommend or screen a financial advisor.
2) The more money the advisor spends on wooing you, know that money has to come from other clients accounts and they will use some of the money you pay them to woo others also.
3) When an investment advisor spends most of their time living the athlete lifestyle, (always at games, partying, playing golf frequently, etc.) he or she is not paying proper attention to your investments.
4) Ask the tough questions first: Watch their body language to see how much they "wiggle & squirm" under questioning. Ask for a copy of their U4/U5/U6, a copy of their personal credit score, their last two employers' names & phone numbers, and the number of their compliance officer.
5) Pay a little extra for an ongoing checks and balances system. Locate a good accounting firm, a local businessman you knew awhile-that is trustworthy, or an attorney to review your investments.
Investment adviser representatives are persons who work for an investment adviser. These people actually do the work with clients. Usually these persons have to be registered or licensed with the securities regulator of your state before doing any business with you. Make sure you check them out first at the securities regulators office of your state.
To find out about an investment adviser and whether they are registered properly, read their registration form which is titled "Form ADV." Form ADV has two parts.
Part 1 has information on their business and if the adviser had any problems with other clients or regulators.
Part 2 describes minimum requirements on a written disclosure statement, commonly called the "½brochure", which advisers are required to provide prospective clients and also to any current clients annually.
In a narrative format, this brochure describes the adviser's fees, business practices, any conflicts of interest, and any information on disciplinary actions. "Always" ask for a copy and carefully read both parts of the Form ADV before you hire any investment adviser.
6) Remember, certification does not mean much. When a financial advisor is certified with the NFLPA, that does not mean they are also "endorsed" by the NFLPA. That's a big difference.
7) Larger firms like Merrill Lynch or Wells Fargo have other stringent compliance rules to abide by and deeper pockets in case the advisor acts wrongfully, than independent advisors. But don't allow them to pack up your portfolio with just their own firm's investments.
8) Follow this rule if you want to swing for the fences in a hot investment; always limit it to 25k to 100k, or just 5% of your funds available to invest.
9) NEVER! Never sign a power of attorney form for your advisor to control. And never place any money in an account which is directly controlled by your investment advisor. You must be the only one who can sign funds in or out of your account.
10) Don't let their client list unduly impress you. Investment advisors have been erroneously judged by actors and professional players who are notoriously bad judges of character. One common characteristic of advisors who went bad is when they targeted athletes solely and had no other professional types to manage funds for.
