Last Week’s Question of the Week: Asset allocation refers to the percentage that you keep in your portfolio amongst three asset classes, 1. Stocks, 2. Bonds and 3. __________. Fill in the blank! ANSWER: The third asset class is cash.
HOST: One of the items you spend a lot of time discussing on this show is about having a relationship with a trusted advisor. What is the best way to check up on a prospective advisor or firm?
KLAAS FINANCIAL: Yes, so you should only work with firms and people that you can trust, therefore we think it is VITAL that you get the facts about any firm you invest with, and their brokers/financial advisors that may you may be working with. So, we will be discussing two sides of the investment world that our listeners are likely to be involved with their retirement portfolios, that being the broker/dealer space and that of the investment advising space.
You can always look up a firm under the Better Business Bureau (BBB), and find out the rating which can range from an A+ to an F. But we would suggest that you go further than this.
Every investor in America relies on one thing: fair financial markets. So, when we are discussing the broker/dealer space where investment products are sold for a commission, there are organizations that are working on the investors behalf, the first being FINRA:
FINRA was formed in July 2007 (stands for Financial Industry Regulatory Authority), formerly called NASD (National Association of Securities Dealers) which believes every investor should receive the basic protections they deserve.
- FINRA is dedicated to investor protection and market integrity through effective and efficient regulation of broker-dealers.
- It is a not-for-profit organization authorized by Congress to protect America’s investors by making sure the broker-dealer industry operates fairly and honestly.
- FINRA wants to make sure of the following: anyone who sells a securities product has been tested, qualified and licensed; every securities product advertisement used is truthful, and not misleading; any securities product sold to an investor is suitable for that investor’s needs; and investors receive complete disclosure about the investment product before purchase.
So, we would suggest that one of the first places to look is at www.finra.org. This is where you can look up either a Firm or Broker Check and be able to see your advisors licensing and work history, and any fines, litigation or settlements that may have occurred in their past.
HOST: So, what if your financial advisor is not a broker, and only manages money, where can we get information on them?
KLAAS FINANCIAL: Great question. So, for clarification, an investment adviser is:
“an individual or a firm that is in the business of giving advice about securities to clients. For instance, individuals or firms that receive compensation for giving advice on investing in stocks, bonds, mutual funds, or exchange traded funds are investment advisers. Some investment advisers manage portfolios of securities.”
Since the majority of investment advisors are regulated by the SEC (Securities and Exchange Commission) you can look up their records at the website: www.sec.gov
When you go to this website, on the first page, bottom left you will see a box which has a bugle, it reads “We inform and protect investors.” Click on that box, it will take you to a box which says “protect your money” and it is here that you can check on the name of your investment professional.
Or you can go to another website also hosted by the SEC, www.investor.gov and go to the box “Check out your investment professional”.
HOST: How do you find out whether an investment adviser ever had problems with a government regulator or has a disciplinary history?
KLAAS FINANCIAL: So again, the websites we previously discussed should be able to give you that information. Otherwise, most investment advisers must fill out a form called “Form ADV.”
They must file their Form ADVs with either the SEC or the state securities agency in the state where they have their principal place of business, depending on the amount of assets they manage. Form ADV consists of two parts. Part 1 contains information about the adviser’s business and whether they’ve had problems with regulators or clients. Part 2 outlines the adviser’s services, fees, and strategies. Before you hire someone to be your investment adviser, always ask for, and carefully read, both parts of Form ADV.
Also, the Securities and Exchange Commission just last week announced the launch of an additional online search feature that enables investors to research whether the person trying to sell them investments has a judgment or order entered against them in an enforcement action. The new tool is intended to assist the public in making informed investment decisions and avoiding financial fraud.
The SEC Action Lookup for Individuals – or SALI– will help identify registered and unregistered individuals who have been parties to past SEC enforcement actions and against whom federal courts have entered judgments or the SEC has issued orders.
HOST: What questions should I ask when choosing an investment adviser or financial planner?
KLAAS FINANCIAL: Here are some of the questions you should always ask when hiring any financial professional:
- What experience do you have, especially with people in my circumstances?
- What licenses do you hold? Are you registered with the SEC, a state, or the Financial Industry Regulatory Authority (FINRA)?
- What products and services do you offer?
- How are you paid for your services?
- Have you ever been disciplined by any government regulator for unethical or improper conduct or been sued by a client who was not happy with the work you did?
- For registered investment advisers, will you send me a copy of both parts of your Form ADV?
Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.
