In an earlier article, I mentioned that the website of the U. S. Securities and Exchange Commission was a great place to go for information on investments.
The SEC has a brochure that will be very helpful when choosing a financial advisor, as well as questions to ask about investment products and how to handle problems if they arise. The brochure is Ask Questions: Questions You Should Ask About Your Investments…and What To Do If You Run Into Problems.
The SEC’s list of questions is more comprehensive than mine, so I’m including it (with minimal editing and with a comment or two) below. Keep in mind that not all questions will fit all situations.
- Are you registered with our state securities regulator? (Note: you can find your state securities regulator from the North American Securities Administrators Association).
- Have you ever been disciplined by the SEC, a state regulator, or other organization (e.g., FINRA or a stock exchange)?
- How long has your firm been in business?
- How many arbitration awards have been filed against your firm?
- What training and experience do you have?
- How long have you been in the business?
- What other firms have you been registered with? What is the status of those firms today?
- Have you personally been involved in any arbitration cases? What happened?
- What is your investment philosophy?
- Describe your typical client. Can you provide me with some names and phone numbers of your long-term clients?
- How do you get paid? By commission? Amount of assets you manage? Another method?
- Do I have any choices about how I pay you? (e.g., by the transaction or flat fee)
- Do you make more money if I buy this investment rather than another? If you weren’t making extra money, would your recommendation be the same?
- Are you participating in a sales contest? If they respond that they are, ask them if the purchase is really in your best interest, or if they are simply trying to win the contest.
- After they have told you how much the investment will cost, ask them how much you would get if you sold it that day.
- Where do you send my order to be executed? Can we get a better price if we send it to another market?
The list even contains two questions to ask if your advisor changes firms:
- Did they pay you to change firms?
- Do you get anything for bringing me along?
The above lists are only questions to ask your broker or advisor. There is a longer list of questions to ask about investment products, including mutual funds, and a shorter list of questions to ask about the progress of your investments. Finally there is a section with advice on how to handle problems.
The SEC and our state securities regulators can help keep us out of trouble. We should take advantage of their information and assistance.