The Finance Blogger

We recently wrote a post about trusting your real estate agent and why sometimes you really have to think about what they are trying to get you to do. Do you trust your investment advisor? In fact you cannot always trust your real estate agent. So we wondered if you can trust your investment adviser? What are their motives and why would they help you. Basically everyone is in it for the money. You really have to watch for recommendations that also put money in the pocket of the investment advisor you are using.

Do You Trust Your Investment Advisor

This post is about investment advisers and whether you should trust them or not. Ninety nine percent can probably be  trusted not to scam you out of your retirement nest egg, however there have been some that are notorious and have run away with or scammed millions from unsuspecting seniors. Fortunately these are not frequent and most people are pretty careful these days to avoid scams like these. But what about the guy who is pushing stocks and collecting commissions?

Every time you talk to him on the phone or visit his office is he making suggestions to sell or buy a stock? Perhaps he feels that your portfolio needs to be better balanced and you should add a few shares or sell a few shares. Either way it is more money for him in terms of commissions! If you have good quality stocks, bonds and mutual funds that are paying interest and dividends, what is wrong with the buy and hold approach.

Advisers are notorious for suggesting that your portfolio should be well balanced to manage risk. While this is true and you really do not want to get significant out of balance in one area of your portfolio, do you need to make adjustments every time there is a slight change? We think not and perhaps an adjustment once a year is more appropriate. If you are into volatile stocks, then buying and selling, generating commissions may be appropriate as long as you are making money. Here are some questions to consider.

Questions to Ask

Have all their recommendations turned out well? Do they get you to trade often? Do they sell a lot of mutual funds to you that are front end loaded with high MER’s? If the answer is yes, maybe they are doing too many trades and collecting too many commissions! On the ridiculous side you can actually use up all of your dividend and interest gains by paying commissions and even your stock gains as well.

Most people are pretty careful, but it is important to think for yourself and not just follow blindly everything that the financial advisor is suggesting. How will you make money after you have paid all of the charges? Can you make a profit quickly? How much risk is there associated with each purchase? Are these safe blue-chip stocks that pay a good dividend? There are a lot of questions and we think that it is always a good idea to develop your own list of questions based on what is important to you and your objectives. Run the stock trade through each of these questions each time you plan to make a trade or your advisor suggests a trade.

Run Away

This is probably one of the best ways to protect yourself and avoid being scammed. If it does not feel right, then just do not do it. There is never any rush, even though they tell you that there will be never an opportunity like this one. If you are getting that story, then you probably should be running the other way!

For more general topics on investments, click here.

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