Kathy Valentine
CFA Institute - North America
434-951-5348
kathy.valentine@cfainstitute.org
Jonathan Mairs
Ogilvy Public Relations - New York
212-880-5353
jonathan.mairs@ogilvypr.com
An Investor's Checklist for Selecting a Professional Financial Advisor
Awareness of Your Individual Needs and Proper Due Diligence Are Essential to Finding the Right Advisor
CHARLOTTESVILLE, Va., USA, APRIL 21, 2004 − With the steady, incremental improvements in the U.S. securities markets witnessed during the past year, individual investors are increasingly returning to the markets. During the first quarter alone, equity mutual fund inflows totaled $88.7 billion, the largest inflows since the first quarter of 2000, according to AMG Data Services. As investors assess their portfolios, many are also seeking professional advice for the first time in hopes of avoiding past missteps or simply in recognition of their increasingly complex needs.
“People who would never think of being a do-it-yourself doctor or do-it-yourself lawyer sometimes think nothing of trying to be a do-it-yourself investment manager,” remarked Bob Bilkie, CFA?, president of Southfield, MI-based Sigma Investment Counselors. “But unless they have the training, time and objectivity to set goals, research individual securities, develop a long-term asset allocation strategy and watch over their investment performance, they are likely to be disappointed with the results.”
To help investors understand their own needs and make more informed decisions when evaluating professional financial advisors, the Association for Investment Management and Research (AIMR), offer the following tips:
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Understand your own investment goals and tolerance for risk.
Investing wisely is a function of your specific needs and goals.
Each investor has different objectives that need to be met
depending on age, income, planned activities and attitudes about risk.
For example, you may be funding college for children, business
expansion, travel plans or retirement needs. You should identify
these goals and needs clearly with an investment advisor so that he or
she can prepare a written statement of investment objectives and
together you can determine a target rate of return and an appropriate
mix of assets to place in your portfolio. See “What Questions
Should I Ask Myself Before Selecting a Financial Advisor?” at www.TrustCFA.org.
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Determine what type of investment advisor best meets your needs.
There are several classes of professional financial advisors,
each with differing levels of training and expertise. A
Registered Representative is a stock broker who has passed basic
requirements allowing him or her to sell securities. Stock
brokers are typically salespeople who are paid a commission for the
trades you make. A Registered Investment Advisor is simply an
individual or firm that is registered with the SEC or the state.
Neither “Registered Representative” nor “Registered Investment
Advisor” are professional certifications. Individuals who hold
the Certified Financial Planners, or CFP credential, are
personal-finance generalists who have passed an examination on
retirement planning, tax planning and reaching financial goals.
Those who hold the Chartered Financial Analyst, or CFA
credential, are investment professionals who have extensive training in
investment analysis, asset valuation and portfolio management.
See “What Type of Financial Advisor is Right for Me?” at www.TrustCFA.org.
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Check the advisor’s qualifications and background. Always
be certain to inquire about an advisor’s professional certifications
and licensing. One can verify this information with the
accrediting institution as well as regulatory agencies at the state and
federal levels. For example, AIMR administers the Chartered
Financial Analyst program. In addition, records including
employment history and past client complaints for a particular advisor
can be obtained by contacting state securities regulators and
requesting such information from the Central Records Depository (“CRD”)
or accessing Form ADV on the SEC website. See “How Can I Check
the Professional Background of a Financial Advisor? At www.TrustCFA.org.
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Thoroughly familiarize yourself with the numbers. Advisors
are compensated differently, typically on the basis of fee, commission,
a combination of fee plus commission or salary. It is important
to find out how an advisor is paid before buying any financial product.
In addition, advisors that are required to register with the SEC
must complete a publicly available document called Form ADV, part II of
which includes specific information on the advisor’s services, fees and
investment strategy. Finally, ask whether the advisor calculates
and presents total fees paid over a given time period and whether
performance figures for that period are adjusted downward to reflect
those fees. See “How Much Does Professional Advice Cost?” at www.TrustCFA.org.
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Stay engaged and manage the relationship. A strong
relationship based on communication and trust is critical to your
long-term investing success. Establish upfront how often you will
meet, what reports the advisor will furnish and how often, as well as
whether the advisor will handle all or a portion of your assets.
In addition, take the time to understand and be comfortable with
the advisor’s investment style, and ask how changing market conditions
might effect the management of your portfolio. Regular feedback
will enable your advisor to incorporate any changes in your needs or
circumstances. See “Managing the Relationship Between You and
Your Advisor” at www.TrustCFA.org.
“Regardless of your overall objectives, there is a process to finding the right financial advisor. Taking the time to recognize your individual goals and understand what best suits your needs is itself a worthwhile investment,” added Bilkie.
To access AIMR’s series “How to Select a Financial Advisor” go to www.TrustCFA.org.
About AIMR:
AIMR is the 70,000-member professional association that
established AIMR Performance Presentation Standards
(AIMR-PPS®) for North American firms in the early 1990s and
led development of their global equivalent, the Global Investment
Performance Standards, in the late 1990s. But AIMR is perhaps best
known as the worldwide administrator of the prestigious Chartered
Financial Analyst® (CFA®) curriculum and
examination program. AIMR’s membership includes 57,000 CFA
charterholders in more than 100 countries, and 129 local professional
societies in 48 countries. Headquartered in Charlottesville,
Virginia, USA, AIMR also has offices in London and Hong Kong.
Note to Editors:
The Chartered Financial Analyst® (CFA®)
program is a globally recognized standard for measuring the knowledge and
commitment of investment professionals. Those who have earned the
CFA charter have completed a rigorous, three-year course of independent
study that includes three sequential, six-hour exams on securities
analysis, financial accounting, quantitative analysis, economics,
portfolio analysis, ethics and professional standards. “Chartered
Financial Analyst®” and “CFA®” are trademarks owned
by the Association of Investment Management and Research.
Therefore, “Chartered Financial Analyst” should always be
capitalized, and both the full name and the letters CFA should be used as
adjectives to quality nouns. It is also appropriate as a
three-letter designation after an individual’s name. Examples:
“James Smith, CFA”; “He holds the Chartered Financial Analyst
designation”; “The Chartered Financial Analyst Program”; “He earned the
CFA charter”; “As a CFA charterholder, he…” The most common misuse
is to refer to an investment professional as “a chartered financial
analyst” or “a CFA .”
Useful Resources for Investors
AIMR’s How to Select a Financial
Advisor:
http://www.cfainstitute.org/investors/choosingafinancialadvisor.html
Investment Adviser Registration
Depository:
http://www.iard.com/reg_directory.asp
North American State Securities Administrators
Association (Investor Tips):
http://www.nasaa.org/nasaa/scripts/prel_display.asp?rcid=152
Certified Financial Planner Board of
Standards:
http://www.cfp.net/default.asp
Institute of Certified Financial Planners/Financial
Planning Association:
http://www.fpanet.org/
National Association of Personal Financial
Advisors:
http://www.napfa.org/
National Futures Association:
http://www.nfa.futures.org/basicnet/
Money Management Institute:
http://www.moneyinstitute.com/