Who do you trust when it comes to managing and investing your money? "Who do you trust?" (the title of the 1950s Johnny Carson game show) is no laughing matter when it comes to finding an investment advisor who has your best interests in mind.
Individual trust is granted to those we believe are motivated to act in our best interests, but obtaining this level of confidence with a potential advisor, in a short period of time, is not an easy task.
Over the past year, it’s become even more difficult to know who to trust due to recent investment scandals that tested investor confidence in the brokerage and mutual fund industries.
So, it’s not surprising that new clients seeking an investment advisor now wonder how they can weave through a potential quagmire of options and find a trustworthy match for their needs.
The source of complication for investors is that they tend to focus more on the manager and less on themselves. How can you be confident an advisor is acting in your best interests if you aren’t certain as to what constitutes your best interests?
This process can be challenging and time-consuming, but the potential benefit is worth the effort. A trustworthy advisor will help guide you through this process by establishing detailed investment guidelines that can be used to monitor investment activities.
The burden to find out if your interests are in sync with a potential firm shouldn’t be the burden of the client. If a firm is evasive and doesn’t explain in full the answers to your questions, consider it a red flag.
The following are questions we would ask if we were looking for an advisor:
* Why is it in my best interest to work with you? The answer should never be solely higher returns.
* What makes you qualified to provide me with investment services? You should look for a team of credentialed investment and administrative professionals that focus on specific roles. Investment managers who spend the majority of their time selling may not be providing you with the optimal level of service. The team concept provides the client with assurance that whether in the investment or administrative aspects of service, both will be appropriately monitored.
* What references do you have that can vouch for your trustworthiness? Trust isn’t developed overnight. What makes the firm trustworthy on a consistent basis? You want to work with a firm that is forthcoming, offers full disclosure and is more than willing for you to contact their clients.
* How does the advisor manage the conflict of self-interest? You’ll learn a lot if you phrase one important question the right way. Clients typically ask, "What are your fees?" However, they should be asking, "How do you get paid, and how much?" When you ask this question, you’ll find out if your interests are aligned.
When all is said and done, when you get to the bottom line, when you’ve gleaned as much information as you can, you’ll make the final decision with your heart.
True understanding is a building block for comfort, which is the precursor of trust.
Greg Hansen is assistant vice president of Investment Services at First Business Bank, Milwaukee. He can be reached at (262) 792-7191 or ghansen@fbtrustinvest.com.
June 11, 2004 Small Business Times, Milwaukee, WI
