Is it important to check the professional history of my investment advisor?

By Investopedia Staff AAA
A:

Absolutely! Just as finding a good mechanic will help keep your car running smoothly, finding a good broker or financial advisor can help keep your portfolio in good shape. On the flip side, just as a bad mechanic can wreck your car, a bad brokerage firm, investment advisor, or broker can make your portfolio perform even worse than what's reasonably expected. For this reason, it's crucial that you do your homework on your broker as well as your investments.

Unlike investments, for which past performance may not necessarily be a good indicator of future performance, a broker and brokerage can be judged by their past records of performance. And the quality of brokers' and firms' past performance does not depend on their profitability, but on how they treated their past customers, how many and what types of grievances against them were filed with the SEC and NASD, and how these grievances were resolved. All of this information can be found for free on the NASD website under its regulation toolbar or on the Investment Advisor Public Disclosure website, created by the SEC. If you can't find enough information from these two sources, you can also contact your state regulator, who will have other sources of helpful documentation.

Although a broker's poor track record may not automatically mean poor service, there is always the possibility that he or she will repeat the same actions, so be careful. Conversely, when you come across companies or individuals that have resolved issues in a fair and professional manner or don't have many complaints against them, chances are good that these professionals are trustworthy.

However, just as there are things a mechanic can't control, some factors affecting your portfolio are out of the hands of your brokerage firm, investment advisor or broker. If you buy a car with a bad track record, either because you didn't do your research or you wanted to take your chances, a mechanic can only do so much to keep it running. The same goes for your portfolio: if you fill it with stocks whose quality you didn't evaluate, a broker or brokerage firm will be able to do only so much to help you.

RELATED FAQS

  1. What's the difference between binary options and day trading?

    Binary options and day trading are both ways to make (or lose) money in the financial markets, but they are different animals. ...
  2. If a LEAP option is purchased and held for more than 12 months, is the tax treatment ...

    A LEAP (long-term equity anticipation security) is a call or put option that allows the buyer a long-term expiration on the ...
  3. Where can I purchase options?

    In the United States, all options contracts go through one of several options exchanges. An investor must have an account ...
  4. How can I invest in a foreign exchange market?

    The foreign exchange market, also called the currency market or forex (FX), is the world's largest financial market, accounting ...
RELATED TERMS
  1. Robo-advisor (robo-adviser)

    Definition of Robo Financial Advisers
  2. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank ...
  3. Short Put

    A type of strategy regarding a put option, which is a contract ...
  4. Wingspread

    To maximize potential returns for certain levels of risk (while ...
  5. Volatility Smile

    A u-shaped pattern that develops when an option’s implied volatility ...
  6. Nadex

    Nadex stands for the North American Derivatives Exchange, a regulated ...
comments powered by Disqus
Related Articles
  1. Fee-Only Financial Advisers: What You ...
    Investing Basics

    Fee-Only Financial Advisers: What You ...

  2. I Want Christmas To Be Debt-Free
    Budgeting

    I Want Christmas To Be Debt-Free

  3. The Top Technical Indicators For Options ...
    Options & Futures

    The Top Technical Indicators For Options ...

  4. 7 Steps To Evaluate A Financial Adviser
    Investing Basics

    7 Steps To Evaluate A Financial Adviser

  5. Are Your Children Destroying Your Retirement?
    Retirement

    Are Your Children Destroying Your Retirement?

Trading Center