How to Choose an Investment Firm

Choose your investment firm based on performance.

Your investment portfolio will impact your quality of life when you retire. This is the primary reason that many people use investment professionals to help navigate to their financial goals. Choosing a financial professional involves more than just liking someone. Don't be overly impressed by smooth sales pitches and a fancy office. Stick with the basics by matching investment objectives, tracking performance and building trust over time. Finally, don't be afraid to ask tough questions. It's your life savings, after all.

Instructions

1. Definitively assess the type of lifestyle you want when you retire. Calculate how much money you need to live on and include discretionary expenses like vacations, family visits and hobbies. Determine any shortfalls in income prior to meeting any investment firm.

2. Determine your investment risk tolerance. For example, if you invest $10,000 and you lose $2,000 over the short term, but continue investing believing the investment will rebound, you may have a more aggressive risk tolerance.

3. Build an investment firm candidate list by selecting candidates from respected associations and national planner organizations like the National Association of Personal Financial Advisors.

4. Research each firm's standing and reputation with your state's department of financial institutions.

5. Conduct interviews with your investment firms. Ask tough questions like, "How will I pay for your services?" or, "Can anyone besides me benefit from your recommendations?"

6. Ask for references of existing clients. Adapt their experiences to your risk tolerance and investment objectives to see if there is a match.

Tips & Warnings

• Focus on the investment people rather than the companies.

• Each reference will be customized to the client based on her income, risk tolerance and time horizon. Therefore, make sure you seek references from similar clients to increase the utility of the information.

References

• Washington State Department of Financial Institutions: Choosing an Investment Professional...
• U.S. Securities and Exchange Commission: How to Pick a Financial Professional
• University of Wisconsin: How to Choose a Financial Planner
• Axial Market; How to Choose an Investment Banker; Michael Gasparro; July 2010

Resources

• "The Wall Street Journal": How to Choose a Financial Planner
• "U.S. News Money"; How to Choose a Financial Adviser; Philip Moeller; August 2009
• National Association of Personal Financial Advisors: Homepage