Q: How do I find out whether an investment adviser ever had problems with a government regulator or has a disciplinary history?
A: Most investment advisers must fill out a form called “Form ADV.” They must file their ADVs with either the SEC or the state securities agency in the state where they have their principal place of business, depending on the amount of assets they manage.
The ADV consists of two parts. Part I contains information about the adviser’s education, business, and whether they’ve had problems with regulators or clients. Part II outlines the adviser’s services, fees, and strategies. Before you hire someone to be your investment adviser, always ask for, and carefully read, both parts of the ADV.
You can get copies of Form ADVs from the investment adviser, your state securities regulator, or the SEC, depending on the size of the adviser. You can find out how to get in touch with your state securities regulator through the North American Securities Administrators Association, Inc.’s Web site or by calling (202) 737-0900. Ask your state securities regulator whether they’ve had any complaints about the adviser, and ask them to check the CRD.
If the SEC registers the investment adviser, you can get the Form ADV at a cost of 24 cents per page (plus tax and postage) from the SEC at
Office of Public Reference
Room 1580
100 F Street, NE
Washington, D.C. 20549-2521
phone: (202) 551-8090
fax: (202) 777-1027
e-mail: publicinfo@sec.gov
Q: Do investment advisers have to register with the U.S. Securities and Exchange Commission?
A: Depending on their size, investment advisers have to register with either the SEC or the state securities agency where they have their principal place of business. For the most part, investment advisers who manage $25 million or more in client assets must register with the SEC. If they manage less than $25 million, they must register with the state securities agency in
Q: How do investment advisers get paid?
A: Before you hire any financial professionalâ€â€whether it’s a stockbroker, a financial planner, or an investment adviserâ€â€you should always find out and make sure you understand how that person gets paid. Investment advisers generally are paid in any of the following ways:
*A percentage of the value of the assets they manage for you;
*An hourly fee for the time they spend working for you;
*A fixed fee;
*A commission on the securities they sell; or
*Some combination of the above.
Each compensation method has potential benefits and possible drawbacks, depending on your individual needs. Ask the investment advisers you interview to explain the differences to you before you do business with them, and get several opinions before making your decision.
Q: What questions should I ask when choosing an investment adviser or financial planner?
A: Here are some of the questions you should always ask when hiring any financial professional:
*What experience do you have, especially with people in my circumstances?
*Where did you go to school? What is your recent employment history?
*What licenses do you hold? Are you registered with the SEC, a state, or the NASD?
*What products and services do you offer?
*Can you only recommend a limited number of products or services to me? If so, why?
*How are you paid for your services? What is your usual hourly rate, flat fee, or commission?
*Have you ever been disciplined by any government regulator for unethical or improper conduct or been sued by a client who was not happy with the work you did?
*For registered investment advisers, will you send me a copy of both parts of your Form ADV?
Be sure to meet potential advisers “face to face” to make sure you get along. And remember: there are many types of individuals who can help you develop a personal financial plan and manage your hard–earned money. The most important thing is that you know your financial goals, have a plan in place, and check out the professional you chose with your securities regulator.
Q: What is the difference between an investment adviser and a financial planner?
A: Most financial planners are investment advisers, but not all investment advisers are financial planners. Some financial planners assess every aspect of your financial lifeâ€â€including saving, investments, insurance, taxes, retirement, and estate planningâ€â€and help you develop a detailed strategy or financial plan for meeting all your financial goals.
Others call themselves financial planners, but they may only be able to recommend that you invest in a narrow range of products, and sometimes products that aren’t securities.
Before you hire any financial professional, you should know exactly what services you need, what services the professional can deliver, any limitations on what they can recommend, what services you’re paying for, how much those services cost, and how the adviser or planner gets paid.