What you should know about your investment adviser

QUESTION: I read your article in The Sunday Gleaner titled "The dos and don'ts of investing" and noted where you said one should find a competent investment professional for help in making investment decisions. I often observe this statement in advice columns, but I am not sure where to find such a person. I am a young person (I am employed) who wants to start investing early, but am not sure what kind of investments to make considering that I have very little to invest. Could you kindly suggest where I could locate such an individual who could help me take the little I have and do some sound investing?

- Alicia

PFA: In my column a week ago, I suggested you engage the services of a dealer firm that offers a portfolio management service to help you manage your investments. I believe it is fair to give you some guidance in selecting, or at least assessing how suitable an adviser is to manage your portfolio.

Selecting a good firm does not in itself guarantee that you will be able to get service you will be happy with. Much depends on the person who manages your funds. You should be able to make your own assessment about the  adviser assigned to your account and should even be able to request a change if you are not satisfied with the quality service you are receiving.

It is important that the adviser is licensed by the Financial Services Commission, and although the securities courses offered locally provide a reasonable base for professionals in the financial services sector, I believe that serious professionals must make the effort to educate themselves and be certified in their chosen field.

A degree is good, but it does not always equip the professional the same way relevant professional training does.

Keep current with market

More knowledgeable persons should be better able to apply the tools required to analyse a client's situation and make suitable decisions. Beyond that, many professional bodies tend to require their members to pursue continuing education and professional development courses. Today's market is not patient with trial and error. Further, today's market is kinder to professionals who are current with market happenings and who are able to analyse these developments.

An experienced professional who has experienced various market conditions and has been able to serve his or her clients well during these is ideal. An experienced adviser with good training as a strong bonus should be equipped to make meaningful first-time decisions, thereby reducing the risk of trial and error.

Your adviser should have a good reputation and a strong track record, particularly in handling situations similar to yours. There is no harm in checking any references given by the adviser, but I would suggest you do your own independent checks, if possible. But bear in mind that many well-recommended persons have turned out not to be so good after all.

It is reasonable that people change jobs to advance their careers, but it can be unsettling for the client who must get used to a new adviser. A well-run company, though, should be equipped to continue giving you a high quality of service. Nonetheless, you may be more comfortable with an adviser who is not known for changing employers frequently.

It is important to know how your adviser is paid. Is it by commission? Is it by a flat fee, or by a fee based on the size of your portfolio? The truth is there is a risk that the decisions made may be influenced by such arrangements, and they may not necessarily be in your best interest.

I am pretty sure you would be more comfortable with a professional who is prepared to put things on paper and one who does not assure you that everything will go well, that you won't suffer any loss on your portfolio.

And while you yourself would not want to make unreasonable demands on the time of a person to whom you want to entrust your money, you would want to know that there is clear evidence that he or she is prepared to give your business reasonable time and attention.

Your financial success depends largely on your finding a competent adviser you can trust but that won't eliminate all the risks. Nevertheless, invest some time and effort in identifying a suitable company and a suitable adviser or fund manager to guide your investment programme.

Oran A. Hall, a member of the Caribbean Financial Planning Association and principal author of "The Handbook of Personal Financial Planning", offers free counsel and advice on personal financial planning. Email: finviser.jm@gmail.com