How To Find Reputable Investment Professionals

Business InvestMost people need a financial advisor to help them make investing decisions. The advice you receive can make a huge difference in the growth of your investment portfolio over time. Investing, however, can cause a great deal of anxiety. In some cases, dishonest financial advisors prey on the emotions of investors. They steal funds from investors by committing fraud. Use this information to find a reputable financial advisor.

You should invest using an exchange

The Securities and Exchange Commission (SEC) monitors the activities of financial advisors. The SEC also oversees the exchanges where securities trade. If you're going to buy or sell a security, you need to understand which exchange the financial advisor is using. Keep these points in mind:

  • Stocks trade primarily through one of two exchanges: the New York Stock Exchange (NYSE) and the NASDAQ. When you place a buy or sell order, you'll receive a trade confirmation. That confirmation usually explains which exchange was used for your transaction.
  • 24option points out that commodities, such as wheat and corn, also trade on exchanges. You can buy investment products based on the value of these commodities.
  • It's important that an exchange is used, because the SEC monitors trading on exchanges. Among other issues, the SEC wants to ensure that investors receive a fair buy or sell price for their securities.

When you're speaking with an advisor, find out which exchanges they will use for your security trade. If the advisor does not use an exchange, that may be a red flag that their activities are not being properly regulated.

Buy securities that are registered

You should use a financial advisor who sells securities that are registered with the SEC. Registered securities are required to provide extensive disclose to investors. Proper disclosure means that an investor (and the financial advisor) can analyze the risks of investing in a particular security. Consider these points:

  • Initial public offering: When a company sells stock to the public for the first time, they often file that stock offering with the SEC. The company must provide extensive information on business operations, financial statements and how they will use the proceeds from issuing stock. The investor receives a prospectus, which contains all of the information.
  • Mutual funds: Millions of investors use mutual funds. A mutual fund is considered an investment security and is also sold using a prospectus. The mutual fund buyer must receive a prospectus, which contains extensive detail about fund costs and past performance.
  • Private placements: Investors can choose to buy securities that are not registered with the SEC. Keep in mind that these securities, called private placements, have far less required disclosure. If a financial advisor recommends a private placement security, make sure and ask questions about the risks of ownership.

The less disclosure an issuer of securities provides, the higher the risk to the investor. Think carefully before purchasing a security that is not registered with the SEC.

Your advisor must be registered

All financial advisors must register with the Financial Industry Regulatory Authority, or FINRA. Your advisor must pass several licensing exams and complete a detailed registration document through FINRA. In addition, all advisors must complete continuing education annually.

FINRA also has a BrokerCheck system. You can use the system to check for any past violations, fines or other penalties imposed on the advisor by FINRA. Advisors are required to perform these tasks for investors:

  • Advisors must complete a new account form. That form contains information about your income, net worth and age.
  • An advisor is required to ask you about your risk tolerance and investing goals. Your answers are recorded in the advisor's records.
  • Advisors are required to give you a prospectus for securities that are registered with the SEC. You also must receive written confirmations of your security trades and monthly investment statements.

Find a financial advisor who complies with all of these requirements. If the advisor meets these requirements, you can be more confident about the advisor and their advice.

If you have any questions, please ask below!