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$100 Gift Card Signup OfferWhen asked what the most important factor is when choosing a financial planner, the majority of those who responded listed trust as the overriding characteristic. But how do you judge trustworthiness? Some financial service firms might present their experience and assets under management to convey their commitment to building trust with potential clients. But long histories, and billion-dollar portfolios do not necessarily translate into a trustworthy relationship.
Recent scandals in the mutual fund industry exposed some illegal and unethical practices that were going on behind the scenes at some of the biggest and oldest financial services firms in the country. While some of these firms righted their wrongs, the lingering effects of the scandal still lead many investors to ask, “Who can I trust with my money?”
When evaluating financial institutions, such as insurance companies and mutual funds, there are several questions that can help determine whether the firm is worthy of your trust:
How do they communicate to clients? Firms that discuss successes and failures, good performance as well as poor performance, understand that open and honest communication is one of the foundations for developing a trustworthy relationship.
Do they have policies in place that restrict market timing and rapid trading that can disrupt portfolio management and increase fund costs? In light of the recent fund industry scandals, many mutual fund firms have added policies in their prospectuses limiting the practices of market timing and rapid trading. Look for these policies in fund prospectuses.
How long have their money managers been in the business? The answer will give you an idea of whether the managers have survived a full market cycle.
What was their money manager’s reaction to a market crash? Did they stick by their investment philosophy, or did they follow the crowds and sell?
Remember too, that getting a second opinion often helps you make the best decision for your own personal situation. That is one of the roles your financial advisor should play.
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