Good vs Bad Investment Advice

How do know the difference between GOOD and BAD advice?

The first place you can start is by knowing from where and how the “advice giver” is getting paid. Ask if the “advice giver” is a “Registered Representative” or “Licensed Sales person”.  These individuals have to comply with what’s called “the suitability standard”.

If the product is suitable, they can’t be held liable for selling it to you.   Buyer beware-if there’s a better product or solution, they’re not required by this standard to tell you about it.   (This doesn’t mean there are no trustworthy registered reps/insurance salespeople;  it means buyer beware.)  Commissions are paid to these individuals to sell.   It can be hard to know if advice is in your best interest or the “advice-giver”.

“The fiduciary standard” is what Investment Adviser Representatives and Registered Investment Advisory firms are held to.  The standard here says you should get the best advice possible.  YOU pay these individuals with fully disclosured hourly payments or a small percentage (typically around 1%) of your investment portfolio on an annual basis.

The next thing is to ask if the “advice-giver” is taking his/her own advice. Enough said.

Last, referrals and/or endorsements from “advice-giver” clients and financial institutions (like a Credit Union) are always good too.

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