Treating Yourself like an Investment Advisor

If you are managing your own retirement account or your own investment account to develop wealth, you should be acting exactly like a self-employed Investment Advisor.

Are you treating yourself like an investment advisor or like a stock broker?

There is a huge difference between the two, and at least a potential difference in how an investment advisor would manage your portfolio versus how a stock broker would handle it.

According to the SEC (Securities and Exchange Commission), an investment advisor has a fiduciary responsibility to manage the portfolio account for the best results possible regardless of other personal objectives.

In plain English, this means that if you act as an Investment Advisor, YOUR trades should be positioned to always meet the goals and objectives of the account owner (both your accounts and your spouse’s accounts).

A stock broker may or may not be similarly obligated. A stock broker may be more influenced by the research reports churned out by his company.  He may be more interested in selling you what the company recommends or what pays him the best commission.

Financial planners and investment advisors have a legal responsibility to put aside their personal objectives and desires when advising or making trades on your behalf.

Remember financial planners and investment advisors always get paid for managing your portfolio.

Investment advisors earn their money in one of two primary ways:

  1. Commissions – When they place a trade for certain types of mutual funds they receive as much as 6% of the value of the assets associated with the sale; because the commission is usually off the top, your investment is reduced by the 6% before it is even made. They may also receive commissions for stock and ETF funds, and they may receive additional commissions when a position is sold.
  2. Flat Fee – Investment advisors may charge a flat percentage of the value of your portfolio to manage it for you. This fee is usually around 1% to 1.5% on an annual basis. This flat fee ties the investment manager’s performance to the future value of your portfolio. The flat fee is the best option, in my opinion.

As I stated earlier, when acting as your own Investment Advisor, consider and act as if you have a fiduciary obligation to manage your account for the best results regardless of your personal objectives.

Managing your portfolio in a fiduciary manner means the following:

  1. Emotions must be kept in check! Don’t buy and sell because you like or hate Ford’s latest model, or because your wife thinks a certain brand of lipstick stinks. If Wells Fargo is going down and that’s where you do your banking, don’t let your emotional bonds keep you from acting in the best interest of your retirement account.
  2. News reports and broadcasts must be kept in perspective. Those things that made headlines today may be so old in a week that the effects on stocks, industries, ETF’s, or mutual funds may be meaningless, so don’t let the news influence you to buy or sell.
  3. Tips from friends and family are just that. A tip may lead you to do additional research and analysis, but that should be the only direction it leads.

Responsible safe investing and thoughtful management of your portfolio should only be based on solid analysis.

In this way, you take ego and emotion out of the equation, and can base your decisions on what is truly best for you and your portfolio for growth.

Dominick is the designer of the investment program Dynamic Investor Pro, an investment software used by individual investors and professional investment advisors for stocks, ETFs or mutual funds.

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