Why do I need an investment advisor and how to choose one

Who are investment Advisors?

Investment advisors are professional participants in the securities market who have the right to give advice to private investors and are obliged to be responsible for these tips.

Investment Advisors help a person decide which securities to buy, in what quantity, when exactly and for how long. They predict the likely return on investment and warn of possible risks.

An investment adviser can be a company or an individual entrepreneur (IE). If a person or company is not on this list, then they have no right to give people individual investment recommendations.

It is important to distinguish between investment advisors and financial advisors. Financial consultants are contacted on issues related to personal budget management. For example, they will help to make a financial plan for a family, find the most profitable bank deposit or loan, choose an investment life insurance policy or a pension plan to save for an additional pension. But they do not have the right to give individual investment recommendations.

Investment advisors can also advise you on various financial issues, but by law they are responsible only for recommendations that relate to investments in securities — stocks, bonds, mutual fund units, as well as derivative financial instruments (PFI) — futures and options. So, before following their other advice, it is worth carefully assessing the consequences.

How much will the services of an investment adviser cost?

Large brokerage companies and trust managers often advise for a small percentage (0.1–0.2% of the investment amount) or even for free. But on condition that you open an account with them and put a certain amount on it. This is how they attract new customers. If a person uses the recommendation and starts investing in the stock market through this account, brokers and managers will earn commissions for transactions.

Some investment advisors who work independently also give free consultations. It should be understood that in this case they receive remuneration from financial companies whose products they recommend. For example, they may offer structural bonds of banks. Advertising of certain financial instruments is not prohibited, but the adviser is obliged to warn you that he is paid a commission for their promotion.

But in most cases, private investment advisors take money for their services. This can be a fixed price for a one-time consultation, a subscription or hourly payment, or a percentage of the total investment amount. The price may also depend on the complexity of the consultation.

For example, you are ready for minimal risk and an investment adviser offers you a standard conservative strategy — to buy reliable corporate bonds.

If, for example, you want to take a risk and collect a package of promising shares of new companies in the IT sector, it will take longer for an adviser and such a consultation will most likely cost you more.

Before contacting an investment advisor, evaluate whether his services will pay off due to future investment returns.

How to choose an investment advisor?

First of all, make sure that it is in the Bank's register.

In the search engines "Yandex" and Mail.ru the official websites of all investment advisors from the register are marked with a tick in a blue circle. Sites without such markings belong to illegal immigrants.

In addition, all investment advisors are required to be members of one of the self-regulatory organizations (SRO): the National Association of Stock Market Participants (NAUFOR), the National Financial Association (NFA) or the Association of International Investment Consultants and Advisers (AMICS). On the SRO website, you can view a list of its investment advisors and their contacts.

Compare the cost of the services of several investment advisors. Search the Internet for reviews about them.

Before entering into an investment advisory agreement, study it carefully. Make sure that all the points of the document are clear to you.

How will an investor advisor determine which financial instruments are right for me?

To begin with, he will make up your investment profile. This is a document that will indicate:

  •  how much are you going to spend on investments;
  •  how long are you planning to invest the money for;
  •  what kind of profitability do you expect;
  •  what are the maximum losses we are willing to put up with.
In addition, the investment advisor will enter information about your age, education, knowledge and experience in investing, average monthly income and expenses for the last year, the total amount of savings, data on loans and loans in the document.

The adviser will try to find out what risk you are ready for. To do this, he may ask you to fill out a questionnaire.

When the investment profile is ready, you must agree on it. Before signing the document, make sure that all your data is entered correctly. And only after that, the adviser will prepare a recommendation in which financial instruments you should invest money.

The Adviser is not obliged to verify the accuracy of the information that you have provided to him. However, it is in your best interest not to dissemble, but to give him real information. Otherwise, his advice may harm you.

The more free money you have, the more different financial instruments the adviser will be able to recommend. At the same time, he himself determines which of them are more risky, and chooses those that correspond to your investment profile.

I've never bought securities and I don't have a lot of savings. Does it make sense to contact an investment advisor?

The Expert Advisor will help both experienced and novice investors choose suitable financial instruments.:

  •  If you do not have securities and you have never tried to invest in anything, but would like to, he will offer you tools for beginners — simple and not too risky. For example, government and corporate bonds with a high rating. The yield on them, as a rule, is not very high, but it is known in advance.
  •  If you have already invested some money in securities and want to try something new, the adviser will evaluate your portfolio, tell you how to balance it in terms of risk and profitability and, if necessary, add new tools to it. For example, it will advise which stocks, bonds and investment fund units can be bought. The profit from such investments cannot be predicted, but it is often higher than on bonds.
  •  If you are an experienced investor, an investment advisor can recommend you more sophisticated tools than for beginners. For example, structural products, which may include derivative financial instruments — options and futures. With them, you are very much at risk of losing money, but at the same time there is a chance to make a profit even in conditions when other securities are falling.

The most important thing is to choose an investment advisor that you can trust, and remember that only free money is suitable for investment — that is, those that you are willing to risk. And before thinking about investing in securities, it is important to form a financial safety cushion.

What is included in the investment recommendation?

The investment recommendation will specify certain securities or derivative financial instruments, their quantity, the approximate transaction price, the investment period and the validity period of the recommendation. Sometimes the adviser gives recommendations on exactly where to make a deal (for example, on the stock exchange) and even through whom (for example, through one of the top 10 largest brokers).

The investment recommendation, the contract with the investment advisor or on its website will necessarily mention the risks of investing. As a rule, they are described by a general warning that investments are fraught with loss of money. But there are also more detailed explanations.

For example, an adviser may recommend that you buy shares of oil companies and inform you about the risk of losing up to 80% of the money invested in them. After all, if the price of oil falls, the value of shares will collapse after it.

Pay attention to the information about the conflict of interests of the adviser. It can be included in the recommendation or provided in a separate document. In particular, the investor adviser is obliged to indicate which company he cooperates with if he receives remuneration from it.

The adviser himself or one of his other clients can benefit if you use his recommendation and invest in certain financial instruments. It happens that the adviser does not issue recommendations for all, but only for certain securities and PFI. He is obliged to warn you about all this in advance.

The adviser should also tell you about the commissions that the broker will have to pay, and about other costs associated with the purchase and sale of financial instruments.

You will receive a recommendation in electronic or paper form or in the format of a voice recorder — it depends on what you agreed in the contract.

How to use the recommendation?

It should be understood that this is just a recommendation and you are not obliged to fulfill it.

If you think that the proposals are too risky, it is better to refuse them or ask the adviser to think over a more conservative option.

In the case when you still decide to follow the recommendation, you should not deviate from it. It is important not only to buy exactly the securities that the investment adviser has chosen for you, but also to adhere exactly to the parameters named by him: the price, the period of purchase and sale, the place of transaction.

Some investment advisors can not only give recommendations, but also buy securities or PFI for you on your behalf. To do this, they must have a brokerage license. However, you can choose any other broker yourself.

Will I be able to demand that the adviser reimburse the losses if his recommendations turn out to be unsuccessful?

By law, investment advisors must act strictly in the interests of the client and be responsible for their recommendations. If an investor advisor has misled you by mistake or intentionally and you have suffered losses because of this, then you have the right to demand compensation through the court.

But it's worth considering: claims can only relate to investments in securities and derivative financial instruments that you made on the recommendation of an investment adviser. If he helped you choose some other product, for example, an investment life insurance policy, and as a result you lost money, you will not be able to claim damages from the adviser.

Even when investing in securities, the blame for losses does not always lie with the adviser. For example, you provided incorrect information about yourself or inaccurately followed recommendations, like Anna. In cases where the investment adviser has done his job in good faith, it is pointless to make claims to him, the court will not take your side.

In addition, investments in the stock market are always associated with the risk of losses. If the adviser has warned you about them, the responsibility for decisions passes to you.

But there are situations when claims to an investment adviser are justified. For example, you didn't want to take much risk and indicated this in your investment profile. And the adviser convinced you to buy shares of new companies, and as a result you lost most of your investments.

Or the adviser recommended buying something that is beneficial to him, and not to you. This may be the case when an adviser receives a reward from some company. If he warned about a conflict of interest, but you still followed his recommendations and purchased securities, then you are responsible for this decision. But in the case when he hid his connection with a financial institution and imposed its products on you, you have the right to make claims.

You can also complain about the investment adviser to the self-regulatory organization of which he is a member, and to the Bank. An investment adviser may be ordered, fined, or even excluded from the list of participants of a self-regulatory organization and from the register of the regulator.

To reduce the risks when working with an investment advisor, try to carefully consider the choice of a specialist. In addition, you should not blindly follow his recommendations — if they seem too risky to you, it is better to ask him to pick up other financial instruments.