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When you're working with a limited budget, hiring a money...When you're working with a limited budget, hiring a money management firm may be the furthest thought from your mind. But as you move beyond budgeting to an active investment...Read More

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How to shop for Money Management Tools

When you're working with a limited budget, hiring a money management firm may be the furthest thought from your mind. But as you move beyond budgeting to an active investment strategy, money management becomes more important. And while each person's or household's needs are naturally unique, there are common features to look for when considering the services of a money management firm.

Investment Strategies and Risk

Investment strategies fall into three general categories of risk: conservative, moderate/mixed and aggressive. Conservative investment strategies are weighted heavily toward financial instruments with little or no risk of loss, including municipal bonds, U.S. Savings bonds and certificates of deposit administered by banks and credit unions. Aggressive investment strategies strongly favor stocks, FOREX currency trading and day trading. Moderate or mixed investment strategies fall somewhere in between.
  • Conservative – minimal investment risk, suitable for individuals nearing retirement age
  • Moderate/Mixed – often favored by mid-career investors
  • Aggressive – recommended for younger investors or those who can absorb more losses

Full-Service versus Discount Brokers

Full service brokers handle every phase of investment, from choosing financial instruments to executing trades. Full service brokers are more expensive, but the expense may be a worthwhile expenditure for novice investors. Having the services of a pro at your disposal can save you from making potentially expensive mistakes. However, high fees for a full service money management company do not automatically translate into top quality. Check out the going rates for money management firms in your area offering comparable service. If a firm you're considering offers rates that vary far from the norm, find out why BEFORE you sign anything and definitely before shelling out any of your hard earned cash.
By contrast, discount brokers offer minimal or no advice, and leave trading to investors. They merely offer the means to access the markets. Transactions for discount brokers often take place online. For investors who are confident in their understanding of the market, discount brokers may be totally adequate. Even if you opt for a discount broker, bargain hunting is not a good idea when considering a money management firm. A firm that offers rates that sound too good to be true may also provide cut rate service.

Minimum Opening and Maintenance Balances

Money management firms often require investors to provide a minimum opening balance. Others charge fees for balances that fall below a certain amount, or for investors that make less than a minimum number of trades. Be sure you’re clear about any such minimum requirements before investing funds with a money management firm.

The Question of Commissions

It's totally acceptable to ask whether or not a money management firm you're considering works on commission. Commission-based brokers can be perfectly legitimate. However, brokers for such firms may be hindered by potential conflicts. Specifically, firms where brokers or advisors earn commissions for representing particular investment instruments may or may not operate to promote your best financial interests.

Credentials and Qualifications

When you consider that you're entrusting your most sensitive personal and financial information to strangers, it makes sense to make sure that the money management firm employs professionals that are both qualified and reputable. Money management professionals who have earned Certified Financial Planner status have passed stringent qualifications that include testing and comprehensive training. Firms that perform brokerage or similar investment functions must be properly licensed with the Securities Exchange Commission (SEC). In addition, many of the most qualified money management firms hire personnel registered with the Financial Industry Regulatory Authority (FINRA). Nonetheless, it’s also a good idea to conduct background checks on individual money management officers.

Investment Tools and Support

Whether you choose a full service or discount broker, you are entitled to a minimal level of service. The website should feature educational materials and investment tools. For example, FOREX investment websites routinely include an area that allows would-be investors to make transactions with practice funds before investing real money. You should also expect to be able to access customer service during reasonable hours by phone or chat, as well as email.

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