How to Invest in a SMART Way

How to Invest in a SMART Way

Define Your Goals

Knowing how to secure your financial well-being is one of the most important things you can do for yourself. You don’t have to be a genius to do it. You just just need to know a few basics, form a plan, and be ready to stick to it.

To end up where you want to be, you need a financial plan. Ask yourself what you want. List your most important goals first. Decide how many years you have to meet each specific goal, because when you save or invest, you’ll need to find an option that fits your time frame. Here are some tools to help you decide how much you’ll need to save for various needs.

Use this calculator to find out how much you need to invest for retirement, college, and other financial goals you may have.

Make a Plan

The key to financial security is to have a financial plan. You’ll first need to figure out where you’re starting from – for example, how much you owe and how much money have you saved. Then set your goals. Do you want a car, a college education for your children, or a comfortable retirement? Once you know what you want, when you want it, and how much it costs, you can figure out how much you’ll need to save.

Figure Out Your Finances

Take an honest look at your entire financial situation — what you own and what you owe. This is a “net worth statement. ” On one side, list what you own. These are your “assets. ” On the other side, list what you owe. These are your “liabilities” or debts. Click here for a printable Net Worth Worksheet. Subtract your liabilities from your assets. If your assets are larger than your liabilities, you have a “positive” net worth. If your liabilities are larger than your assets, you have a “negative” net worth.

You’ll want to update your “net worth statement” every year to keep track of how you are doing. Don’t be discouraged if you have a negative net worth — following a financial plan will help you turn it into positive net worth.

The next step is to keep track of your income and expenses. Click here for a printable Monthly Income and Expenses Worksheet. Write down what you and others in your family earn and spend each month, and include a category for savings and investing. If you are spending all your income, and never have money to save or invest, start by cutting back on expenses. When you watch where you spend your money, you will be surprised how small everyday expenses can add up. Many people get into the habit of saving and investing by paying themselves first. An easy way to do this is to have your bank automatically deposit money from your paycheck into a savings or investment account.

Save and Invest for the Long Term

Perhaps the best protection against risk is time. On any given day the stock market can go up or down. Sometimes a market downturn can last for months or more. But over the years, investors who adopt a “buy and hold” approach to investing tend to come out ahead of those who try to time the market.

Small Savings Add Up to Big Money

How much does a daily candy bar cost? Would you believe $465.84? Or more?

If you buy a candy bar every day for $1, it adds up to $365 a year. If you saved that $365 and put it into an investment that earns 5% a year, it would grow to $465.84 by the end of five years, and by the end of 30 years, to $1,577.50. That’s the power of “compounding.”

With compound interest, you earn interest on the money you save and on the interest that money earns. Over time, even a small amount saved can add up to big money.

If you buy on impulse, make a rule that you’ll always wait 24 hours before buying anything. You may lose your desire to buy it after a day. Also, try emptying your pockets at the end of each day and putting spare change aside. You’ll be surprised how quickly those nickels and dimes add up.

Pay Off Credit Cards or Other High Interest Debt

No investment strategy pays off as well as, or with less risk than, eliminating high interest debt. Most credit cards charge high interest rates — as much as 18% or more – if you don’t pay off your balance in full each month. If you owe money on your credit cards, the wisest thing you can do is pay off the balance in full as quickly as possible. Virtually no investment will give you returns to match an 18% interest rate on your credit card. That’s why you’re better off eliminating all credit card debt before investing. Once you’ve paid off your credit cards, you can budget your money and begin to save and invest.

Here are some tips for avoiding credit card debt:

  • Put Away the Plastic – Don’t use a credit card unless you know you’ll have the money to pay the bill when it arrives.
  • Know What You Owe – It’s easy to forget how much you’ve charged on your credit card. Every time you use a credit card, track how much you have spent and figure out how much you’ll have to pay that month. If you know you won’t be able to pay your balance in full, try to figure out how much you can pay each month and how long it’ll take to pay the balance in full.
  • Pay Off the Card with the Highest Rate – If you’ve got unpaid balances on several credit cards, you should first pay down the card that charges the highest rate. Pay as much as you can toward that debt each month until your balance is once again zero, while still paying the minimum on your other cards. The same advice goes for any other high-interest debt (about 8% or above), which does not offer any tax advantages.

Save for a Rainy Day

Savings are usually put into safe places that allow you access to your money at any time. Examples include savings accounts, checking accounts, and certificates of deposit. At most banks, your deposits may be insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA). But there’s a tradeoff between security and availability; your money earns a low interest rate.

Most smart investors put enough money in savings to cover an emergency, like sudden unemployment. Some make sure they have up to six months of their income in savings so that they know it will absolutely be there for them when they need it.

But how “safe” is a savings account if the interest it earns doesn’t keep up with inflation? Let’s say you save a dollar when it can buy a loaf of bread. But years later when you withdraw that dollar plus the interest you earned, it might only be able to buy half a loaf. That is why many people put some of their money in savings, but look to investing so they can earn more over longer periods of time.

Understand What It Means to Invest

When investing, you have a greater chance of losing your money than when you save. Unlike FDIC-insured deposits, the money you invest in securitiesmutual funds, and other similar investments are not federally insured. You could lose your “principal,” which is the amount you’ve invested. That’s true even if you purchase your investments through a bank. But when you invest, you also have the opportunity to earn more money. On the other hand, investing involves taking on some degree of risk.

Diversify Your Investments

Diversification can be neatly summed up as, “Don’t put all your eggs in onebasket.” The idea is that if one investment loses money, the other investments will make up for those losses. Diversification can’t guarantee that your investments won’t suffer if the market drops. But it can improve the chances that you won’t lose money, or that if you do, it won’t be as much as if you weren’t diversified.

For more information on diversification, see Asset Allocation.

Gauge Your Risk Tolerance

What are theRisk best saving and investment products for you? The answer depends on when you will need the money, your goals, and whether you will be able to sleep at night if you purchase a risky investment (one where you could lose your principal).

For instance, if you are saving for retirement, and you have 35 years before you retire, you may want to consider riskier investment products, knowing that if you stick to only the “savings” products or to less risky investment products, your money will grow too slowly. Or, given inflation and taxes, you may lose the purchasing power of your money. A frequent mistake people make is putting money they will not need for a very long time in investments that pay a low amount of interest.

On the other hand, if you are saving for a short-term goal, five years or less, you don’t want to choose risky investments, because when it’s time to sell, you may have to take a loss.

Risk is a natural part of investing, but everyone’s tolerance for risk is different. Understanding your risk tolerance will help you feel comfortable with your investments.

Learn About Investment Options

While the SEC cannot recommend any particular investment product, a vast array of investment products exists, including stocks and stock mutual fundscorporate and municipal bondsannuitiesexchange-traded fundsmoney market funds, and U.S. Treasury securities.

Stocks, bonds, and mutual funds are the most common asset categories. These are among the asset categories you would likely choose from when investing in a retirement savings program or a college savings plan. Other asset categories include real estate, precious metals and other commodities, and private equity. Some investors may include these asset categories within a portfolio. Investments in these asset categories typically have category-specific risks.

Before you make any investment, understand the risks of the investment and make sure the risks are appropriate for you. You’ll also want to understand the fees associated with the buying, selling, and holding the investment. 

  • Call your state securities regulator to check up on the background of any person or company that you’re considering doing business with.
  • Find out as much as you can about any company before you invest in it. Companies that issue stock have to give important information to investors in a document called a “prospectus” and by law that information is supposed to be truthful. Always read the prospectus.
  • Beware of “get rich quick schemes.” If someone offers you an especially high rate of return on an investment or pressures you to invest before you’ve had time to investigate, it’s probably a scam.

Avoid the Costs of Delay

Time can be one of the most important factors determining how much your money will grow. If you saved $5 a week at 8% interest starting from the time you were 18 years old, by age 65, your savings would total $134,000. If you wait until you are 40 years old, you’ll have to save $32 a week to have $134,000 at age 65. In fact, just one year’s delay – waiting until you’re 19 years old to start saving $5 a week at 8% interest – will cost you more than $10,000 by the time you’re 65.

Discover how much waiting to save and invest could cost you with our compound interest calculator.

Investing on Your Own

The first step to investing, especially investing on your own, is to make sure you have a financial plan. How much are you going to invest? For how long? What are your financial goals? Do you understand your tolerance for risk? All investments carry some risk.

The next step is research, research, research. When investing on your own, you are responsible for your decisions. How will you select one stock, bond, or mutual fund over others? Always make sure that all securities are registered with the SEC, using the SEC’s EDGAR database. Don’t purchase solely on stock tips from others.

There are several ways you can invest on your own, including Online Investing, Direct Investing, and Dividend Reinvestment Plans.

What do you know about saving and investing? Do you want to see how your financial knowledge measures up against others? Try the quizzes.

Online Investing

Online trading is quick and easy, but online investing takes time.

With the click of a mouse, you can buy and sell stocks from one of the many online brokers offering low-cost trades. Although online trading saves investors time and money, it does not take the homework out of making investment decisions. You may be able to make a fast trade, but making wise investment decisions takes time. Before you trade, know why you are buying or selling, and the risk of your investment.

Set your price limits

To avoid buying or selling a stock at a price higher or lower than you wanted, you should place a limit order rather than a market order. A limit order is an order to buy or sell a security at a specific price. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. Your limit order will not be executed if the market price quickly surpasses your limit before your order can be filled. But, by using a limit order, you protect yourself from buying the stock at too high a price or selling it at too low a price.

If you place an order, check to make sure it was executed

Some investors mistakenly assume that their orders have not been executed and place the order again. They end up buying or selling twice, which can be a costly mistake. Talk with your financial services firm about how you should handle a situation where you are unsure if your original order was executed.

If you cancel an order, make sure the cancellation worked before placing another trade

When you cancel an online trade, make sure that your original transaction was not executed. Although you may receive an electronic receipt for the cancellation, don’t assume the trade was cancelled. Orders can only be cancelled if they have not been executed. Ask your financial services firm about how you can confirm that a cancellation order worked.

If you purchase a security in a cash account, you must pay for it before you can sell it

In a cash account, you must pay for the purchase of a stock before you sell it. If you buy and sell a stock before paying for it, you are freeriding. Freeriding violates the credit extension provisions of the Federal Reserve Board’s Regulation T. If you freeride, your broker must “freeze” your account for 90 days. You can still trade but you must pay in full for any purchases on the date you buy them as long as the freeze is in effect.

You can avoid the freeze if you pay for the stock in full by the settlement date, using funds that do not come from the sale of the stock. You can always ask your broker for an extension or waiver, but you may not get it.

Direct Investing

You may be able to invest directly using direct stock plans (DSP) or dividend reinvestment plans (DRIP). Here’s how they work:

Direct stock plans (DSP). Some companies allow you to buy or sell their stock directly through them without using a broker. This saves on commissions, but you may have to pay other fees to the plan, such as fees incurred if you transfer shares to a broker to sell them. Some companies limit direct stock plans to employees of the company or existing shareholders. Some require minimum amounts for purchases or account levels. You’ll want to read and understand the plan’s rules before investing.

Direct stock plans usually will not allow you to buy or sell shares at a specific market price or at a specific time. Instead, the company will buy or sell shares for the plan at set times — such as daily, weekly, or monthly — and at an average market price. Depending on the plan, you may be able to automate your purchases and have the cost deducted automatically from your savings account.

Dividend reinvestment plans (DRIP). These plans allow you to buy more shares of a stock you already own by reinvesting dividend payments into the company. You must sign an agreement with the company to have this done. Check with the company or your brokerage firm to see if you will be charged for this service.

Choosing a Financial Professional

When you need financial help, you can turn to an investment professional or team of professionals. These professionals may be brokers, investment advisers, certified public accountants, lawyers, insurance agents, or financial planners—and they may work in many different settings, from large firms to small private practices. In some cases, your bank may have a separate investment department that employs investment professionals. Click here for more information on choosing a financial professional. 

The person or team of professionals you decide to work with will depend largely on the type of financial help you need and the types of investments you want to have in your portfolio. Those needs, and so the professionals you work with, are likely to change during your lifetime along with the amount of money you have to invest and the financial goals that are important to you. What doesn’t change, though, is the need to know how and where to find the help you need.

Before you hire an investment professional, there are some steps you should take. First, you’ll want to identify your financial needs so that you’ll know what kind of help to get. Next, learn about the different types of investment professionals that are available and what they offer. Then, you’ll search for possible candidates and check their work background and disciplinary history. Before coming to any decision, you’ll ideally want to interview your candidates face-to-face and ask them about the fees they charge. Finally, make sure you read and understand any paperwork you are asked to fill out or sign.

Your first step in searching for an investment professional is to identify your financial needs. Think hard about the type and amount of support you will want from an investment professional so that you can narrow your focus to those investment professionals who have the credentials and experience to help you meet your needs. Having a clear understanding of what you are looking for in an investment professional can prevent you from paying for services you don’t really require—or from choosing someone who cannot provide all the services you need.

Learn About Different Types of Investment Professionals

Your next step should be to understand which products and services each different type of professional can—and cannot—provide. Sorting it all out may be complicated by the fact that some individuals—and the firms where they work—may wear multiple hats, depending on the licenses they hold and the training they have. For example, an insurance agent may be qualified to sell you both life insurance and variable annuities. A broker may also be a financial planner.

Here’s a basic introduction to the major groups of investment professionals.


  • What they are: While many people use the word broker generically to describe someone who handles stock transactions, the legal definition is somewhat different—and worth knowing. A broker-dealer is a person or company that is in the business of buying and selling securities—stocks, bonds, mutual funds, and certain other investment products—on behalf of its customers (as broker), for its own account (as dealer), or both. Individuals who work for broker-dealers—the sales personnel whom most people call brokers—are technically known as registered representatives.
  • Who regulates them: With few exceptions, broker-dealers must register with the Securities and Exchange Commission (SEC) and be members of FINRA. Individual registered representatives must register with FINRA, pass a qualifying examination, and be licensed by your state securities regulator before they can do business with you. You can obtain background information on broker-dealers and registered representatives—including registration, licensing, and disciplinary history—by using FINRA BrokerCheck or calling us toll-free (800) 289-9999. You can also contact your state securities regulator. To find your regulator, check the government listing of your phone book or contact the North American Securities Administrators Association at or (202) 737-0900.
  • What they offer: Broker-dealers vary widely in the types of services they offer, falling generally into two categories—full-service and discount brokerage firms. Full-service firms typically charge more for each transaction, but they tend to have large research operations that representatives can tap into when making recommendations, can handle nearly any kind of financial transaction you want to make, and may offer investment planning or other services. Discount broker-dealer firms are usually cheaper, but you may have to research potential investments on your own—though the broker-dealer Web sites may have a lot of information you can use.

    Registered representatives are primarily securities salespeople and may also go by such generic titles as financial consultant, financial adviser, or investment consultant. The products they can sell you depend on the licenses they hold. For example, a representative who has passed the Series 6 exam can sell only mutual funds, variable annuities, and similar products, while the holder of a Series 7 license can sell a broader array of securities. When a registered representative suggests that you buy or sell a particular security, he or she must have reason to believe that the recommendation is suitable for you based on a host of factors, including your income, portfolio, and overall financial situation, your tolerance for risk, and your stated investment objectives.

Investment Advisers

  • What they are: An investment adviser is anindividual or company whois paid for providing advice about securities to their clients. Although the terms sound similar, investment advisers are not the same as financial advisers andshould not be confused. The term financial adviser is a generic term that usually refers to a broker (or, to use the technical term, a registered representative).

    By contrast, the term investment adviser is a legal term that refers to an individual or company that is registered as such with either the Securities and Exchange Commission or a state securities regulator. Common names for investment advisers include asset managers, investment counselors, investment managers, portfolio managers, and wealth managers. Investment adviser representatives are individuals who work for and give advice on behalf of registered investment advisers.

  •  Who regulates them: The SEC regulates investment advisers who manage $110 million or more in client assets. Advisers who manage lessare regulated by the securities regulator for the state where the adviser has its principal place of business. Because they primarily engage in the buying and selling of securities, broker-dealers and registered representatives typically do not have to register as investment advisers. But some do, which is why it is so important to find out exactly which services a professional who wears multiple hats willprovide for you and what they will charge for their services.

    You can get background information on both SEC- and state-registered investment advisers by using FINRA BrokerCheck or calling us toll-free (800) 289-9999.You can also get background information by visiting the SEC’s Investment Adviser Public Disclosure database.

  • What they offer: In addition to providing individually tailored investment advice, some investment advisers manage investment portfolios. Others may offer financial planning services or, if they are properly licensed, brokerage services (such as buying or selling stock or bonds)—or some combination of all these services.


  • What they are: Accountants are trained to provide professional assistance to individuals and companies in areas including tax and financial planning, tax reporting, auditing, and management consulting.
  • Who regulates them: To become a Certified Public Accountant (CPA), the accountant must pass a national examination administered by the American Institute of Certified Public Accountants (AICPA) and meet education and experience requirements set by the state Board of Accountancy where the accountant does business. You can find out whether an accountant is licensed as a CPA in your state by contacting the state Board of Accountancy. Again, check the government section of your phone book to locate your state board, or visit the AICPA’s Web site.
  • What they offer: A CPA can help you consider the tax implications of financial decisions you make and assist with other tax-related issues, such as preparing annual tax returns. Some CPAs are also certified by the AICPA as Personal Financial Specialists (PFSs), which means they have met AICPA’s education requirements for providing financial planning services, including assessing your overall financial situation, developing a budget, setting goals for saving and investing, and developing a plan for monitoring your progress and reaching your goals.


  • What they are: A lawyer is licensed to give legal advice to clients. Lawyers are trained to tell you about the legal impact one financial planning or investment decision might have on another—such as the tax implications of setting up a certain type of trust for your estate.
  • Who regulates them: Each state has its own rules that govern whether and under what circumstances a person can practice law. In some states, the courts handle the licensing process. In other states, the legislature sets the rules. Lawyers generally must pass a comprehensive examination—called the bar exam—and meet other requirements before they can be admitted to the practice of law. Although it does not regulate lawyers, the American Bar Association can help you find out whether a lawyer is licensed in your state.
  • What they offer: As with other professionals, the range of services lawyers can provide will vary greatly from individual to individual. For example, if one of your financial goals is leaving your assets to particular people or organizations, you will want to work with a lawyer who specializes in estate planning.

Insurance Agents

  • What they are: An insurance agent is a salesperson who can help individuals and companies obtain life, health, or property insurance policies and other insurance products.
  • Who regulates them: Every state, along with the District of Columbia and U.S. territories, has an insurance commission that licenses the insurance agents and insurance companies who do business in that jurisdiction. State insurance commissions also impose sales and marketing rules and require companies to file financial reports to assess their ability to honor claims. You can contact your state insurance commissioner by visiting the Web site of the National Association of Insurance Commissioners (NAIC) at NAIC also offers a database of financial and disciplinary information for insurance companies nationwide. If an insurance agent offers products that are considered securities—such as variable annuity contracts or variable life insurance policies—the agent must also be licensed as a registered representative and comply with FINRA rules.
  • What they offer: Insurance agents described as “captive” work exclusively for one insurance company and can sell only the policies and products that company offers. Independent insurance agents can represent multiple companies and typically try to find insurance policies that offer the best coverage for your circumstances.

Financial Planners

  • What they are: Financial planners can come from a variety of backgrounds and offer a variety of services. They could be brokers or investment advisers, insurance agents or practicing accountants—or they have no financial credentials at all. Some will examine your entire financial picture and help you develop a detailed plan for achieving your financial goals. Others, however, will recommend only the products they sell, which may give you a limited range of choices.
  • Who regulates them: Unlike other professions discussed in this chapter, the financial planning profession does not have its own regulator. Instead, individuals who call themselves financial planners may be regulated in relation to other services they provide. For example, an accountant who prepares financial plans would be regulated by the state Board of Accountancy, and a financial planner who is also an investment adviser would be regulated by the Securities and Exchange Commission or by the state where the adviser does business.
  • What they offer: The breadth and depth of services a financial planner offers will vary from provider to provider. Some create comprehensive plans that delve into every aspect of your financial life, including savings, investments, insurance, college savings, retirement, taxes and estate planning. Others have a more limited focus, such as insurance or securities. Some only prepare plans, while others also sell investments, insurance, or other products. If they sell products, their recommendations typically will correspond with the products or services they sell. For example, an insurance agent will tell you about insurance products (such as life insurance and annuities) but likely won’t discuss other investment choices (such as stocks, bonds or mutual funds). You’ll want to make certain you fully understand which areas of your financial life a particular planner can—and cannot—help with before you hire that person.

Search for Possible Candidates

Perhaps the best place to start is by talking with your friends, neighbors, relatives, and colleagues—especially those who have some experience as individual investors. Ask the names of the investment professionals they have used, how long they have done business with those individuals, and how much or how little they have relied on their advice. Ask whether they have ever had a problem with any professional you are considering, and if so, how well and how quickly the matter was resolved. Finally, ask about their relationship with their investment professional and assess whether that relationship would work for you. Some people want an investment professional who will take plenty of time to discuss their investments with them while others want someone who provides information when asked and otherwise keeps a low profile.

If you do not know anyone personally who could recommend an investment professional to you, there are other avenues to explore. Your employer, trade organization or labor union, or local consumer or investment groups might be able to provide referrals. In addition, although they typically cannot recommend a particular firm or individual, regulators can be a helpful resource. For example, if you are looking for a securities broker, FINRA’s website includes a list of registered firms—or if you are looking for an accountant, your state’s Board of Accountancy might be able to help.

Check the Investment Professional’s Background

Before you begin to work with an investment professional—even one who has been recommended to you by someone you know—it’s essential to check his or her background. The good news is that the Internet has made this kind of information relatively easy to find. Investing a few minutes of your time up front may save you time, money and other trouble down the road.

Brokers and Brokerage Firms

FINRA BrokerCheck is a free tool that allows investors to check the professional background of brokerage firms, individual brokers, as well as investment adviser firms and representatives. It gives you easy access to the Central Registration Depository (CRD®), an online database of information about most brokers and the firms they work for, including a history of any past complaints or regulatory actions by securities regulators and criminal authorities.

Specifically, for individual brokers, you can use FINRA BrokerCheck to find:

  • Current employers;
  • A 10-year employment history;
  • Other businesses the individual engages in;
  • All approved licenses and registrations;
  • Qualification exams passed;
  • Criminal felony charges and convictions;
  • Investment-related misdemeanor charges and convictions;
  • Disciplinary actions and investigations by regulators;
  • Investment-related civil judicial actions and proceedings;
  • Most consumer-initiated complaints, arbitration proceedings and civil litigations;
  • Unsatisfied judgments and liens, bankruptcy proceedings; and
  • Employment terminations that follow allegations of certain misconduct or failure to supervise.
  • Any final sanction (such as bars, suspensions and fines) imposed by FINRA, the SEC or other federal or state regulatory agencies.

In addition, FINRA BrokerCheck provides the following information on firms:

  • Administrative information including address, legal status, types of business engaged in and direct and indirect owner/officer information;
  • A 10-year history of all felony charges and convictions, as well as investment-related misdemeanor charges and convictions;
  • Disciplinary actions and proceedings initiated by regulators;
  • A 10-year history of investment-related civil judicial actions and proceedings;
  • Bankruptcy proceedings;
  • Unsatisfied judgments or liens;
  • Summary information on arbitration awards; and
  • For former FINRA-registered firms, the date that the firm ceased doing business and, when appropriate, details regarding funds owed customers or other firms.

Even if an individual or firm does not have a history of reported problems, BrokerCheck can help you detect potential red flags. For example, you can find out whether an individual broker has switched firms frequently over a short period of time or whether the firm has changed its name often.

State securities regulators also have access to CRD and can sometimes provide more details about investor complaints. For that reason, it’s often a good idea to check with your state securities regulator as well. A list of contact information is available on the website of the North American Association of Securities Administrators (NASAA) at

Investment Advisers

Some investment advisers and their representatives appear in the CRD because they are also registered as or associated with broker-dealers. However, to do a thorough check of any investment adviser, you should ask for—and carefully read—the firm’s registration document or “Form ADV.”

Investment advisers must register with either the SEC or a state securities regulator, depending on the amount of client assets they manage. In general, a firm that manages $110 million or more in client assets files its Form ADV with the SEC while a firm below that threshold must register with the state securities agency in the state where the firm has its principal place of business. Although the SEC does not separately register individual representatives of investment advisory firms, many states do.

Form ADV has two parts. Part 1 has information about the advisory firm’s business and whether they’ve had problems with regulators or clients in the past. Part 2 describes their services, fees and investment strategies. Before you hire an investment advisory firm, examine both parts of Form ADV, and then ask for an explanation of anything you don’t understand.

In addition to asking the firm for a copy, you will be able to find an advisory firm’s most recent Form ADV online through FINRA BrokerCheck or the SEC’s Investment Adviser Public Disclosure (IAPD) website. You can also obtain information about investment adviser representatives through FINRA’s BrokerCheck, the SEC’s IAPD website or by contacting yourstate securities regulator.

Resources for Other Investment Professionals

Apart from FINRA BrokerCheck and the SEC’s Investment Adviser public Disclosure database, you can get licensing information for other types of investment professionals as follows:

Type of Professional Licensing Body or Regulator
Accountant State Board of Accountancy
Lawyer State Bar Association
Insurance Agent State Insurance Commission
Financial Planner Confirm whether the planner is licensed by or registered with the SEC, FINRA or a state regulator and check with that regulator

Understanding Professional Designations   

You might also be able to learn more about a professional’s education and experience from his or her professional designations and membership in professional associations. Many organizations maintain databases of people who meet their criteria. You can check these lists to make sure an individual using a specific designation is properly credentialed.

A good place to start is FINRA’s Professional Designations Tool. You’ll find a list of credentials, the requirements the individual has to meet to be entitled to use the designation, and much more. But always bear in mind that not all designations carry the same significance or require the same amount of effort to obtain. To make meaningful comparisons, you will want to find out whether the granting organization requires continuing education, has a public disciplinary process, provides a means to check a professional’s status and otherwise ensures that a professional designation is more than simply a string of letters.

Some designations require formal certification procedures, including examinations and continuing professional education credits. Other designations may merely signify that membership dues have been paid. Still others are simply marketing devices. For example, someone may call himself a ‘senior specialist’ to create or build rapport by implying a certain level of training on issues important to the elderly. But, that designation might require no special training, except perhaps in sales techniques targeting the elderly.

Finding Other Information

Background checks are only part of the homework you need to do when checking out a brokerage firm. It’s also a good idea to find out if the firm is a member of the Securities Investor Protection Corporation, which provides limited protection of up to $500,000 per customer, including up to $250,000 for cash, if the firm becomes insolvent. SIPC does not, however, protect against losses resulting from a decline in market value.You can get more information about SIPC and what it covers at

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