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How to Select an Investment Professional

Consultative-Based Selling Verse 
Product Based-Selling”

Many of the sales tactics used to sell investments in the past will not work today. If you study the anatomy of an investment sale today, you would find a dramatic difference from the investment process of 20 years ago. The reason these out-of-date tactics are not applicable now is the sale process has been transformed from a product-orientated sale to a consultative-based presentation. Let us examine why the process has changed and how we can select an investment professional with the skills to match our needs.

The Customer: The customer is the driving force behind any fundamental change in the way the investment sales process is conducted. The most predominant force affecting customer demands is the staggering amount of information available.

Investors of the 1990’s are inundated with more investment information in a day than their grandparents were in a lifetime. Investors can get information from television, radio, newspapers, magazines and the Internet.

Before the 1970’s, the average investor was unaware of many of the investment options required to build a diversified investment portfolio. As a result of this, many people invested primarily in their homes. Then in the late 1970’s and early 1980’s, investors demanded higher returns. Thus, came the birth of transactional and product-based sales. The statement, “You are only as good as your last trade” became the customer’s motto to hire and fire brokers.

However, in the 21st century, investors have turned from products to consultative-based requirements. The underlying force for this change may be linked to two factors: the huge amount of investment information available and the current bull market.

Many individuals don’t take the time to sort through mountains of information or ever imagined their portfolios would grow as fast as they have. With multiple information sources and new wealth, investors are demanding consultative-based guidance to ensure proper diversification and adequate growth.

The Investment Professional: Until recently, investment professionals (IP) were trained to “get the trade”. Investment firms set up boiler rooms and bullpens from which brokers made cold calls. The 1980’s gave birth to “cold call cowboys”. Cold call cowboys telephoned as many investors they could and sold them on yield and “hot” stocks. If the yield was high enough or the stock good enough, investors bought. If it was not, they simply waited until the next cowboy called. As the world moves into the 21st century IP’s must adapt to keep up with demand.

With these changes how can investors find investment professionals and build solid long-term relationships? Here are several suggestions:

 Find a professional that is willing to spend the necessary time to educate you about your investment choices.

 Find a professional that offers to review assets not currently under their management. This expresses their commitment to your overall financial success. Ask them to also provide asset allocation and investment on your 401k, your child's college fund, etc.

 If appropriate, consider fee-based investments. This links your investment professional's compensation to your asset performance.

Only work with a professional that offers investment options from many different sources. Today’s investment professional can offer literally thousands of products from hundreds of different investment managers and insurance companies. If an investment professional can only invest your money into products (annuities, mutual funds, etc.) from their own firm this means they are usually limited to a few products. This type of product is called an in-house investment.

If your investment professional can only offer you in-house investments, they may not be providing you with complete and unbiased investment selection for your portfolio.

In addition, the investment professional may also being earning a larger commission by selling in-house products. Make sure to ask your investment professional about the range of products they can offer and ask if they earn a larger commission by selling in-house products.

 Find a professional that keeps up-to-date on changes in the investment industry. This will permit them to offer you new and innovative solutions to your problem.

In reality, the investment business is simple, but it is not easy. It is simple because investors want investment professionals whom they trust will do the best for them and their families. If an investor finds such a professional, the commission or fee charged becomes secondary because of the quality of financial advice given. If you find this sort of professional, don't forget to give them referrals. Because, many work on commission or fees, this allows them to spend more time watching your portfolio and less time prospecting for new business.

In addition may consider learning more about the stock market yourself, check out the information on the Contact a Professional page on our website.

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