The time when the transactor was also the advice provider is over. Investors do not have to depend on the transactor for advice and given that transacting is cheap, one can easily separate the transactor from the advisor.
For example, an investor can take advice from an independent advisor on what asset class to buy or sell and then transact on her chosen platform. In this way, the investor is protected from a transactor's bias (who gives advice for transaction commissions).
The choice of the advisor becomes important now.
Investors can take advice from many sources. Each source has its pros and cons and investors have to weigh them accordingly when listening to advice. The media is the most prominent in doling out advice. Newspapers, magazines, TV channels, radio shows and web media all provide advice on investments. The media gets in experts from outside or publishes in-house research to advise investors on what to buy or sell. However, investors can only take advice from the media and if the investments do go wrong, the media does not claim accountability. Investors acting on advice from the media do not have a shoulder to fall back on when the investment turns sour.
Investors can take advice from brokerage houses and banks employing their own research analysts. Such research is usually well-informed and has a lot of analysis behind it. However, brokerages and banks publish research that is usually biased on the buy side as it makes the investor transact. Time and again, investors have been caught on the wrong foot by acting on research given by transactors.
Investors can participate in forums on the net or subscribe to any of the advice sites on the web. Investors again have to look at the quality of advice, the expertise of the people behind the advice and whether there is accountability for the advice. Accountability need not be in the form of financial accountability but in the form of accountability for time to listen to the investor when investments turn sour.
The best choice for an investor will be an advisor who ensures that he or she is available to the investor at times when the investor needs a shoulder to lean on. It is easy to get advice but it is not easy to get the time from advice providers. Investor should choose qualified experts who will give advice and then be available for the investor after the advice is generated. Such advisors will charge and investors should not shy away from paying for such advice.
In the hierarchy of financial markets, the most qualified are the persons who institutions such as banks, hedge funds and mutual funds appoint to handle money. However, gaining access to such experts is difficult unless he or she comes out of institutions to provide advice to the average investor.
Analysts working for institutional brokers who cater to large fund managers are next in the hierarchy. Good analysts earn a lot of mileage for brokerage firms appointing them and hence are top of the line in their trade. The average investor cannot gain direct access to such experts unless he or she has come out of the institution to provide advice to average investors.
The third in the hierarchy are all the investment professionals working for second- and third-rung buy side or sell side firms.
The fourth in the hierarchy will be the wealth managers or independent advisors who have not really managed money but have trained themselves to give good advice.
The last in the hierarchy are the so called advisors who do not have any qualification or training but take advantage of bull markets to give advice. Unfortunately for the investor, this category of persons is the most accessible, though investment decisions made on their advice is typically proven wrong. It is easy to spot an investment quack —- he will cull out articles, information, analysis, etc from books, magazines, newspapers, research reports, blog sites and other information sources and forward it to clients. Quacks can never think on their own and will never have an independent opinion. They will also push what sells.
It's important that investors seek out the best themselves.
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