Increasingly, I am convinced that individual investors face an uphill battle in consistently generating solid, consistent returns year after year, and would be better off with a good dependable financial advisor. And who’s to blame them when even Ivy League educated portfolio managers consistently underperform the market even though they are fully plugged into the financial community, have a battery of analysts and do this full-time for a living.

The changing dynamics within our country have necessitated a shift in our investing philosophy. Thirty, forty years ago, America was on very sound economic footing and citizens typically had jobs with retirement benefits and dependable social security delivered at a reasonably young age. Today, retirement benefits are extremely rare in corporate America and where they exist, they are not enough to fully retire on. The lucky few with generous retirement and healthcare benefits are those associated with the government in one way or another – teachers, senators, congressmen, police personnel, city employees, state and federal employees, etc.

As social security goes, there is less and less hope of getting it twenty years from now. Moreover, the rate at which the government’s pushing out the eligibility age for social security, many Americans are beginning to feel cheated that a system they have diligently been paying into isn’t going to pay them back but might just make their congressmen’s and mayors’ retired lives much more comfortable.

Moreover, periods like 2000 – 2010, the so called lost decade when stocks essentially went no where over a 10-year period, make depending on 6.5% annual stock gains (which many financial planning calculators assume) rather simplistic and unreliable. And with interest rates at all time lows, fixed income investments don’t even help you beat inflation…

So, in today’s world, investors can no longer just allocate their savings and retirement capital between stocks and bonds and rest easy, they’ve got to find well-diversified ways to their invest capital to get healthy income and investment returns in good markets and bad – with investments in dividend stocks, REITs, distribution-making master limited partnerships (MLPs), foreign bonds, high-yield bonds, foreign stocks, foreign currencies, and so on.

Investors today have to also learn to hedge their investments with simple strategies – such as covered calls that can generate solid stock returns over time. They’ve got to know their greeks and understand terms such as alpha and beta in connection with portfolio performance. And understand the impact of policy decisions and central bank announcements on interest rates and how they impact the US Dollar relative to other world currencies.

Now… even the savviest of investment managers cannot singularly select and track stocks in different asset classes, and have experienced teams helping them with data collection and analysis. So an individual investor will likely not succeed at this new diversified market-neutral investing paradigm without help. Therefore, I urge you to find a good, honest financial advisor who is backed by the resources of a large, trusted investment management company with multiple asset class investment options.

And if you really want to play the market, set aside a small amount of play money that you can afford to lose and use this to invest.

When looking for a good financial advisor, look for someone who:

i)               Has a solid track record of delivering consistent results for investors. Be forgiving of bad years which everyone inevitably suffers. Call references and ask them tough questions on how the advisor helped them manage through crises. Check public records on past disciplinary action because you’re going to trust this person with a lot of your money and there are enough scammers out there so your caution is warranted.

ii)             Is current on certifications to offer financial advice (CFAs, CFPs).

iii)            Is backed by a large financial institution which, despite its size, is best-in-class at providing personalized investment advice. Much as smaller advisors would try and sell you on their personalized service, you’re better off with agents that essentially are affiliated with companies such as Merrill Lynch, Fidelity, T Rowe Price or others in that league of experience and breadth of investment offerings.

iv)            Does not work on commissions because he’d be more focused on selling you investment products that generate the highest commissions and will care less about your portfolio needs. Typically, investments that make the most money for financial institutions are the ones they pay the highest commissions on, and those you least want in your portfolio. And if someone says they he’s independent, do not automatically assume he does not work on commission. And while there are many good investment advisors and financial planners that work on commission while still doing what’s best for you, they are hard to find.

Commissions ultimately come out of the money you invest, up front mostly or in some tiered manner over time, so it’s really your money getting diverted to them and not working for you as it should.

A study by Professor Kent Smetters at The Wharton School (big name Ivy League business school with a great finance faculty!) shows that on average, over 35-years of investing in an IRA, investors lose about $95,000 to commissions – that’s pretty serious money and I want to thank Prof. Smetters for sharing his research with us. Before considering a financial adviser, think how does a roth ira work and do your research. It could save you a small fortune.

So even though commissions sound like small percentage amounts each time you invest some money, please know that they add up over time.

The IRS has investment advisors fill out an ADV Part 2 form where they need to check a box if they take commissions, so ask your advisor to furnish his latest ADV Part 2 to you – tell him it’s a standard part of your advisor selection process.

v)             Works on fees only. Such advisors are not paid commissions but only collect a fee to advise you. Also note that someone who is fee based can receive commissions and this is often misleading because most investors hear the word fee and assume they are fee only. So as you interview advisors, please double check this one. Thankfully, our government’s consumer protection watchdogs have sniffed this one out and are working on eliminating this type of investor misinformation so… help is on the way!

vi)            Serves you as a fiduciary. Basically, this legally commits your advisor to act in your best interest and is mandatory for fee only advisors.

Now, while a lot of people would also say “ask your friends and family who they use”, I’d say ask but don’t get over friendly. Because it’s hard to negotiate with someone you’re overly friendly with. Treat your relationship with your advisor as a professional one so you can at all times focus on what is best for your portfolio, bargain hard, objectively measure performance and fire your advisor if he isn’t performing.

And, finally, learn how to say no if you are not comfortable with an investment or feel you’re being bull-dozed into it. Trust your gut, ask a lot of questions (the devil is often in the details), step out of your comfort zone a little but only invest if you are 100% comfortable.