Rating clients’ investment knowledge

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FestiveKnight
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Location: Maine, USA

Rating clients’ investment knowledge

Post by FestiveKnight »

Why do prospective investment advisors ask me to rate my investment knowledge (or rate it themselves, without asking)? Where does this practice come from?
52yo divorced freelancer, working to fill my knowledge gaps.
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JoeRetire
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Re: Rating clients’ investment knowledge

Post by JoeRetire »

FestiveKnight wrote: Tue Nov 23, 2021 7:23 am Why do prospective investment advisors ask me to rate my investment knowledge (or rate it themselves, without asking)? Where does this practice come from?
It comes from good business practice. They simply want to understand how best to communicate with you.

If you already have a lot of knowledge, they don't want to be talking down to you. If you have no knowledge, they don't want to confuse you.
I love a good nap. Sometimes it’s the only thing getting me out of bed in the morning.
jebmke
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Re: Rating clients’ investment knowledge

Post by jebmke »

Suitability test. Weaker than fiduciary but better than nothing.
When you discover that you are riding a dead horse, the best strategy is to dismount.
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InvestorHowie
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Re: Rating clients’ investment knowledge

Post by InvestorHowie »

I always thought it was a regulation or guideline of some sort, whether by the SEC or FINRA? Asking about knowledge, risk, AA, etc.
Time is your friend; impulse is your enemy. --John C. Bogle
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FestiveKnight
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Re: Rating clients’ investment knowledge

Post by FestiveKnight »

InvestorHowie wrote: Tue Nov 23, 2021 7:41 am I always thought it was a regulation or guideline of some sort, whether by the SEC or FINRA? Asking about knowledge, risk, AA, etc.
That rings a bell.

One prospective advisor rated me without any discussion. Another asked me to rate myself. Neither explained why it’s done, what group I’m being compared to, or the concrete effects of being rated one way vs. another.
52yo divorced freelancer, working to fill my knowledge gaps.
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Raybo
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Re: Rating clients’ investment knowledge

Post by Raybo »

Interesting that investments advisors don't offer a similar rating to their own "knowledge."
No matter how long the hill, if you keep pedaling you'll eventually get up to the top.
Boglegrappler
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Re: Rating clients’ investment knowledge

Post by Boglegrappler »

I always assumed it was a litigation vaccination. If you sue them at some point, and you've indicated that you're expert, your case is weaker.
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arcticpineapplecorp.
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Re: Rating clients’ investment knowledge

Post by arcticpineapplecorp. »

Two-thirds of U.S. Investors Fail Investing Quiz and Face Confusion about Investment Account Fees :

https://www.finra.org/media-center/news ... investment

take the quiz yourself and see if you're in the 1/3rd or not (only 15 questions):

Investor Knowledge Quiz

How'd you do?

here's how i did:

Image

how about that.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
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Harry Livermore
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Re: Rating clients’ investment knowledge

Post by Harry Livermore »

Me too!
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Cheers
deltaneutral83
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Re: Rating clients’ investment knowledge

Post by deltaneutral83 »

AUM guys are also asking you these questions to see if they want you as a client, in addition to the legal aspect. They usually make you fill out a risk questionnaire as well. They may want the guy with $500k who knows his risk tolerance and doesn't check the market and email/call once a week vs the guy with the $2M account who calls in every time the market comes back 2% (or Musk tweets for example). If they're spending a half hour a week with you your $2M doesn't look as good as that's 26 hours of work vs the guy with $500k who uses one hour a year for his yearly "check up" and needs nothing more than the quarterly "market analysis" from the CEO's email (lifted mostly from CNBC/Bloomberg) and Holiday feel good card from the firm.
000
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Re: Rating clients’ investment knowledge

Post by 000 »

Harry Livermore wrote: Tue Nov 23, 2021 2:36 pm Me too!
Me three!
Capitulation of bears is part of the market topping process.
AnnetteLouisan
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Re: Rating clients’ investment knowledge

Post by AnnetteLouisan »

arcticpineapplecorp. wrote: Tue Nov 23, 2021 9:22 am Two-thirds of U.S. Investors Fail Investing Quiz and Face Confusion about Investment Account Fees :

https://www.finra.org/media-center/news ... investment

take the quiz yourself and see if you're in the 1/3rd or not (only 15 questions):

Investor Knowledge Quiz

How'd you do?

here's how i did:

Image

how about that.
100! Me three! 😂
AnnetteLouisan
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Re: Rating clients’ investment knowledge

Post by AnnetteLouisan »

It’s for a lot of reasons but the suitability standard is key. If you have a minimum level of investment knowledge and they sell you an investment that isn’t suitable, they can be liable. I would think another reason is to determine whether you are an accredited investor.
Phil8352
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Re: Rating clients’ investment knowledge

Post by Phil8352 »

It’s a regulation. KYC - know your client.
yog
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Re: Rating clients’ investment knowledge

Post by yog »

Both state and federal regulation comes into play. Among other responsibilities, an investment advisor has fiduciary duties of suitability & loyalty they must fulfill, and 'know your customer' questionnaires help them fulfill these duties.

This overview of the investment advisor industry from the NASAA (National American Securities Administrator's Association) might be worthwhile reading:
https://www.nasaa.org/industry-resource ... ser-guide/
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arcticpineapplecorp.
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Re: Rating clients’ investment knowledge

Post by arcticpineapplecorp. »

AnnetteLouisan wrote: Tue Nov 23, 2021 8:14 pm
arcticpineapplecorp. wrote: Tue Nov 23, 2021 9:22 am Two-thirds of U.S. Investors Fail Investing Quiz and Face Confusion about Investment Account Fees :

https://www.finra.org/media-center/news ... investment

take the quiz yourself and see if you're in the 1/3rd or not (only 15 questions):

Investor Knowledge Quiz

How'd you do?

here's how i did:

Image

how about that.
100! Me three! 😂
i'll bet the bogleheads skew the grading curve!
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
Kookaburra
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Re: Rating clients’ investment knowledge

Post by Kookaburra »

I listen to their words closely and rate them - the old switcheroo. And most get categorized as “slimy salesman”.
h82goslw
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Joined: Fri Jun 17, 2016 5:44 am

Re: Rating clients’ investment knowledge

Post by h82goslw »

arcticpineapplecorp. wrote: Tue Nov 23, 2021 9:11 pm
AnnetteLouisan wrote: Tue Nov 23, 2021 8:14 pm
arcticpineapplecorp. wrote: Tue Nov 23, 2021 9:22 am Two-thirds of U.S. Investors Fail Investing Quiz and Face Confusion about Investment Account Fees :

https://www.finra.org/media-center/news ... investment

take the quiz yourself and see if you're in the 1/3rd or not (only 15 questions):

Investor Knowledge Quiz

How'd you do?

here's how i did:

Image

how about that.
100! Me three! 😂
i'll bet the bogleheads skew the grading curve!
I did not do my part to skew the numbers….I got 1 wrong.
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arcticpineapplecorp.
Posts: 8982
Joined: Tue Mar 06, 2012 9:22 pm

Re: Rating clients’ investment knowledge

Post by arcticpineapplecorp. »

h82goslw wrote: Wed Nov 24, 2021 1:12 pm
arcticpineapplecorp. wrote: Tue Nov 23, 2021 9:11 pm
AnnetteLouisan wrote: Tue Nov 23, 2021 8:14 pm
arcticpineapplecorp. wrote: Tue Nov 23, 2021 9:22 am Two-thirds of U.S. Investors Fail Investing Quiz and Face Confusion about Investment Account Fees :

https://www.finra.org/media-center/news ... investment

take the quiz yourself and see if you're in the 1/3rd or not (only 15 questions):

Investor Knowledge Quiz

How'd you do?

here's how i did:

Image

how about that.
100! Me three! 😂
i'll bet the bogleheads skew the grading curve!
I did not do my part to skew the numbers….I got 1 wrong.
14/15 gives you 93.3%.

that makes you above average just like all the boglehead children in boglehead land.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
Wanderingwheelz
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Re: Rating clients’ investment knowledge

Post by Wanderingwheelz »

They want to know how often you’re going to call them over and over again during the first downturn and ask if they should sell everything.
alex_686
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Re: Rating clients’ investment knowledge

Post by alex_686 »

Phil8352 wrote: Tue Nov 23, 2021 8:19 pm It’s a regulation. KYC - know your client.
It is not KYC. KYC is about their money laundering operations.

It is more about suitability and its sub-category, risk tolerance. Suitability and risk tolerance are a trick and subtle thing since there is no standardized method and it is all subjective.

Generally speaking, those with lower knowledge have a lower capacity to take on risk. They can't agree to take on a certain level of risk if they don't understand which way is up.

Note that the inverse is not true. Those who have a higher level of knowledge may or may not have a higher ability to take on risk.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
milktoast
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Re: Rating clients’ investment knowledge

Post by milktoast »

h82goslw wrote: Wed Nov 24, 2021 1:12 pm I did not do my part to skew the numbers….I got 1 wrong.
I did as well. But I disagree with the answer. :happy

The _Best_ explanation for muni bonds lower yield is supply and demand. The fact that tax free status alters the demand contributes to the lower yield compared to other government bonds. But in the end, the bond market is a free market. And so the best explanation for any price in a free market is always supply/demand.
Dottie57
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Re: Rating clients’ investment knowledge

Post by Dottie57 »

AnnetteLouisan wrote: Tue Nov 23, 2021 8:14 pm
arcticpineapplecorp. wrote: Tue Nov 23, 2021 9:22 am Two-thirds of U.S. Investors Fail Investing Quiz and Face Confusion about Investment Account Fees :

https://www.finra.org/media-center/news ... investment

take the quiz yourself and see if you're in the 1/3rd or not (only 15 questions):

Investor Knowledge Quiz

How'd you do?

here's how i did:

Image

how about that.
100! Me three! 😂
+1
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