Certain skills are necessary for investment advisers

Many a plumber has put his children through college by fixing the leaks that homeowners can't stop. Yet, some non-professionals do well on their own with wrenches and solder. Investing is like that, too. You surely know individuals who delight in following the markets and seem to have a golden touch. But most of us recognize the large gap between our own general investment knowledge and a professional's skill in making investment choices.

Professional knowledge

The risk of making serious mistakes gets more serious with more money to invest. So, it usually makes a lot of sense to rely on professional investment skills and experience to help maximize potential gains and minimize the risk. After all, investment professionals follow economic conditions and the investment markets full-time. They are aware of the past performance and prospects of individual securities and funds. And, they know how to help their clients clarify their investment objectives and also how to plan realistic strategies for achieving those objectives.

It's easy to find "experts" who are ready to help you invest your money. It's not so easy finding one who is both skilled and worthy of your trust.

Not repeating the past

Yes, performance is always a primary objective. But choosing an adviser based only on past investment performance can be a mistake. You cannot assume future performance will match past performance. Too many things change. Market conditions vary daily. Strategies that were successful when the market environment was different may not always be as successful when repeated in a future environment.

Measuring performance against a market index may also be misleading. An investment manager alms to meet individual clients' goals. That may call for a different mix of investments than a comparable index holds. When the investments are different, beating or not beating an index is not a valid comparison. You might be better off by examining the capabilities and reputation of the manager.

Characteristics to look for

Technical skills The adviser you choose for your investments needs the experience and knowledge to plan portfolios and choose specific securities within those plans. Doing that will involve analyzing your present investments and your needs in order to develop a custom investment portfolio designed with the potential to meet your specific objectives.

Personalized, custom service The desirable qualifications of a manager extend beyond technical planning and investment skills. Successful investing is a long-term effort. Your manager should have the capability and stability to provide ongoing personal attention. Meeting your specific investment needs will take truly custom service from a well-established manager who knows you. Your manager should also be easy to reach when you have questions or need something done, and be someone you can rely on to follow your instructions.

Freedom from bias In considering an investment adviser, you should be aware of the potential for biased advice. Some advisers have a financial interest in a specific security or type of security, or in making trades. It's important to learn what the basis is of the manager's compensation and whether the manager's personal financial interest may affect his or her advice to you.

Information resources Fact-based investment decisions and recommendations begin with up-to-date market information. A manager's re-sources should include easy access to complete, high-quality market research and broad economic data. Also needed is the ability to process portfolio transactions quickly and efficiently. You should be kept personally well informed about your investment performance and the status of your account, and receive full statements and annual tax information.

Choice of manager's discretion Finally, you need the freedom to decide how much responsibility you want to give your investment manager. You may want your manager to make independent decisions for your portfolio, within the guidelines and goals you set, or you may want to receive recommendations from your manager, and reserve the final decisions for yourself.

(David Compere is a vice president and trust officer with Springfield Trust Company.)