Market Pulse: What to ask when considering investment advisers |

Market Pulse: What to ask when considering investment advisers

David Vomund

Annuity sales plummeted during the Obama years when it looked like brokers at the big brokerage firms and insurance salesmen would fall under a fiduciary rule, meaning they would have to act in the best interest of their clients.

The courts have since vacated that ruling and annuity sales are spiking. When you evaluate a prospective adviser the first question to ask is whether he or she would advise you as a fiduciary and would recommend what is best for you. That means your interest comes first.

Here are more questions:

Some advisers like growth stocks while others lean toward value. Some actively trade while others don’t. When evaluating an adviser you should understand the investment philosophy and strategy. How does he control draw-downs — through market timing or security selection?

How often does he trade?

Does he typically raise cash after some weakness or preferably before?

Do taxes factor into his analysis?

If an adviser doesn’t have a clear strategy then that is a red flag.

Fees also are very important. When evaluating an adviser you should know how he is compensated. If the answer is more than a sentence and is confusing then that is another red flag. Does he receive compensation based on what he buys? If so, there may be a conflict of interest.

The total fee you pay may be more than the fee the adviser charges, too. If he buys a mutual fund that charges a 1.5% sales fee and expenses then you’ll be paying that on top of the adviser’s fee, which is likely about 1% annually. The same is true if the adviser uses sub-advisers. Also, what are the commission rates? Discount brokerage firms charge about $5 per trade.

Finally, there should be a discussion about performance. This is tricky for an adviser because, unless all accounts have the same holdings and are traded at the same time, he can’t advertise performance. Nor can an adviser offer client testimonials. Those are against the rules. He should be able to offer some sample client accounts, however, and show how he’d invest your portfolio.

Choosing the right adviser is an important decision.

Make sure you are comfortable with him and his investment philosophy, and keep a close eye on fees. Over the long run fees make a big difference. For the record, I trade through one of the largest discount brokerage firms and never receive a commission. Never.

David Vomund is an Incline Village-based fee-only money manager. Information is found at or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.

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