Little lambs should beware of big, bad advisers
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Dear Mr. Berko:
I’ve been using an investment adviser, one of the really big ones, to manage my 401(k) since I retired five years ago. I had terrible years in 2007 and 2008, and this year has not been good either. My first goal is to protect my account value and my second goal is income. My account, since 2004, is minus 21 percent. My wife and I are nervous. We’re 71 and 68. This $281,000 is 75 percent of our money, which includes certificates of deposit and an insurance annuity. We can’t talk to the manager and our broker doesn’t seem to tell the manager what our goals are. Please tell us what to do. Can you manage this account for us?
– S.L., Durham, N.C.
Dear SL: Nope! I’ve been out of the money managing business for three years, since when the New York “Schlock” Exchange said: “Stop writing this column or we will cancel your registration.” Well I told them to stick that registration in their ear.
I get several letters like yours each month. Here’s my response.
1. Look for another manager. I don’t know what your guy is trying to do, but I know he’s taking too much risk trying to do it. Call the broker who introduced you to the adviser and tell him to cancel the agreement as of your phone call. Ask him to liquidate everything in the account except the four utilities and three closed-end funds. Be firm!
2. Do not seek an adviser recommended by a broker. As you know, you’re just a number to your adviser. This is precisely what he wants you to be because the adviser has to share your management fee with your broker.
3. Don’t use an adviser who brags about the billions he manages. Your $281,000 is penny in the pot and is about as notable to him and his firm as would be the advent of a new fly to a slaughterhouse. It’s important to you that your account is also important to the adviser.
4. Use an adviser who is comfortable talking with you. This adviser must be personally familiar with your objectives, or profile, and will take time to discuss your account when you call.
5. Do not use advisers who advertise. The best professionals allow their skill-set and experiences to advertise for them.
6. Check an adviser’s discipline record. Ring the Financial Industry Regulatory Authority at 1-800-289-9999. This is the internal affairs division of the New York Stock Exchange and they gleefully maintain a rap sheet of complaints that have been lodged against a prospective adviser.
Today’s advisers, just like mutual funds, specialize in different market sectors. As a result, there are too few advisers who have the 10 to 20 years of experience needed to manage an income or income-growth portfolio, which is how your account must be managed. The best way to find experienced specialists is to seek a recommendation from a friend, an accountant or a satisfied investor. When you talk to an adviser, ask him to provide you with a list of several of his clients to call for a reference and to compare experiences. Even though the adviser will select the clients, you must call. You’ll be pleased by how much you will learn with a few 10- to 15-minute phone calls.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net. © Copley News Service
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