AABP Award 728x90

Some tips before swimming with Wall Street sharks


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Dear Mr. Berko:

I’m 67 and an aggressive-conservative, income-growth investor. I’ve got a $425,000 independent retirement account and was recommended to a stockbroker. But the stockbroker wanted to sell me a variable annuity. I interviewed two more brokers and each of them wanted me to buy an annuity. What gives? Then I was contacted by Fisher Investments and couldn’t get rid of their solicitor. I threatened to call the cops if he didn’t stop calling. I got in touch with Merrill Lynch, but that didn’t turn out too well. Their broker was dumber than a rock. I guess I need a professional portfolio adviser, but I don’t know how to find one. And if I find one, I don’t know how to make sure I found the right adviser. Please tell me how to select an adviser and how to avoid mistakes like the people who got stuck with Bernard Madoff. I know you do not manage accounts, but can you recommend an adviser you think is qualified?

N.R., Springfield, Ill.

Dear N.R.:

Brokers peddle annuities because they earn a commission of 6 percent or higher, which works out to $25,000 on your $425,000 IRA. That is a lot more than they would earn managing your portfolio in one year, three years or even five years. Once you buy that annuity and the broker gets the check, he washes his hand of you and combs the crowd for another sale.

Most folks with your assets should employ an adviser who can help them define and achieve their long- and short-term financial goals. He or she must be a personally compatible adviser with whom you can build a diversified portfolio of income and growth issues that should work in harmony to provide you with a comfortable retirement.

In today’s market, deluged with so many septic investment choices, you need a wise adviser to navigate this garbage, which 20 years ago would never have qualified to trade on the New York Stock Exchange. At your age and stage, you must have an experienced adviser who isn’t fooled by the toxic debt issues and fetid equities spawned by Merrill Lynch, Lehman Bros., Goldman Sachs, UBS, etc. The adviser must be credentialed by the Securities and Exchange Commission as a registered investment adviser with at least 15 to 20 years of experience. As my dad would say, “Good judgment comes from experience and experience comes from lots of bad judgment.”

Fisher Investments isn’t for you. It’s a slick marketing machine with pit bull salespeople. Merrill Lynch? Their record “stinx.” Would you employ a firm that fouled its own portfolio and nearly went bankrupt?

You need an adviser with a small, or boutique, brokerage where they know your name and to whom your $425,000 portfolio is meaningful. Merrill and Fisher have thousands of huge managed accounts, and your $425,000 is no more meaningful to them than would be another fly to a slaughterhouse.

Here are some thoughts on choosing an adviser:

● Check the adviser’s “disciplinary record” via www.finra.org, the Financial Industry Regulatory Authority’s Web site. This is important. It’s like making sure your babysitter isn’t a child molester. If there are complaints related to customer disputes, churning, fraud and unsuitable recommendations, stay away.

● Check his track record. An adviser might tell you he can’t calculate a track record because each client has different objectives. That’s disingenuous hooey. He can tell you how many of his clients beat their benchmarks and how similar clients have done in multiyear time frames.

● Find out how the adviser gets paid. If he offers a complicated compensation scheme, suggest he take a long walk off a short dock. Advisers should charge a quarterly management fee and never a commission.

● Know who holds your money. Madoff’s clients wrote checks to Bernard Madoff Securities. In most instances, your checks and securities should be paid to a custodian such as Vanguard, Fidelity or Charles Schwab.

● Your adviser should post quarterly reports comparing the performance of your account vs. various benchmarks, such as the Standard & Poor’s 500, Lehman Bros. bond index or the Nasdaq composite index.

● Is your adviser accessible? Will he return your call in a reasonable time frame? Your adviser must be the person who makes portfolio decisions, not a snotty Wall Street M.B.A. in a three-piece suit who doesn’t care to talk to you.

● How does the adviser make investment decisions for your portfolio? What investment discipline does he use when making buy and sell decisions? And what oversight is there so you know he is following his discipline?

I know several portfolio managers at boutique brokerages for whom I have high regard. I’ve posted their names and phone numbers. The fact that I respect their work is meaningless, however, unless you’re comfortable with their styles, personalities and qualifications.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@comcast.net. © 2009 Creators Syndicate Inc.

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