How to Select an Investment Advisor

There are 2,613,000 financial salespeople in the United States -- in fact, it's the fifth largest vocation (after truck drivers but before janitors -- no kidding). Strange to tell, not every one of them is outstanding.

This simple quiz will help you decide who to have manage your investment portfolio -- often before he gets to your front door.

Question #1: Method of Transportation

[ ] Advisor 'A' pulls up to your curb in a top-of-the-line, late-model Jaguar, BMW, or Mercedes, indicating his great wealth.

[ ] Advisor 'B' chugs up in a ten-year-old Volvo. It could use a paint job. Or, he arrives by bus.

Question #2: Dress

[ ] Advisor 'A' wears a suit from a bespoke tailor on Jermyn Street. The solid gold Rolex on his wrist weighs eight pounds and has more gauges than the space shuttle. He carries a briefcase made of the skin of an endangered species.

[ ] Advisor 'B's suit is…did I say suit? No, he wears a rumpled blue blazer that looks like he slept in it. His khaki pants are frayed at the cuffs. His wife bought his shirt over the phone from a catalog. No tie -- he doesn't own one. His battered briefcase still bears the tooth marks where his dog gnawed it.

Question # 3: Demeanor

[ ] Coming up the walk, Advisor 'A' has the jaunty step and cocksure attitude of an America's Cup captain. His haircut and tan remind you of that guy who reads the local news at eleven. As he shakes your hand with his powerful, manly grip (learned at his sales training seminar), you feel his brimming confidence being transferred directly into you.

[ ] Advisor 'B' shuffles up the walk looking like a victim of shell shock on his first outing from the rest home. His few remaining hairs are pathetically combed over his bald pate. His shoulders hunched, he avoids direct eye contact. As he limply shakes your hand, he seems to be saying, "Please don't hit me."

Question #4: Investment Sophistication

[ ] Advisor 'A' is a man in charge of markets. Because his business card bears the name of a famous Wall Street firm, he must be a Wall Street insider wired into the very highest sources. With his hand on the tiller, you will make money no matter what happens. Furthermore, his PowerPoint slide show demonstrates like a Euclidian theorem how your money will compound 10% year after year. Soon you will be living on the Rue de Facile (French for Easy Street).

[ ] Advisor 'B's attitude is morose. All he talks about are the risks, never the big returns you were hoping for. He looks over your investment statements and just shakes his head in dismay, like he's reading the obituary of his best friend. When he talks about putting money into the stock market, his eye starts to twitch.

SCORING:

Each time you chose Advisor 'A', score 0 points.

Each time you chose Advisor 'B', score 25 points.

INTERPRET YOUR RESULTS:

0-99: "A fool and his money are soon parted."

100: Congratulations!

Report: Accused hedge fund CEO threatened by clients

http://money.cnn.com/2006/03/21/news/newsmakers/hedgefund_nfl/index.htm

Lawyer says CEO of Atlanta-area hedge fund that is accused of defrauding current and former NFL players has been threatened by ex-football player clients, says paper.

March 21, 2006: 11:55 AM EST

NEW YORK (CNNMoney.com) - The manager of a hedge fund accused of defrauding current and former professional football players is reported to be hiding out from former players who have threatened him.

The Atlanta Journal Constitution quotes Jacob Frenkel, an attorney for Kirk Wright, the CEO of International Management Associates LLC, who said that his client has been hiding out due to the threats. The paper reports that Wright, 36, has been missing for nearly a month, since his offices were closed and the assets frozen by court order.

 

"Because of threats made against him, he has chosen to make his whereabouts unknown," Frenkel told the paper.

Frenkel told the paper an ex-NFL player who was a client of the fund threatened Wright, and another, posing as a law enforcement officer, confronted a worker at Wright's home in Marietta, Ga., and demanded to know his location. Frenkel would not identify which former players had made the threats.

Terrell Davis, Steve Atwater, Rod Smith, Ray Crockett, Blaine Bishop and Al Smith, are all either current or former members of the Denver Broncos, and Clyde Simmons, who played for five teams, primarily the Philadelphia Eagles, have together filed a suit against International Management Associates. The paper reports that Bishop lost $4.1 million in the fund, while Atwater lost $3.3 million and Davis lost $2.1 million.

The paper reports that Wright also has an outstanding warrant for his arrest pending. It was issued by a Fulton County, Ga., judge following the lawsuit brought by the football players. Wright also has since been targeted with more civil suits.

Financial Advisory Firms Can Add Real Value

The following are ways that a good financial advisory firm can add value and questions you should ask when interviewing prospective firms.

*Do you provide ongoing access to the latest academics research on financial markets?  It was not that long ago, for example, that the value effect was uncovered.  How will that information be communicated to me?

*In what form and how often do you provide ongoing education?  A good advisory firm will continue to educate its clients through conferences, seminars, and/or newsletters.

*Do you integrate an investment plan into a complete estate and tax plan?  Tax strategies play an important part in determining the return on your portfolio as well as the preservation of the value of the estate  your are able to pass on to your heirs.  The advisory firm should be able act as quarterback for your financial services team, which might include, among others, your accountant, attorney, and life insurance agent.

*How do you establish an investment policy?  Will it incorporate my unique ability, willingness, and need to take risk?

*What is your process for developing an appropriate model portfolio asset allocation?  Do you perform the stomach acid, liquidity, and need to take risk tests; ensure that the appropriate "devil's advocate" questions are asked; and help select the specific investment vehicles?

*As appropriate, do you run Monte Carlo simulations to help analyze the odds of success of the strategy?  Do you also assist in analyzing the output to help determine possible changes to the strategy based on the output?

*How often will you meet with me to discuss wether the investment policy remains appropriate over time and as personal circumstances change?

*Do you provide access to institutional-style, passive asset-class funds not available to the general public?

*What is your process for providing the discipline, during both good and bad times, to help me stick with the strategy?  An investment advisor should be able to take the emotion out of the decision-making process.

*How do you determine the asset-location decision?

*Do you provide expertise over a broad range of financial issues, such as what type of mortgage to use when buying a home, the type and amount of life insurance that is appropriate, and wether a variable annuity is appropriate?

*Do you have the time and expertise to analyze new products as they are introduced to the market?

*Do you provide advice on funding future college expenses, understanding all the implications, including how it might impact the ability to obtain financial aid?  Have you analyzed the various programs that are available (i.e., 529 plans, qualified tuition plans) so that you can advise me on which is the best choice?

*Will you track the performance of my portfolio and ensure that rebalancing process is performed on a regular basis and in the most cost-and tax-efficient manner?

*How often do you check for tax-loss harvesting opportunities?

*Do you provide regular reporting, at least on a quarterly basis, that clearly communicates the performance of both the overall portfolio and the individual investments?

*Do you provide for separate account management of either equity or fixed-income portfolios in accordance with an overall passive asset-class investment approach?

*Do you have the time to do all these things?

*Finally, how do you build trust, get to personally know me as a client, and establish rapport along with a high level of comfort?