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Finding an Honest Investment Professional

CNBC's Business News offered the following advice on "Finding an Honest Investment Professional":



Be aware that there is a big difference between a Broker and a Registered Investment Advisor. Registered Investment Advisors have a fiduciary responsibility to their clients and are required by law to act in the best interest of their clients. Brokers have no such responsibility.


Do your homework research any potential investment advisor. Anyone can call themselves an "investment advisor," "investment manager," "financial advisor," or other term.


Ask if he is a [fiduciary, and if the firm he works for is a ] Registered Investment Advisor.


Check an Advisor's registration with the State Securities Regulator. (In California, check Investment Advisors through the California Department of Business Oversight.)


Check Brokers at FINRA



Fiduciary?    What's the Big Deal?

The term fiduciary is one of the most important and the least understood concepts of Investment Management.

It is not often heard, because Fiduciary Advisors make up less than 10% of the financial services industry. 1

Those few are usually employed in Private Wealth and Trust Departments of large banks, which have minimums of $2 million or up.

It is rare to find a fiduciary for an account worth a few hundred thousand dollars, which is why we represent them.

A fiduciary is:
  • simply someone who represents your interests - but the key is your interests always come first - even before the fiduciary's own interest or that of his firm,

  • a term denoting loyalty, honor and accountability,

  • expected to act with undivided loyalty to his client,

  • legally required to act in a client's best interests at all times, which is not the case with brokers, wealth advisors or financial planners.

"Brokers don't have to put you first, neither do Financial Planners, Investment Managers, Wealth Managers, or a host of other[s]..." the LA Times reported. "Registered Investment Advisors are the only investment professionals legally required to put the client's best interest first, before themselves or their firm." 2


Pacific Investment Advisory is a Registered Investment Advisor and Fiduciary. Our only income is our client's fee - so commissions or sales incentives never influence our choice of investments.

1. according to Cerulli Associates, a Boston financial industry research firm
2. Michael Hiltzik, LA Times 5/1/10


Other questions for the potential advisor

1. Do you or your company receive any additional income or revenue for recommending products or investments?
If so, there could be a conflict of interest.

2.

Do you provide a "fee only" investment advisory service, versus commissions?

3.

Do you use mutual funds in your investment mix? If so, are they "no load" funds (no commission)?
How low are the expense ratios? Do they carry 12b-1 fees?
These are all hidden fees, which affect performance.

4.

How many years have you been in the financial services field?
The more, the better. Look for a minimum of 15 years investment experience.

5.

Where will you custody my assets?
(Where will your assets be kept? You want your assets kept with a third party a reputable company which specializes in custody and record-keeping like Fidelity Investments)

6.

Will I get investment reports from a third party?
This prevents a Madoff from misstating your assets.
How often? We suggest monthly, though you may request quarterly.

7.

Will I be able to view my account online?

8.

Will you personally be the one to invest and manage my portfolio?
Some large institutions may assign accounts under $1-2 million to an 'associate.' You may never speak to or know the level of experience of the person managing your portfolio.

9.

How often do you personally look at my accounts and investments? Some large institutions may look at your account once a year; others on a quarterly basis. At Pacific Investment Advisory, we look at our accounts several times a week, if not daily.

10.

Do you have references from long-term clients I may talk to?
(You want to talk to clients who have been with the advisor at least 5-10 years, so you know how well he advised them in good markets and in bad.)

11.

Do you restrict my investment choices in any way or to particular products?
(Like proprietary products, products from a particular mutual fund family, insurance products.)


Further research

1. Does the potential advisor have a clean compliance record?
(This should provide insight as to his integrity and trustworthiness.)

2.

Does he have an advanced degree?
(Like an MBA in finance, business, economics or a related field)
If not, does he have at least a college degree in a similar field?

3.

Does he balk at providing background information, references, or credentials?



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