Investing, Trading and Personal finances | Financial news

Stern advice how to vet that investment adviser


´╗┐May 16The Securities and Exchange Commission is taking its own sweet time coming up with a rule that would make all investment advisers put their clients' interest first. Almost a year and a half after saying it was going to pursue this so-called "fiduciary standard," the agency seems stuck. That's because it is trying to contort the standard in such a way that brokers who are paid commissions to sell products could fit under that definition. For many individual investors seeking guidance, that defies logic. How can an adviser put my needs first, if he is paid to sell only one shelf-full of products? And paid more to sell some than others?It's no wonder that the financial services industry remains among the least trusted the United States, according to an annual survey by public relations firm Edelman. Fewer than half of consumers said they trusted financial services firms, and more than half of them said they think financial companies need more government regulation. In the meantime, the financial advice industry is moving on without the SEC. Traditional brokers are leaving the field and instead becoming independent registered investment advisers who must adhere to a traditional fiduciary standard."The wirehouses (big brokerage companies)are losing their grip on high net worth investors," Tom Nally, a senior executive at TD Ameritrade, recently told a meeting of independent advisers. TD Ameritrade is a brokerage company that holds assets and does trades for clients of many independent advisers. Nally told members of the National Association of Personal Financial Advisers, or NAPFA, meeting in Chicago that his firm has seen an 11 percent increase in the number of 'breakaway brokers' since last year. But the move by more advisers to a fee-driven model is just one small step forward and hasn't really answered many questions for individual investors. One reason is that a fiduciary is good to have, but it is just one piece of the vetting process.

Another reason is that advisers themselves have clouded the waters, with more than a dozen different designations and several different business models."The real challenge is that consumers still don't know the difference between a real fiduciary and a salesman because of the convoluted and deceptive use of titles by many financial services firms," Brightscope's Mike Alfred wrote recently in Forbes. His company publishes data on advisers for consumers to use to compare them. So, yes, start with a fiduciary adviser, but then take it from there. Here's how to find an investment adviser now.-- Refuse to play semantics. Many advisers now call themselves "fee-based." That's not the same as fee-only. It may just mean that they charge you fees AND sell products to you that then kick back extra to them. Ask, "Are you making money from anyone but me on my account?" Ask them if they are "fee-only."

Some companies are what's called dually-registered: They have investment advisers registered with the SEC but also do trading that has them registered as a broker with FINRA, the Financial Industry Regulatory Authority. Sometimes these dual registrants are just in transition from brokers to advisers. But it's better to keep those functions separate. "Don't go to a dually-registered adviser," says John Ritter, a Cincinnati, fee-only adviser and chairman of NAPFA's public policy committee. Use an adviser that is fee-only and a fiduciary.-- Go for a brand-name custodian. It's fine to have a one-person company giving you investment advice or even making trades for you. But don't let them hold your money directly. That's the mistake that clients of Bernie Madoff (who was nominally a fiduciary) made. Make sure that your account is housed at a brand name SIPC-backed brokerage firm, like an Ameritrade or a Charles Schwab or the like.-- Don't overpay. Even when they take fees instead of commissions, the big brokerage houses charge more than the independents, says Cerulli Associates, a research firm. On average, the big brokers charge about 1.1 percent of assets to manage an account; the independents charge 0.9 percent, says Tyler Cloherty, a Cerulli analyst.

Even those amounts may be high if you're just getting generic mutual fund-picking advice, and if you're willing to do your own trades. If you have a $1 million portfolio and are paying an adviser 1 percent, that's $10,000 a year for investing advice. "What exactly are you getting for that?" asks Sheryl Garrett, a Shawnee Mission, Kansas, adviser who only bills hourly or by the project. She says she typically gives a year's worth of investment planning for clients for roughly $2,000 or $3,000 a year.-- Benchmark those returns. You might have an honest and caring and affordable financial adviser, but if she's managing your money, is she doing any better than you could do on your own with a couple of generic mutual funds? That's hard to tell, because there's no standard way in which advisers publish their results. Next week, Brightscope and Spaulding Group, a performance measurement company, will announce plans to create a uniform performance standard for advisers. Their idea is that they will create a way for advisers to measure and report the performance of the investments they manage in a way that will allow clients and potential customers to compare them. That could take a while, of course. In the meantime? If you are investing for retirement, find a proxy by which you can measure your adviser. Look at a low-cost target date retirement fund for your age group, or use a web site that allows you to monitor "play" portfolios to create a no-brainer portfolio of low-cost stock and bond funds. For example, you could check your adviser's performance against that of the Vanguard Target Retirement Fund at h this site Or you can create and follow a fake portfolio at Yahoo Finance (h this site) or Morningstar (ht tp://this site Over time, of course, your money manager should provide higher returns, net of fees, than the DIY approach.

Transparency alone wont fix money markets feds rosengren


´╗┐Moves by fund companies to post daily net asset values, while positive, will not alone protect investors from crisis-era panics in the troubled money markets, Federal Reserve Bank of Boston President Eric Rosengren said on Tuesday. Rosengren, an outspoken regulator in the debate over what to do about money market mutual funds, said in an interview that "the status quo really is unacceptable." He added that the problem will not be solved "purely by disclosure."Instead, Rosengren highlighted a letter in which he and the presidents of the other 11 regional Fed banks called for more aggressive steps to reform the $2.6-trillion industry. Money market funds threatened to freeze global markets in the financial crisis, capped by investors' rush to flee the well-known Reserve Primary Fund in the fall of 2008 because of its heavy holdings in collapsed Lehman Brothers. The fund was unable to maintain its $1 per-share value, known as "breaking the buck."While the debate over what to do to safeguard the market has drawn on, fund managers such as Fidelity Investments, Federated Investors Inc and Charles Schwab Corp have begun posting daily fund asset values."Posting the daily net asset values I think is positive and I would encourage the industry to continue to think about ways where disclosure could be helpful," said Rosengren, whose Fed district is home to many of the fund companies.

"There are more disclosures that could still occur, including providing daily or weekly positions, for example," he added. "But that disclosure alone doesn't solve the issues, particularly with the potential with runs on money market funds."In their letter to the main U.S. risk council, dated Tuesday, the presidents of all 12 regional Fed banks said they backed a number of tougher reforms currently being considered by federal regulators. Fund companies could be allowed to offer different protections for different funds, they said. But the Fed presidents poured cold water on an industry-backed idea to stabilize the market.

Simply implementing temporary withdrawal restrictions on the funds, known as "standby liquidity fees" and "temporary redemption gates," fall short of what is needed, the Fed officials told the Financial Stability Oversight Council, or FSOC. Last month the Investment Company Institute, the asset management industry's main trade group, outlined just such a limited plan and offered few compromises. The fund companies have argued that the posting of daily asset values is meant to show investors that money funds are stable because the share values vary by only miniscule amounts from day to day.

Goldman Sachs Group Inc , JPMorgan Chase & Co and BlackRock Inc, which oversee $489 billion, or 20 percent, of U.S. money market funds, have also taken such transparency steps. Last summer, a sweeping rule proposal by the Securities and Exchange Commission was blocked. Since then the industry and the FSOC, which includes officials from the Fed Board in Washington, have been locked in debate over what changes to make. The suggestions in the letter, released by Rosengren and signed by all 12 Fed bank presidents, were similar to those made by the FSOC. While investors in one fund could be protected by a floating net asset value, investors in another could be protected by a stable NAV with a capital buffer, the Fed officials said."I don't think this is going to be solved purely by disclosure, and I think that's what this letter highlights," Rosengren said.