Need Help

S

spindr0

OK, this is one of those "I've got a friend" stories...

My firends (married couple) inherited some money which while pending estate settlement is still in the hands of the original broker. Mostly muni bonds which they realize are low B rated and undiversified.

We're on different planets since I am geared toward short term trading and they're looking for a longer term approach. They're mid 60's and are willing to take reasonable risk. I'm not looking to advise them, just provide sources of reliable information when they get a brainstorm.

The bond broker recommended a registered investment advisor. I took a look at the web site and the performance net of fees seems pretty decent - three portfolios which over 10 years have appoximately doubled the S&P but more importantly (to me), were close to breakeven in '07 and '08.

What is the process for verifying that their perfomance is as indicated? Audited statements? Where? How? I'm thinking in terms of making sure it can't be a Madoff situation. I'm so far out of my comfort zone that I don't even know the questions to ask :)

I'm not posting a link since I have no agenda here. If someone wants me to or wants it via pm, will do so.

TIA
 
Hello Spindro. I think you can go to the websites of the sec, finra, sipc, and any other organizations and check for membership and any disciplinary issues. Nothing wrong with muni bonds and probably nothing wrong with their present broker. No need to run to a new broker until they establish their investment/trading style so they can pick the best broker for their style. About anyone can put money into a mutual fund. And about any brokers we use for trading can handle investment accounts. Gots to compare fees as well. Not much help from me but Good luck.
 
this is prob the opposite of what you want to hear but as a general (ok a rule period) rule i don't give money advice to anyone - except when i'm telling my "friends" on the internetz to go long NZ ahead of the inventory number :D there is only downside. what happens if this RIA steals all their money? yep you guessed it - they're going to make you 110% responsible b/c God forbid people take responsibility for their own actions. or what if the RIA makes money for 4 yrs then loses 25% in year 5? the prior 4 yrs won't mean anything and they'll get mad at you.

anyways, IF you insist on giving them advice on which RIA to use, do a thorough background check on them, ask re fees, ask what their risk management strategy is (if they don't have one RUN away).

if my personal experience, a vast majority of advisors overcharge their clients for mediocre (or terrible) performance and/or push high commission products (this is even true on the independent side as well). the advisor doesn't work for you - they work for themselves - period. if you don't believe that then you need to take a remedial lesson in reality. are there some advisors who don't rake people over the coals and actually add value? sure. good luck finding them though.
 
Firstly this shouldn't be in Options.

Secondly, call the broker and interview him. Make sure his investment style is appropriate for people who are in their sixties. If he did 2x better than the spx then he might be running 2x the risk (or more). Just because he did okay in 2008 doesn't mean he's not taking excessive risk and the next downleg in the market won't rip his face off. A lot of fund managers I have looked at, did well in some crash largely because they got one descretionary call right. It's not necessarily repeatable.

Ask for audited financials and make sure his investment returns ecompass all his accounts - not just cherry picked ones. See his operation. See his support staff. If he's with a larger firm, check out that firm as well. If he's his own firm, then ask to speak to his accountant or lawyer. All this should be open to you as a prospective client.
 
bc1,

Thanks for the SEC, FINRA and SIPC suggestions of. Would appreciate if anyone else can suggest other directions as well.

The problem with the broker that he's pushing low rated bonds which pay more but are one downgrade away from junk status. The bonds of the last company that he recommended to them is on credit watch, something he didn't mention to my friends.


FrankSlaughtery,

Maybe it wasn't clear what I wrote in my OP. The broker handling the account provided them with the name of an RIA. I'm just looking for sources for them to verify that the RIA is legit. It's their decision, not mine. I'm not providing advice - just resources that might enable an informed decision.

I totally agree - the vast majority of advisors overcharge for mediocre (or terrible) performance and/or push high commission products. Even if you go with a fee based account, time is money and no one is going to work the trade for a better price. I wouldn't trust someone else to manage my money because I can do better. But this isn't about me.


newwurldmn,

You're absolutely right, this shouldn't be in options. My only excuse for doing so is that I primarily read/post here - where I know the clowns from the savants. And technically, my friends are looking at their investment options :)

Calling the broker won't help since AFAIK, they're used car salesman graduates. To be believble, it has to be someone of repute who audits all of the advisor's accounts (which you mentioned).

Thanks for the other suggestions.
 
def agree re asking for perf numbers for all accounts - esp for 2008. if the RIA blew up like everyone else forget it. if he didn't blow up, ask him/her specifically why they were able to avoid it so you make sure it wasn't dumb luck. ask them what their REPEATABLE process is for investing/trading. if they don't have one they're a wannabe HF manager trading client accounts from the seat of their pants.
 
I thought about the options pun as well.

You need to determine if the guy is for real and then if the strategy he employs is suited for your friends.

So the RIA is a used car salesman type?
What firm is the RIA with? Is that firm reputable?

I meant call the RIA understand exactly what his process is. If he isn't completely open with you then avoid him. If there are any shenangins with his performance specs avoid him. If he's not with a reputable firm the due dilligence goes up. What's his AUM? How does he determine what accounts get which securities and trades?

At best he'll produce the expected returns.
At worst, he'll steal their money or lose it in the market causing you to lose a friend.

My guess from what you described is that he's taking a lot of risk and it's not suited for a near retirement couple. You don't do double the market without taking more risk than the market and for their age even market risk is probably too much.
 
Quote from newwurldmn:

You need to determine if the guy is for real and then if the strategy he employs is suited for your friends.

So the RIA is a used car salesman type? What firm is the RIA with? Is that firm reputable?

I meant call the RIA understand exactly what his process is. If he isn't completely open with you then avoid him. If there are any shenangins with his performance specs avoid him. If he's not with a reputable firm the due dilligence goes up. What's his AUM? How does he determine what accounts get which securities and trades?

At best he'll produce the expected returns. At worst, he'll steal their money or lose it in the market causing you to lose a friend.

My guess from what you described is that he's taking a lot of risk and it's not suited for a near retirement couple. You don't do double the market without taking more risk than the market and for their age even market risk is probably too much.
More...
In a perfect world, this makes sense... but I don't believe that you can trust much of what a broker says. This isn't sour grapes because I've been ripped off. It's because with a few friends in the business and as a former IPO whore in the 90's, I've dealt with literally 100's of brokers. I've looked behind the curtain :). Maybe RIAs are different? Can't say because I've never dealt with one.

Thanks for your feedback. I'm going to post the link. Perhaps you (or others) can take a quick look and give me your general impression? TIA

http://www.goodharborfinancial.com/html/performance.html
 
Quote from spindr0:



I'm not posting a link since I have no agenda here. If someone wants me to or wants it via pm, will do so.

TIA
More...

Your big mistake would be recommending any single adviser. If you make any recommendations at all, (which in itself is a bad move) you should provide 3 names which you've researched, and let your friends make the choice. In this way you've provided some help, but are off the hook if things turn against them.
 
Quote from spindr0:

In a perfect world, this makes sense... but I don't believe that you can trust much of what a broker says. This isn't sour grapes because I've been ripped off. It's because with a few friends in the business and as a former IPO whore in the 90's, I've dealt with literally 100's of brokers. I've looked behind the curtain :). Maybe RIAs are different? Can't say because I've never dealt with one.

Thanks for your feedback. I'm going to post the link. Perhaps you (or others) can take a quick look and give me your general impression? TIA

http://www.goodharborfinancial.com/html/performance.html
More...

It looks interesting. But he's long biased and didn't lose money in Sep 2008. It's definitely a flag. Was there even 1 stock that was up in Fall 2008?

He talks about buying REIT's, MLP's etc.

I think it warrants a call and if you are in the chicago area, a visit as well. The credentials of the people seem good. How much do they have under management? If it's 3MM, putting 200k is probably not a good idea. If it's 50MM then it's safer. He runs a lot of volatility vs the SP500 but less beta. My guess is he's running a long/short portfolio. So he must be employing some kind of leverage. With 100 dollars, he's long 75 and long short 200 or something.

For the Tactical Core I can't figure out what their fees are.

Again, given that your friends are old, this is probably not a suitable strategy for all their money.

What about taxes. If you put your money in the SPX you don't pay taxes over the 7 years, here you probably pay ordinary income on all the gains. On top of that, with managed accounts the manager fee is subject to the 2% floor rule (depending on his strategy).
 
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