This week's theme is good faith; fiduciary care.
"The principle of acting in good faith is at the heart of decent work." Richard Eyre
"Observe good faith and justice toward all nations. Cultivate peace and harmony with all." George Washington
"Our first responsibility is to protect the American people and we cannot put on blinders to expect that everyone who seeks asylum does so in good faith." Bill Shuster
"The foundation of justice is good faith." Cicero
"The best security of the fidelity of men, is to make interest coincide with duty. Alexander Hamilton
Everyone in Iowa, or Ames at least, has been watching and talking about basketball news the past month. One favorite son gets a high profile NBA coaching job and another wins his first NBA championship ring.
Another piece of basketball news was about a high profile player accusing a Financial Advisor of stealing twenty million dollars.
Who do you trusts and how can you know?
Here are the criteria I would look for.
1. Training: Do they have or are they being supervised under someone who has advanced training? A Certified Financial Planner®, Chartered Financial Consultant®, Accredited Investment Fiduciary® or other recognized accreditations?
2. Experience: Do they have experience in good and more difficult market environments? Or they are supervised by someone who does.
3. Will they commit to acting in your best interest as a fiduciary? Unless they are fee only and not connected through compensation arrangements to a third party, they have inherent conflicts of duty. These conflicts might include commission payments from product providers, proprietary product offerings from the firm that pays them a salary or other forms of compensation. In any event, if they are receiving compensation from someone else, and not you; then their primary responsibility is to someone else and not you.
4. Finally, I would say they should not acquire custody of your assets or have withdrawal power of your assets. An Investment Advisor should safeguard the client's assets from theft by using third party custodians, and only having limited powers of appointment to perform transactions such as trading and receiving fees.
Marrs Wealth Management fits all of these criteria.
If you know of others who are looking for a trusted Financial Advisor, share these guidelines with them.
"Is your advisor a fiduciary? Chances are, you have no idea"
Andrew Osterland writes; "Financial advisors are currently regulated under two different standards of conduct.
Investment advisors registered with the SEC or a state securities regulator are fiduciaries, subject to the duty of loyalty and due care with their clients. They are typically compensated by asset management fees and are expected to act in the best interests of their clients. If they don't, they can be sued in a court of law."
"Stockbrokers, broker-dealer representatives, insurance agents and others who provide investment advice, on the other hand, are regulated by the private-sector organization Financial Industry Regulatory Authority (FINRA) or by state insurance regulators and are subject to a "suitability" standard of conduct."
"Their investment recommendations must be suitable for investors based on their financial profiles, but those advisors are not required by law to act in their clients' best interest. They are often compensated by commissions on transactions that can put them in conflict with the interests of their clients."
"The value proposition of a live advisor involves much more than asset allocation and security selection. It's about understanding people's goals and helping them achieve desired outcomes."-Kurt Schacht, managing director of Standards and Financial Market Integrity at the CFA Institute"
Sometimes you need to look more deeply than what is said! CNBC put out a list of top fee only advisors recently, a deeper look revealed that 9 of the top 10 were not really fee only.
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"CNBC Top-Fee Only Firms Fail Fee-Only Requirements"
"As a part of the registration requirements for an RIA, all firms must submit Form ADV, a public disclosure document which includes, in "Part 2", an explanation under "Item 10" of "Other Financial Industry Activities and Affiliations". This disclosure documentation must be provided to new updates (along with annual updates thereof), and is publicly available to anyone through the Investment Adviser Public Disclosure (IAPD) search database."
"Accordingly, I looked up the Form ADV Part 2 disclosures for each of the top 10 firms in CNBC's list of top Fee-Only firms, with the remarkably simple approach of just searching for the word "insurance" and seeing what came up in Section 10 on disclosed affiliates. Here's what I found (in order of the top-10 ranking on CNBC's list), quoted directly from the companies' Form ADV Part 2 documents."
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"Michael Kitces is calling CNBC out on the carpet for allegedly misleading the investing public by calling advisors "fee-only" when they may indirectly receive compensation from commissions."
"In a hard-hitting article published yesterday on his blog, Nerd's Eye View, the industry guru questioned the integrity of the New York-based news giant's list of top 100 rated fee-only wealth management firms."
"Kitces's allegations are based on his vetting of the SEC documents of the first 10 entries on the list."
"A deeper look at the Form ADV Part 2 disclosures of just the top 10 firms on CNBC's 'fee-only' list reveals that nine out of 10 of them share in insurance commissions, own an insurance agency, or are under common ownership alongside an insurance affiliate to which advisory clients are referred. In other words, nine out of 10 of CNBC's "Top Fee-Only" firms are not actually fee-only," Kitces writes in his blog."
"Granted, there are also a lot of issues out there right now of firms holding out as fee-only when they're not," he says in an interview. "But in this case, CNBC took pains to point out that their list was not based on advisor submissions, but their own third-party selection process. Which makes it all the more concerning that CNBC didn't vet the form ADVs of the RIAs first, to see all the related insurance entities. And it's not that hard to do. The information is all public. I looked up the firms, searched for their insurance details, and wrote that entire article in under two hours and spotted the issues." See: The SEC needs to clean up its semantics before accusing RIAs of inflating AUM."
It is important to get professional advice for investment success.
More important it is essential to get un-conflicted advice that is in your own best interest.
A recent Supreme Court case decided that it was a breach of Fiduciary duty to not monitor a client's investments. Do you believe a person that is not being paid a fee to manage your investments is monitoring those investments?
The S and P 500 index was trended up this week +.75%.
The Dow Jones World Index trended up this week. +.25%
The CRB Commodities index trended down this week. -.63%
The Gold Index trended up this week. +1.8%
The US Dollar index trended down this week. -.70%
The 10 year Treasury Yield index trended down this week.
The 10 year Treasury Price index trended up this week.
Inflation Linked Bonds trended up this week. +.65%
US Aggregate Bond Index trended up this week. +.52%
The International Aggregate Bond Index trended up this week. +.63%
The NCREIF Index is aggregated and reported quarterly and is a total return broad representation including rents and appraisal of non-traded Commercial Real Estate.
2014 2nd qtr + 2.91%
2014 3rd qtr + 2.63%
2014 4th qtr +3.04%
2015 1st qtr +3.57%
It pays to stay diversified and not chase prior winners!
Many investors take the wrong approach looking primarily at recent return.
Overall risk measures and managing downside risk play an increasing role in end results.
Investors instead should be focused on managing Dynamic Beta exposure, evaluation of Active Share, Sharpe ratios, Sortino ratios and Alpha.
Please forward this on to anyone who you think may be interested.
The above is for informational purposes only and not an offer or recommendation to buy or sell. Past performance is no guarantee of future return. Decisions on making any investment should be made only subsequent to a thorough professional analysis of the overall individual financial picture and the goal for the investments. This writing is not to be construed as an offer of personal advice or an offer to follow any recommendation. Any investments should only be entered into after a thorough analysis from your personal Adviser and related to your current financial picture and goals.
Any investments can lose value. Diversification is not a guarantee against loss.
The above is for informational purposes only and not an offer or recommendation to buy or sell. Past performance is no guarantee of future return. All decisions about investments should be made within parameters of risk, time frame, financial position and overall asset allocation.