The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

Oh, did I forget . . . ?


For some long-forgotten reason, I still have a checking account at Bank of America.  With their latest monthly statements, there was an insert suggesting the seven questions you should ask a potential financial advisor, which are:

  1. What types of clients do you work with?  Okay, that’s a fair question.  One example would be increased familiarity by the advisor with the myriad of financial programs for government workers would help both the advisor and the client.

  2. What is your track record?  Totally bogus question!  Past performance tells you very little about the past and tells you absolutely nothing if not compared with the risk taken.  If they promise high returns, run for the door.  A much better track record is what is the average tenure of your clients – do they stay with you??

  3. How often will we work together?  Another fair question.  The answer should be how often do you want to hear from me?

  4. How can you help me stay on track as I pursue my goals?  This is an old trick used by stockbrokers to use “Monte Carlo Simulation” and give you the probability that you will reach your retirement goals, rounded to the tenth of a percentage point — guaranteed to baffle any potential client.  It’s intellectually interesting but meaningless.

  5. Do you have investments that align to my values?  This is fair and increasingly important, especially to investors with strong feelings on cigarettes, booze, the environment, trafficking, etc.

  6. What happens if the markets are volatile?  Fair question – some investors want to hear from their advisor more often during bear markets, while some don’t want to be reminded that markets can actually go down.

  7. How do I pay your work – and how much will it cost?  Very fair question, especially with the many “tricks” that stockbrokers can use to hide their fees.  Spare yourself the brain damage of trying to understand the many hidden fees of mutual funds or bond-buying.  Just demand all fees be visible.

Oh wait, the bank forgot the 8th question that you should ask any potential advisor, which is — ARE YOU A FIDUCIARY?  Will you work in my best interest, instead of your own best interest or the best interest of your company?  If they are a fiduciary, they accept that higher responsibility to their clients.  They must fully disclose any conflicts of interests.  (Oh, did I forget to tell you that the mutual fund I put your money into just paid for my spouse and myself to go to Hawaii?)  A fiduciary must fully disclose all fees they receive.  (Oh, did I forget to tell you that I added a hidden fee to the cost of the bond I just bought for you?)

A typical stockbroker is an employee who must give his first loyalty to his employer, such as Bank of America.  A fiduciary must give his/her first loyalty to the client.

That doesn’t mean that a fiduciary is all-knowing and cannot make a mistake.  They’re still human.  It does mean they can be trusted to always put your best interest ahead of their best interest.

By the way, all Registered Investment Advisors (RIAs) are fiduciaries.

Oh, did I mention that Bay Capital Advisors is a Registered Investment Advisor?

Wonder why the bank stockbrokers forgot question #8 . . . ?



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