These are my thoughts on working with a financial advisor.

1. You should have control of your assets.
   1. You should be able to buy and sell in any account.
   2. You should be able to log into Schwab (I’m using Schwab but it could be fidelity, E*TRADE, etc. but not the advisor’s account) at any time and see your accounts.
   3. All of your assets should be in your name and not a comingled account held by the advisor.
   4. You should receive confirmation notices from Schwab whenever a trade is made.
2. When your assets are in an account such as Schwab, then it is much easier to ‘fire’ your advisor. At the drop of a hat, you would be able to remove access by your advisor and grant access to another.  This is a big deal.
3. None of your assets should be in proprietary accounts – an asset that cannot be moved, easily, to another agent – Schwab to Fidelity, for example.
4. You should have a contract that states the formula the advisor uses for fees.
5. I suggest that you approve of any money movements out of your (Schwab/Fidelity) accounts.
6. The advisor should not receive 12b-1 fees.
7. The advisor should not receive any commissions, etc. on any product the advisor sells you.
8. The advisor should give you reports outlining
   1. How well you did in each account and in each fund.
   2. Cash flow projections for the next x years with assumptions on growth of the different types of equities (bonds, individual stocks, mutual funds, reits, etc.)
   3. Use of funds when you do take funds out.
9. Now, with all this said, it would make me nervous to receive a typed copy of my fund balances and activity instead of a report from the intermediary trustee (Schwab). I can only think of a few reasons why the advisor presents this way.
   1. One is that the advisor has commingled your funds.
   2. Another is that the advisor does not have a relationship with a brokerage house.
   3. Another is that it is easier for the advisor to make trades of an individual equity for all his clients if he does not have to make the trade in individual accounts.
      1. Now, with this said, if he says he could make the trades in individual accounts but he would charge more, then I’d find a different advisor. One percent is an arbitrary amount (similar to the 6-7% a real estate broker charges) and you should be getting more than I perceive you are getting.
   4. And finally, you will have to live off your equity. So you need to take charge of what’s happening. Now, you don’t have to understand the detailed reasons that your advisor uses to select one fund over another.  But you should understand the basics.  You’re going to receive, oh, 30,000$/year or so off your equity.  You should look at it like a job where your salary is 30k$.

Look at

1. http://www.adviserinfo.sec.gov/IAPD/Content/IapdMain/iapd_SiteMap.aspx

Ok, I feel better about this.

Thursday, April 22, 2021