Have you ever dated your financial advisor?

Most people haven’t, and judging by myself and a few other advisors I’ve seen out there, that’s perfectly understandable. But in a way, whether you like it or not, you are sort of dating the person looking after your money. After all, you most likely speak to this person quite often, see them once in a while and on occasion, might even join them for a trip to Tibet.

Most financial advisors I know out there are honest, decent and completely trustworthy. Unfortunately, however, as in any profession, there’s always a few sour apples in every bunch.

As such, forget the Iranian nuclear threat, Bin Laden at large, the sub-prime mess, the war in Iraq and the planet about to dry up like a Sun Maid raisin. When it comes to making the world a better place to live, the first place one should always start is by learning a few inside tips some financial advisors might rather you didn’t know about.

Keep in mind: in some cases, these ideas are not necessarily dishonest things, rather, they might simply relate to “industry acceptable” business practices I’m generally not a big fan of.

So, as you and your money hopefully continue a pleasurable experience dating your advisor, here’s a few inside tips to keep in mind along the way…

Is your advisor dependent or independent, and why would this matter?

Typically, a dependent advisor is one that works for a firm that also “manufactures,” promotes and distributes their own investment products, otherwise known as “proprietary investments.” For example, the advisor you’re dating might work at XYY Brokerage that “manufactures” XYZ Mutual Funds. While in some cases these proprietary funds might be perfectly fine, inexpensive and perform very well, in some cases, these proprietary investments not only under perform their peers, but they could potentially cost more in terms of fees as well.

While such a case is not a certainty by any means, if you have money at (for example) “XYZ Brokerage” and are invested in their XYZ Mutual Funds (or any other proprietary investment “manufactured” by that firm), I would highly suggest you at least take a second look at these investments in terms of their performance and fees. You’ll either be pleasantly surprised or, perhaps, want to divorce your advisor and start having you and your money date someone else.

Have you ever heard the phrase, “There’s no cost to invest in this fund?” If you have, and you invested because of what appeared to be a free lunch, then you were likely told only half the story.

When investing in funds, even funds that are deemed “no load” (no commissions), just know this: you’ll always pay a cost while your money is invested in a fund. I’ve seen (what’s known as) “internal fees” as high as 4%, and in one case, a mind-boggling 8%, which will obviously do one thing and one thing only: reduce your returns and get your money upset that so much of it is going unnecessarily down the drain.

If you’re curious to know the cost of maintaining your “no load” (or other) fund, be sure to check out www.morningstar.com, or, better yet, Lipper’s www.personalfund.com. Another great source is FINRA’s mutual fund expense analyzer that can be found at www.finra.org/investorinformation.

So, next time you hear those poetic words, “There’s no cost to invest in this fund,” make sure you get the rest of the story; otherwise, it could wind up being one bad and expensive date.

Forget boating, shrimps on the Barbie, Jimmy Buffett music, getting eaten by sharks and if you’re me, stepping on hot coals buried in the sand. When it comes to “anchoring” an account, the term typically means there are investments or ancillary services embedded in the account that could help “keep it in place.”

Let me explain this a bit further…

Keeping in mind item number one above, suppose I am invested with XYZ Brokerage and along with other mutual funds, my account contains those proprietary XYZ Mutual Funds nested somewhere inside it.

Suppose, hypothetically, that I no longer want to date my financial advisor; there’s someone else my money wants to go see Scorsese’s latest movie with. So, I go to this “someone else” who attempts to “transfer” my account from XYZ to their firm.

Typically, transferring the account to this other advisor would be easy, but with those XYZ Mutual Funds nested in the account, it’s a bit trickier. In most cases, these XYZ Mutual Funds first have to be sold off before the account can be moved (proprietary funds have to be sold because in general, the new advisor wouldn’t be allowed to sell these funds; they can only be sold by what’s known as “captive” representatives)… And what does this mean? It means you’d have to first call the advisor at XYZ Brokerage to sell them off, and this gives the advisor one last chance to try and “save” the divorce from happening (which, in some cases, might actually be a good thing given it could give you one last opinion — for better or worse — that moving the account to your new advisor is in your best interest).

Another popular “anchor” in accounts are all those extra services some brokerages offer. An extra service might include, for example, bill pay. Imagine this: you go to a new firm, you are offered bill pay services, and for convenience, wind up changing the address of all your bills to go to the brokerage account (for on line bill pay and direct debits from the brokerage account itself).

Sound convenient? Some firms hope so. In the case where your life is running through the brokerage account, you might have a harder time accepting the fact that if you move the account elsewhere you’ll have to re-do tedious things such as setting up your bill pay services. The more extra-curricular services you “take advantage of,” the less likely, some firms believe, that you’ll want to move the account.

The answer to all this is to take your time making sure the advisor is the right person for you to date. Only after you’re sure the relationship has legs would I recommend taking advantage of all those extra services.

Paying a management fee to an advisor to watch over your money? … In many cases, I have no problem with that, and, presumably, neither does your money. But when you’re paying an advisor to manage your account and the advisor has your money invested in managed mutual funds, then guess what…. You’re now paying two (or more advisors) to manage your money; the advisor you are dating, and, the advisor(s) at the fund.

As such, I would highly recommend the advisor (you’re paying a management fee to) consider using low cost investments such as index mutual funds or Exchange Traded Funds. This way, you are truly only paying one advisor, not several along the food chain that, once again, could likely result in one thing: lowering your rates of return and getting your money upset at you.

Managed money accounts can be a good thing but what happens if the relationship turns sour? What happens if your money wakes up one bad market day and says to you, “get me out of this relationship!” In the case where your money is acting up and begging for a divorce, to transfer the account to another advisor you might have to first sell all stocks and positions in the account. This could cause excessive fees, and if that’s not bad enough, taxable events as well.

Imagine: you want out of the relationship and to do so, you have to pay fees and taxes for the divorce. Such a requirement can obviously be pretty painful, and if you are entering into a relationship with a fee based advisor, although it could hopefully be the start of a beautiful friendship, just be sure to know the rules of engagement before you marry your money off to the person who’ll hopefully spend a long time watching over it.

This thing called “money” is pretty important, to say the least. Therefore, when finding someone for you and your money to dine, go to the movies or Tibet with, hopefully keeping in mind a few of the tips above will help make the relationship successful for many years to come.

(PS: thanks to my new book now out, I can finally devote more time to this blog. Stay tuned for new posts generally on a weekly basis).

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