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Broker managing your portfolio?

December 6th, 2010 Author: Michael Hill

If you’re paying a percentage fee to your broker or financial advisor to manage your investment portfolio, be mindful of the following things.  This type of account is called an “investment advisory” account and as such is subject to additional regulatory requirements incumbent on the broker.

1. Does your portfolio have a single large position?  For example, if you have a $500,000 portfolio and have in it, a $300,000 position in AT&T (NYSE: T) and gave instructions to your advisor not to ever sell that position, then you need to make sure that advisor’s fee does not include the AT&T position, or at least negotiate a discount on that portion of the portfolio.  If the advisor is not performing any investment advisory service on a position that is restricted by the client then it may be a conflict of interest for the advisor to earn a fee on it.

2. Has your advisor recommended your portfolio to own any new issues such as: closed end funds, structured notes, structured products, IPOs, etc.?  If so and if those products are bought in the fee-based account, then it may be a conflict of interest for the advisor to charge a fee on the assets of those new issues.  Make no mistake, advisors earn a nice commission on new issue securities, which often is “baked” in the offering price so you do not easily see it.  An advisor earning a commission and a fee in a fee-based account is “double-dipping” and is a violation.

3. Make sure the investments being recommended or chosen by the advisor conform to your initial investment policy, investment objectives, or investment strategy.  This would have been discussed during the opening of the investment advisory account and, perhaps, updated periodically thereafter.  If an advisor recommends or trades securities not in conjunction with what was presented at the onset of the account opening, then that may be a basis for a claim should there be any losses.

4. Are you receiving a disclosure brochure from the advisor every year?  This is an SEC requirement that details the account description, fees, products traded, conflicts of interest, etc.  Read it!  If you’re not getting it, it could be a violation of the investment advisory agreement.

5. Look your advisor up on FINRA’s BrokerCheck or SEC’s Investment Advisor search.  Go to www.finra.org or www.sec.gov to do this.  Recently, the SEC has been providing disclosure information on individual investment advisors on its website.  Take advantage of this program.

CATEGORIES: Investor Alerts

Tags: broker check broker fraud conflict of interest double-dipping fee-based account Finra investment adviser investment advisor investment advisory risky investment sec securities fraud unsuitable investment

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