Advisors and No Audited Performance Standards: Simply Too Great a Risk

 

Don’t Be Fooled Anymore – Get The Audited Numbers on Your Performance, Based on a BenchmarkDunce Holding Paper Money

In this Blog we take you through the steps to learn how to:

  Compare a fund manager’s performance to the appropriate index.

  Learn how a mutual fund’s performance is regulated by the SEC, but your Advisor’s performance is not audited or regulated by the SEC.

In general, financial advisors are not actually managing your money. They place your money with various portfolio managers or some combination of passively managed exchange traded funds (ETF’s). In last week’s Blog we reviewed how America’s top “Advisor” is the best salesperson, according to Barron’s. Read the fine print of your contract. Once your Advisor selects an investment for you, your Advisor has no ongoing duty to monitor that investment, even if they are charging you a fee to do so!

What are the risks for having a salesman managing your nest egg?

As the SEC has warned, your advisor has no training, education or professional qualification to select these portfolio managers; it is not mandated by the SEC.  In its March 13, 2013 Report on the Regulation of Investment Advisers the SEC warned investors that:

“Unlike the laws of many other countries, the U.S. federal securities laws do not prescribe minimum experience or qualification requirements for persons providing investment advice.”

Your Advisor may pick one good ETF or Fund, but may also pick several that drag down the performance of the strong fund, due to lack of experience and training.

Your Advisor does not prepare audited returns that are filed with the SEC, so there is no benchmark to see how you are actually doing, based on the Advisor’s selections, for your retirement nest egg, after the Advisor’s fees.

Your Advisor does not continue to monitor the investments they place you in! It is your responsibility.

There are many Ponzi schemes because there are no standards for Advisors and many “crooks” thus enter this business and prey on your emotions and promise high returns. (Bernie Madoff has warned from jail – “Madoff, Other Felons Say Markets Unfair.”

Eliminate these great risks and investment directly with the Portfolio Manager in a mutual fund(s) that you select and can monitor, based on ongoing professional research and education.

The SEC has defined the benefits of a mutual fund at their website.

Professional Management. The fund managers do the research for you. They select the securities and monitor the performance.

Diversification or “Do not put all your eggs in one basket.” Mutual funds typically invest in a range of companies and industries. This helps to lower your risk if one company fails.

Affordability. Most mutual funds set a relatively low dollar amount for initial investment and subsequent purchases.

Liquidity. Mutual fund investors can easily redeem their shares at any time, for the current net asset value (NAV) plus any redemption fees.

Audited Performance Standards by Your Mutual Fund Portfolio Manager

Mutual funds are regulated by the Investment Company Act of 1940 which
requires:

  The mutual fund company must disclose publicly its financial health on a
regular basis.

  By law, each mutual fund is required to file a prospectus and regular
shareholder reports with the SEC

  It has to register with the SEC and file quarterly reports with the SEC.

  The mutual fund manager has a fiduciary duty to act in your best interests,
not hers, while the SEC permits your financial advisor to act in
their best interest

  There are strict controls for where the securities are held and who has access
to them, which is examined by an independent accountant at least three
times each year.  Do you know where your Advisor is placing your funds and how often it is audited by an accountant?

Here is the format that the SEC requires that the Mutual Fund adhere to for reporting:

Screen Shot 2013-07-29 at 7.02.09 AM

 

Not On My Nickel provides you monthly audited performance figures, per SEC standards (except for taxes, since they are not relevant until distribution in 401K or IRA) on a monthly basis for the mutual funds that you choose. In future Blog Posts we will show you how to determine your overall return if you are in multiple funds and give you a simple format to plug in your own numbers to watch your savings grow.

Here is an example of a researched NOMN balanced fund (Blue Line) and NOMN aggressive growth fund (Red Line) compared to a State Farm Target Date Fund (Green Line).  Do you know how to compare your performance, based on your Advisor’s recommendations in this graph?,  If not, it is time to take charge and get access to the best returns, at the lowest cost, based on audited performance standards.

Screen Shot 2013-07-29 at 8.49.29 AM

So, without audited performance, that the SEC mandates for SEC registered portfolio managers, but not financial advisors, you are throwing your money into the wind. Time to take charge, eliminate the redundant fees and place your money directly with the SEC fiduciary portfolio manager.

 

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