My financial planner who I don't pay directly keeps on moving my investments around from one broker to another and everytime he does so costs me fees coming out of old funds and into new.
What gives with this?
B
What exactly is your relationship with this person? If you have given him the green light to trade your account, this may be perfectly legitimate activity. In my case, I have the broker give suggestions, and I nearly always follow them. You can also require a broker to clear all trades with you before making them, or request that they make no trades on your account unless you request them.
One possibility is that the broker is taking advantage of you by moving the money around simply to generate commissions. If so, this is called "churn". There was a popular 1980's line that goes "churn'em and burn'em" as a way to make money on Wall Street. Any broker that does that is doing something that is at least unethical, and likely criminal. Your best bet would be to talk to the branch manager or the brach "compliance officer" to get an explanation. If something isn't kosher, they are the place to start.
-john-
Don't be so quick to throw the baby out with the bath water. What you complain about is called the "principal-agent problem" and it can occur in almost any industry. The agent's measurement of success (compensation) is not the same measure the principal uses (lowest costs, maximizing share price, etc). The occurs in real estate sales, all hourly employment, financial brokering, auto mechanics, medicine, etc, etc.
The saving grace is thus: if an agent engages in "personal measure maximization" long enough, it is eventually reflected in his and/or the principal's performance and he is replaced. The problem takes care of itself. Furthermore, the process speeds up as public awareness of the situation rises (that's what Dateline and 20/20 are for). That may be what is happening right now with this "planner".
The commission method of income generation IS subject to the agent- principal problem, which is why most of us are moving towards fee- based management (no commissions). I have clients still on a commission basis (their choice) that we haven't traded since they purchased the securities. Then again, we have fee-based clients that generate no commissions but we rebalance quite often.
To the OP, its not a crime to make your planner explain himself. If he has "discretion" over your account revoke it ("discretion must be given in writing, by the way). When he wants to trade something, ask him why. Make sure he accounts for taxes & fees in his analysis. If it sounds shady, don't do it. You don't HAVE to take the advice.
What does he say when you ask him this question?
If this were happening to me, I would leave that planner immediately without further discussion. It is possible to dredge up all sorts of convoluted explanations as to why this could be legitimate activity on his part, but the chances of it being purely and simply for commission-generating are so much greater, that I would not bother to search for the truth, but would find another advisor pronto.
You got it!! The planner is stealing from you this way. It does not violate anything that will get him fined or in jail. If you ask he can justify it. Fire him. Get another planner or if possible manage your money yourself. DIYS is not really hard and the learning curve at worst is not likely to cost a tenth of what is being swindled from you. What you can learn in 15 minutes a week about investing will make you wonder why anyone would let a third party mess with their money. Start with stuff like Google Searches for basic terms like "stock investing" and "discount broker". Amazing what can be found with little or no effort and no idea of where you are headed. Cheers!!!!!!!!!
Get another planner or if possible manage your
Indeed, taking a little time learning how to manage your own money is the best plan. There is just too much danger in searching for someone else to do it for you. Certainly there are honest advisors who can do a good job. But, for a newcomer, finding an honest one and avoiding the dishonest ones is like shaking dice. You have to learn something about finance and how products are sold to make it better than a chance affair, so you might as well learn some more and do it yourself.
Here's another way to look at it: If you pay your planner to execute trades, what you'll get is a plan that executes as many trades as the planner can plausibly get away with--even if the planner tries to be honest about it. You get what you measure. So you should be looking for a planner whose only interest is in doing what's good for you.
Here's an article that puts it in perspective:
I have only one question. Is your planner making you tons of money doing what he is doing?
If not, find someone else.
PaulM
The phrase "tons of money" is misleading. No responsible financial planner should be expected to deliver "tons of money" whatever the market condition, and failure to do so certainly is not a shortcoming. A reasonable expectation would be steady growth over a long period of time, with perhaps a little better than average growth when the market as a whole is rising and a little less than average loss when the market is declining. Frequent buying and selling on the part of the planner, even just a few trades per year, is a danger signal. One can ask "If this advisor is astute, then why does he need to sell one fund and buy another so often? Why didn't he get it right the first time?" If for some unusual reason frequent buying and selling is actually in the investor's best interest (which is not likely), it is the financial planner's responsibility to explain in advance why that approach is desirable.
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