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How do Wealth Managers Pick Investments?

by Chris Cooper, Financial Planning Expert
February 16, 2017

Question: How do wealth managers pick investments?

Answer: Wealth managers use different investments depending on two things; who does the wealth manager work for and what the bias is of the particular wealth manager.  If a wealth manager works for a bank, then you are going to have the bank’s publicly traded stock in your portfolio.  If your wealth manager works for a brokerage firm, then your portfolio will contain securities the brokerage firm is manufacturing, (called underwriting)  such as mutual funds, bonds, & stocks.   In order for a company to take its stock public it needs a brokerage firm to underwrite it.   
 
If your wealth manager works for a company that looks like he owns it, then we may have two problems:  one, the wealth manager is really a hidden employee of a brokerage firm (this group calls themselves fee and commission) then the wealth manager is NOT selecting the investments, but the firm he is secretly employed by is (or has to give approval for the wealth manager to sell them to you).   The second is where the wealth manager is NOT employed by anyone else(this group is generally called “fee only”) , but has hidden incentives from the investment companies he or she is recommending in your portfolio. Now, you might be asking “how do I know if the wealth manager is secretly employed by someone else or has hidden financial compensation from a third party?   By reviewing the wealth manager’s form ADV on the Securities and Commission website, and by running a background check  on “Broker-Check”, a service of FINRA the conflicted regulator of the securities brokerage community.   On there you can see a complete employment and criminal background check.  All third party affiliations and employment by a securities brokerage firm are all disclosed here.
 
With all the talk of a fiduciary standard for the securities industry and the insurance industry being delayed or deleted by the incoming administration and Congress, always remember when dealing with financial matters and the personnel associated with it “Caveat Emptor” – let the buyer beware!

Chris Cooper is the owner and founder of Chris Cooper & Company, Inc., a fee-only financial planning firm for elderly persons and the owner and founder of ElderCare Advocates, Inc. a private geriatric care management and long term care consulting firm. As a California Licensed Professional Fiduciary, Chris can serve as  Conservator of the Person and Estate under court appointment,  as Agent under a Durable Power of Attorney for Financial matters and Health Care matters.

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