Financial advisors have a fiduciary responsibility to their clients. Another way of saying

this is that advisors have a duty to look out after their clients financial interests. While

the majority of money managers and brokers care deeply about doing what is best for

their clients, we are continually amazed by how many of our clients former advisors

seem to have been motivated primarily by commissions and fees, and not by their

clients best interests.

Weve compiled a list of questions that you can ask yourself to see if the advisors youve

dealt with have had your best interests at heart:

- Did your financial advisors spend time trying to understand your overall financial

objectives?

- Did they clearly and completely explain how they are being compensated? If an

advisor says to you I dont make money unless you do, wed suggest you run for

the nearest exit. We are unaware of any fee arrangement where that statement

would be true.

- If they recommended that you purchase mutual funds, did they explain the

differences between Class A, Class B and Class C mutual funds? Did they

explain the commission and fees involved with each?

- Did they make you aware that investing larger amounts of money may qualify you

for discounts when buying A shares of mutual funds? Or, did they just

recommend class B funds without explaining that they include back-end fees for

several years (usually five or more), while at the same time carrying higher annual

management fees than class A funds?

- Did they make any attempt to explain all the different types of risks involved in

investing?

- Did your advisors make any real effort to understand your risk tolerance? Or did

they just ask if you wanted to be conservative, moderate or aggressive? These are

very subjective terms that mean different things to different people.

Understanding ones tolerance for risk requires a more in-depth approach.

- Did they explain the different types of investments that are available, along with

the pros and cons of each?

- Did your advisors make any attempt to provide real diversification in your

portfolio? Having three or four different funds does not provide the needed

diversification when they are all domestic, large-company funds. And, if they only

handled a portion of your portfolio, how could they provide the overall

diversification that you needed?

- Are the investments your advisors recommended in sync with your risk tolerance?

Recently, the portfolio of one of our clients contained a Diversified Futures Fund,

a highly-risky fund that invested in all types of futures and/or derivatives

(investments whose values depends on or is derived from the price of other

assets). These types of investments are highly speculative. Whats more, the fund

had to earn 8.5% just to cover its expenses! And, to make matters worse, our

client had indicated to his advisor that he was a moderate-risk investor.

- If your advisors have recommended that you place your investments in a

managed account, with the investments overseen by various asset managers,

was the cost clearly disclosed to you? This type of account can typically cost

0.5% to as much as 2% or more of your accounts value, per year. That may be

OK if the managers do a really good job.

- Has it been ages since youve heard from your advisors? Do they make an effort

to keep your portfolio balanced, or are they more interested in getting new

clients? If they have not recommended any changes in the last couple of years,

something is likely wrong. On the other hand, if they call every month and

recommend a new hot stock, they may be trying to churn the account to generate

commissions.

- Have your advisors recommended buying an annuity for your IRA account? The

main selling feature of annuities used to be their tax-free growth. But IRA accounts

already grow tax free. Therefore, one of prime benefits of an annuity has no value

in a retirement account. Annuities often have surrender fees starting at 7% or 8%

and then declining to zero over six or seven years (sometimes longer). Advisors

often never mention surrender fees. Surrender fees act as a deterrent to moving

ones assets elsewhere and therefore reduce ones flexibility.

- Finally, have your advisors really listened to you when you talked to them? Did

they speak in language you could understand? Did they have your best interests

at heart?

The above items address some of the major issues investors should be aware of. Some

people say, I just dont have time to bother with my own investing. While that may be

true, they cant afford to casually choose an investment advisor. Saying but he was so

nice just isnt enough to protect your hard earned money! Make a commitment to

invest some time in the selection of an advisor that looks out after your best interests.

David C. Patterson, CFP and Erin Patterson, CFP are the owners of Patterson Advisors, LLC, a fee-

for-service-only financial advisory firm. Patterson Advisors, LLC is a Registered Investment Advisor,

registered with the State of Michigan, with offices in Waterford and Royal Oak, Michigan. Visit www.

pattersonadvisorsllc.com for more information.

Published in The Oakland Press OurTown Online Clarkston. June 2007

Published in the Oakland Insider. August 2007, Re-titled as: Are You getting the Best