Free lunch? We don’t think so

Investment performance seems like a simple thing to accomplish, right? Simply buy low, and sell high -easy.

But it gets a little confusing, and more complicated, when things like asset classes, risk, investment account types (IRA, Roth, 401(k), qualified, non-qualified, etc.), and investment vehicles (mutual fund, ETF, stock, bond) all come into play.

Then, if you have great performance, there may be tax considerations as well. When these more confusing and complex topics enter into the picture, most people will head for an advisor – someone who they believe can give them confidence.

The news and headlines generated in the past few years by the (now defunct) DOL “Fiduciary Rule” shed light on some of the more unsavory parts of the financial services industry. People are now more aware than ever that an advisor does not legally need to have your best interest at heart (even though they absolutely should). However, another little industry “secret” has recently started to garner attention.

And, it could affect your investment performance even if you are working with an advisor in a fiduciary capacity.

We’ve all heard it said, “There is no such thing as a free lunch.” But to that, we’d add “unless you are a financial advisor”.

All-expenses-paid vacations, gourmet meals, and top-notch entertainment – offered as part of due diligence and research trips – are still pervasive in the industry. Advisors need access to information and processes surrounding the funds they’re considering for their clients. Often, for analysts, speaking to a mutual fund management team is an important way to gather insight and understand portfolio strategy. Fund managers, looking to gather assets, and increase the profile of their funds often provide that access. However, the context in which the access is provided may create a potential conflict of interest and ultimately affect your investment lineup performance.

The idea of reciprocity is as old as time – as humans, we are conditioned to respond in kind. These paid trips and luxurious entertainment will naturally generate goodwill toward the host, even if subconscious. And, though they’d deny it, we think that fund managers are counting on it.  But is that how you’d like your advisor to choose the best fund for your plan?

For investors, it is important to understand the due diligence that goes into each recommendation an advisor makes. When selecting investments, we stick to objective performance standards. We start with performance relative to a meaningful benchmark. Then, our analysis explores the drivers of that performance.

And yes, we do take those due diligence trips, but our firm pays for all expenses. We don’t take any chances – or liberties – with your plan’s performance.

If you are unsure of your plan’s true investment lineup performance and would like to find out, download THIS attached form and let us help you find out!

Want to learn more about these advisor “perks”? Check out the interesting article written by Jason Zweig for the Wall Street Journal.

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