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Follow Your Advisor to a New Firm?

If your financial advisor decides to move to another firm or start his own company, should you follow? It is a scenario worth contemplating given that 12% to 13% of financial advisors change firms every year.

The Wall Street Journal addressed this issue recently. Their suggestion was to ask several questions before making a decision on whether to follow the advisor or not. These questions included:

  • Is the advisor’s business model changing?
  • What’s in it for me?
  • Are there other downsides to a move?
  • What’s in it for the advisor?
  • Are there other red flags?

It is important to remember that the decision to change firms is a business one for the advisor. The change may be made for better pay, a different working environment, more independence, better office support or a combination of factors. Though the decision impacts clients, the advisor makes the decision based on what he perceives as being best for his career and goals.

As a client, you should also treat the decision to change firms as a business one. Besides the relationship you have with the advisor, there are potential transaction and tax costs to consider. There is also the type of support that you require. The advisor’s new firm may or may not be able to provide it. Use the news as an impetus to reevaluate your relationship with the advisor and to determine whether the services you are receiving justify the cost.

If you have been happy with the advisor and are considering following him to the new firm, schedule an appointment to discuss all of the details and your concerns. Make sure you know what will change, what will not change and what fees you can expect as a result. Most importantly, check both federal and state regulators to make sure no complaints have been filed against the advisor and his new firm, even if you have had a long-term relationship with the advisor.

Source: “Your Advisor Is Changing Firms. Should You Follow?” Wall Street Journal, July 6, 2010.

Advisors Recommending Therapists

Some financial advisors are partnering with therapists, according to Investment News. The trend is part of a move toward “holistic planning.” This means working with a client on many aspects of their lives, instead of just solely on their financial planning needs.

The numbers are still small, with only about 5% of all advisors referring clients to therapists. But some advisors view this as way to help clients work through emotional and psychological issues that could affect how they handle their finances. Examples include overspending, serial borrowing and unhealthy family relationships.

Financial planning is not just about the numbers that appear on your banking and brokerage statements. Your lifestyle and health (both physical and psychological) have a big impact on your ability to build and maintain wealth.

The tougher issue is how much personal separation you want from the financial professionals you work with, whether they are a financial planner, a tax accountant or an estate attorney. If you feel that a financial professional is inquiring into your personal life too much, talk with them about it. There might be a legitimate reason, such as trying to determine whether you may need to care for a relative at some point or if you need assistance with budgeting.

As a client, you have the right to determine what the limits are. However, understand that the job of a good financial advisor is to look out for your best interests and if they suggest seeking the assistance of a third-party professional, such as a therapist, there might be a legitimate reason for doing so.

Source: Investment News, July 11, 2010.

What’s in a Ticker Symbol?

The Select Sector SPDR Trust recently filed a lawsuit against INVESCO PowerShares Capital Management over the ticker symbols associated with nine sector exchange-traded funds ETFs. The Select Sector SPDR Trust is claiming that trademark laws have been broken.

Since 1998, the Select SPDR Trust has managed ETFs based on nine S&P 500 sectors. Each of these funds has a three-symbol ticker—such as XLE, which is the Energy Select Sector SPDR Fund. INVESCO PowerShares launched nine new ETFs based on the sectors that comprise the S&P SmallCap 600. These include XLES, which is the PowerShares S&P SmallCap Energy Portfolio. In other words, the ticker symbols for the nine new PowerShares ETFs have just one additional letter than the tickers for the older SPDR ETFs.

We cannot comment on the validity of this lawsuit. What we can tell you, however, is to spend the time researching specifically what securities an ETF holds and how it weights its holdings before making an investing decision. Even similar-sounding ETFs can have different portfolios and different weightings. (All ETF fund family websites have information on current holdings and weightings.)

Secondly, pay attention to the ticker symbol when entering a trade order, regardless of whether it’s an ETF, a stock, a mutual fund or some other type of investment. Ticker symbols for many securities are similar and an inadvertent error can result in an unwanted investment. Double-check your trade order to make sure it is correct. If you do make a mistake, unwind the position as quickly as possible.

Source: July 26, 2010, Select SPDR Trust press release.


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