Lost Boy in Plaid Shorts, Speaks Spanish

Strange title, I know, but bear with me.  My father was a Chief Petty Officer in the U.S. Navy for 27 years.  Of his many assignments, some good, some bad, he got a plum one to report to the U.S. Embassy in Madrid.  By this time, my parents had 3 children.  My oldest brother was born in Portland, OR, my sister was born in Hawaii, and my next older brother was born in Valley Forge, PA.

I was conceived stateside as I was born at an Air Force facility outside of Madrid soon after our arrival, but who wants to engage in thinking about that when it comes to your parents?  Regardless, the giant-sized baby of 9 lbs., 14 ounces surprised the doctor who was expecting twins.

Living in Spain on American dollars allowed us some luxuries including a housekeeper named Manola.  She spoke Spanish to her little “pirulo”.  I learned to converse with her and became bilingual.  At the end of the assignment, my father was transferred back to Philadelphia Naval Yard. 

Soon after arrival in the States, we went on a beach vacation to Wildwood, NJ.  With my teenage brother and sister in charge of me, I was promptly lost and was turned into the nearby lifeguard station.  I had no idea who these men were and did not trust them.  They were strangers, so I only spoke to Spanish to them.  An announcement went over the boardwalk loudspeakers that the lifeguards had a “Lost boy in plaid shorts, speaks Spanish.”

My Irish grandmother heard the announcement and arrived swiftly to pick me up.  I’m sure they were quite puzzled by the woman with the Irish brogue picking up a Spanish speaking kid, but I know they didn’t stand in her way. 

Trust is hard to earn and easily lost.  Unfortunately, the financial industry has had a checkered past and present with trustworthiness.  Books have been written on the topic as the problem is the result of some fundamental issues. 

From outright theft to Ponzi scams, investors have been conned by some financial professionals.  While I’m convinced that the majority of my colleagues are ethical, there are areas that investors should be on the lookout. 

The number one area is compensation.  How is your advisor paid? Compensation influences behavior.  If your advisor is compensated more for one action versus another action, a conflict of interest is created.  If they get paid more for one product over another product, they are incentivized to recommend the product that earns them more.  It still may be the right solution for you, but that conflict should be disclosed.

Search on the website of any major financial firm for advisory fees or compensation plans.  You will have to do some digging, as it’s often not the first thing firms want you to see.  You may be surprised by the complexity. 

Don’t forget to review account fees and transaction costs.  Make sure you look at any fees or expenses related to mutual funds or ETFs recommended by your advisor.  Schwab and Fidelity (and others) have easy to use sites to research individual funds or ETFs.  They may not include proprietary funds your advisor’s firm sells.  A request for a prospectus may be necessary.

I highly recommend reviewing transaction statements on a monthly basis.  Many firms had done little to improve their statements in years.  Cryptic jargon or abbreviations may be innocuous, but you should know what it means.  If you are unsure of specific activity occurring in your account, ask your advisor.  If you are unsatisfied with the answer, contact his or her manager. 

Finally, if you are engaging a new advisor, you should do a check on their status, at BrokerCheck and at the SEC Investment Advisor site. At the very least, it will reveal if the advisor is barred from the industry.  Be forewarned that these checks are not comprehensive background checks.  My own profile misses some job history and has some other inconsequential errors.  Working to correct them has not been easy.  

If you would like to learn how an independent, fee only advisor can help you, please contact me.  Feel free to share with others and make suggestions for future articles: peter.oneill@fiduciamwealth.com