Advice on Choosing Your Investment Advisor for 2017
When we asked Sean Miller, Investment Advisor of Miller Asset Solutions, for advice on choosing an investment advisor for 2017, here is what he said.
“I do not have any faith in economic or investment outlooks. None – zero. No one knows the future; it is as simple as that. What I do know is that investors can gain an advantage by choosing an investment advisor who has the following objective attributes:
- LOWER FEES AND PERFORMANCE-BASED FEES: Fixed Fees below 1%, or fees below 1% including a performance-based fee, are the fee structures that absolutely align the mutual interests of the client and manager. Many folks too often forget that a dollar saved in costs or fees is actually worth more than a dollar earned from investment returns (thanks to taxes). In addition, investing in cost and fee reduction can provide far greater returns per unit of risk than anything else an investment organization can do. In fact, there’s an argument to be made that cost and fee savings represent risk-free returns to investors.
- SMALLER IS BETTER: Larger firms have unnecessary administrative layers. Each layer has a cost, and the presence of each layer is disproportional to clear communication. Administrative layers are much like a placebo – present but offering no efficacy or value. There are fewer layers, if any, at smaller investment firms. Greater, direct access and seamless communication will be yours at a smaller firm, versus a larger firm.
- ALIGNED INCENTIVES: Typically 100% of an investment manager’s personal capital is invested in the same positions as his clients. In this way, they act as a true fiduciary steward of shared capital. Often referred to as having “skin in the game,” advisors with skin in the game perform better and are more accountable. What is good for the advisor or manager is good for the client. This eliminates conflicts of interest. Aligned incentives are a very good thing, not just in investing but in life. The more aligned interests are the more you can base a relationship on trust. The optimal outcome is a more seamless web of deserved trust.
- ABSOLUTE LIQUIDITY: Choose an investment manager who invests simply, preferably one with no proprietary products with hidden fees. Investment complexity is usually costly, unnecessary and results in your investments being illiquid [not easily converted into cash]. Liquidity is essential during times of severe market stress.
- SAME INSURANCE PROTECTIONS AS ANY MANAGER: Many folks do not know that their investment account insurance protections are similar – regardless of the manager. For example, all investors have $500,000 for each account provided by SIPC (Securities Investors Protection Corporation) and then their investment custodian usually provides coverage for amounts exceeding the SIPC limits. This means all investment managers generally have the same insurance protections against fraud and malfeasance.”
From Ivy Publications, publishers of Charlottesville Wine & Country Living, a semi-annual magazine of Life & Style in Jefferson’s Virginia; Charlottesville Wine & Country Weddings,an annual art book celebrating elegant country weddings in Jefferson’s Virginia; CharlottesvilleFamily