Investment Management
Riverview Asset Management Investments are not insured or guaranteed by the Bank, the Federal Deposit Insurance Corporation or any other government agency. Non-deposit products are subject to investment risks, including the possible loss of the principal invested.
Choosing Your Investment Advisor | Investment Philosophy | Investment Process
Finding a trustworthy source for investment advice
has always been a challenge, and it's especially difficult
today, with all the overblown advertising hype being directed at
investors. Selecting an investment advisor is a critically important
decision, yet it's surprising how many people spend less time
on it than they would on choosing a new car. Here is a checklist
of commonsense questions to ask as you consider to whom to turn
for investment advice.
How will the advisor be compensated?
Understanding the compensation plan for the investment advisor is the single most important issue to address. Stockbrokers, for example, are typically paid commissions based upon the number of trades executed for clients. So brokers are transaction driven; the greater the number of trades they make, the greater their compensation.
Financial planners may be involved with making investment recommendations. Some only charge a fee for their advice, but the great majority earn commissions when products they recommend are purchased; many earn both fees and commissions.
Banks and trust companies generally charge annual fees for investment services, and the fees are based upon the amount of assets under management. A graduated fee schedule is normally employed, which means that larger accounts pay lower fees, on a percentage basis, than smaller accounts.
Similarly, investment counselors or advisory firms impose a percentage fee, based upon the amount and type of assets being managed.
Some brokerage firms are now offering new types of
accounts based upon the trust company model. A single fee, called
a "wrap fee", covers advice and all trading costs. The
fee is based upon the size of the account, removing the conflict
of interest implicit in transaction charges. Actual fee schedules
for wrap accounts vary widely some that we've seen are more
than double the rates typically charged by banks.
Will the advisor have only my own interest at heart?
The answer to this question is determined largely by the compensation plan. Management fees earned by a trust company only grow if the value of the account grows. Thus, there is never any pressure to color investment recommendations based upon the need to generate transactions or commissions.
Some brokers receive quotas of securities to sell
from time to time; they have to call those accounts that might be
receptive in an effort to "clear the inventory". This
situation never occurs in a trust company.
The issue of "ethics" is particularly hot among financial
planners right now. The International Board of Standards and Practices
for Certified Financial Planners has wrestled with a number of knotty
questions, including whether compensation arrangements must be revealed
in advance to clients in all cases.
According to an article in The Wall Street Journal, many financial planners were particularly worried about the legal implications when the International Board used the word "fiduciary" to characterize their relationships with clients. The word implies an above-normal standard of care and, in fact, a duty to put the client's interest ahead of one's own interest.
Banks and trust companies are, of course, corporate
fiduciaries, which is to say that acting in a fiduciary capacity
is their everyday business. "Fiduciary" is a badge that
they wear proudly.
Will the advisor churn my account?
The Guide to Investor Protection recommends, to avoid
churning, brokers should not be given discretion to make trading
decisions. Fee-based advisors are less risky. With a trust company
there is no incentive to indulge in unnecessary trades, so this
worry evaporates.
How do I judge competence and expertise?
There is no easy answer here. Investment sages of all stripes ride the same roller coaster; this year's hero may be next year's goat, and the year after next, the heroes and goats may again trade places.
Generally, you will want to look for someone with considerable experience, with a solid theoretical background as well as real world practice in the area of investment management. Your advisor should have quick access to investment research and have extensive staff and technical support.
Most important, your investment advisor should be able to listen well. A successful investment management relationship is grounded on clear and consistent communication. It is not a series of proposals followed by objections followed by pressure tactics to overcome the objections. Rather, the advisor should understand your goals so well that recommendations seem immediately consistent with your viewpoints.
Will the cost be justified?
Recently, an independent research firm, BEI Golembe Financial Consultants, did an "apples-to-apples" comparison of the cost of having a $500,000 investment portfolio managed. Here is what they found:
| Broker (wrap fee) | $15,000 |
| Mutual fund | $9,400 |
| Broker | $7,200 |
| Investment counselor w/custody | $7,365 |
| Average trust fee | $4,410 |
For the last two managers on the list, one may need to add the cost of brokerage commissions. For trust accounts, this cost would depend upon activity in the account and, at the discount rates available to the bank as an institutional investor, would not be likely to exceed $500.
As you can see, trust services are priced very competitively. But the best answer to the questions: What is the true cost of not getting professional investment help? There are precious few individual investors who have the time and resources to invest successfully in today's financial markets.
For more details on why we believe that we are your best choice as an investment advisor, call today to arrange an appointment with one of our trust officers.
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