In my last article, I discussed why PIMCO was offering an ETF version of the Total Return Fund. Brokers and RIAs (Registered Investment Advisers) will no longer be able to make a few thousand dollars from referring clients to their favorite mutual funds without risking push back from clients. “Why did you put me in a fund that has a 4.0% load fee when there is an ETF with no load?”, will be start of many conversations which lead to an investor pulling money from an RIA. Eventually, I believe most RIAs will have to go to a business model where they compensated for their time or a small percentage of assets under management.
However, a lot of people have written about the topic of financial adviser fee structure. Most articles about “Choosing a Financial Adviser” are really articles about saving money on fees. While important, the bigger issue is not fees, but your return after fees. Nobody really discusses finding a sharp financial adviser or money manager.
I am going to plug two tools that can help you do this:
Last night, I was having dinner with some very smart people including the first employee of StockTwits. For those of you who don’t know StockTwits, its Twitter on steroids for those that care about investing or trading. Anytime you see a “$” symbol in front of a stock symbol on twitter, the poster is gearing his message for the StockTwits crowd. Accessing the StockTwits platform directly has several advantages over Twitter:
- The network itself is separate from Twitter, so you are less likely to have service outages.
- They monitor for spam. So you when your trying to find information on AAPL, your not going see 20 offers trying to sell you a used Mac.
The discussion of the evening moved to money management. Some of their posters are Registered Investment Advisers (RIAs) and will manage money on behalf of clients. My initial reaction is what a great way of finding a money manager:
1) Most RIAs, according to a privately commissioned survey conducted by the Financial Times (not for publication), only spend 15% of their time researching investment ideas. Most of their time was dedicated to finding new clients or administrative work. If I see that my financial adviser is actively following the market and participating on StockTwits, I am going to be pretty sure that he or she is spending more than an hour a day on the market.
2) Interviewing a Financial Adviser can only give you so much information. What does “I am a growth investor” really mean. By following an adviser’s posts over a couple months, you can really get a feel for their investment style, stock picking ability and perhaps even their view on risk management.
Another tool, I like is Co-Vestor.
Co-Vestor allows anybody to become a stock manager. Sounds bad but, in fact its great. Stock investing is about creativity and discipline. While you can learn about investing or trading in academic setting, that does not mean you have a talent for it. Similar to playing basketball, practice alone has never made anyone under 5’6’’ a super-star. Co-Vestor allows you to access a broad talent pool. You can see an investors/traders trades and analysis. You can see their returns but also how volatile their returns have been. Its a great way of finding a money manager. However, I should warn you a money manager is not a financial planner. Potentially, you should not be in stocks at all (lets say you’re in a late stage of retirement). Co-Vestor cannot help you make best investing decisions within the context of your personal financial situation.