My last blog covered the advantage of independent advisors over those associated with the big-name firms. With the recent news on hedge funds and the sub-prime mess, it is a good time to explain the advantage of independent advisors over hedge funds.
Hedge funds pool client funds. For that reason, clients rely on the hedge funds to provide them information on what their investments are worth. This information is provided either monthly or quarterly, and you trust the fund for its accuracy. There are many cases where portfolio values were fudged, making clients believe their portfolio values were higher than reality. This deception can only go so long.
In my small town of Incline Village a fund gathered millions and failed to report to investors its portfolio losses. Eventually the managers and sales team fled town, and investors lost their money.
Last Thursday the FBI arrested Bear Stearns hedge fund managers for fraud. In an email one manager wrote, “Believe it or not … I’ve been able to convince people to add more money …”
With independent advisors, the brokerage account is yours. You simply give the advisor authority to place trades on the account. I trade through Fidelity Investments so clients can monitor performance daily at Fidelity.com. There is no pooling of assets.
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