Selecting a great financial adviser can be one of the best investments you can make.  Read the following article to gain tips on selecting a financial adviser.

How To Choose A Great Financial Adviser

Written by Paul Merriman. Please visit marketwatch.com to read the entire article.

Financial advice isn’t free. If you have a financial adviser, one way or another you will pay. However, if you use your adviser wisely, you can get far more than your money’s worth.

I believe every serious investor should work with a professional adviser for at least one year. That’s enough time to tackle most of the big financial decisions you’ll ever have to make, although you will probably need to revisit some issues from time to time as your life and your circumstances evolve.

If you are not currently working with an adviser, you may be thinking: “Why should I pay for somebody to help me do what I’m already doing just fine on my own?” That is a valid question.

In my latest book, “Get Smart or Get Screwed: How to Select the Best and Get the Most from Your Financial Advisor,” I mentioned more than 40 valuable services that a good adviser can provide. For example:

A great adviser will help you focus on defense as well as offense, making sure you understand and can deal with the amount of risk that’s involved in your investments. Even though you may not want to hear it, a great adviser will tell you, if necessary, that you need to save more money and invest less aggressively.

Just about any adviser can help you determine the proper mix of stock funds and bond funds. A great one will also help you maximize your expected returns by using the best low-cost funds in each asset class.

A great adviser will help you make the right choices with investments that he cannot manage directly, such as a variable annuity or your 401(k) or similar retirement plan. Some advisers charge for this service, while others don’t.

Your adviser can help you initiate the sometimes-awkward discussions you should have with your children, your parents, your spouse or other relatives concerning wills, health-care issues and finances. These conversations can be extremely important, but too often they never happen because people don’t know how to go about it.

A good adviser can help couples negotiate their spending levels before and after retirement. Very often, one spouse is more of a spender and the other is more a saver. Over the years I helped many couples find solutions that preserved their financial viability — and their relationships.

Your adviser should get to know and gain the trust of your spouse, your partner or your grown children so they understand the plan behind your investments — and so that your adviser can help them after your death. This can be especially valuable to survivors who do not know a lot about investing or who may not be comfortable taking charge of financial assets.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

The following article describes ten items to think about when selecting a financial advisor.

10 Things You Should Know About Your Financial Adviser

Please visit cnbc.com to view the complete article.

Choosing an adviser could be the most important financial decision you make in your lifetime. The adviser you choose may mean the difference between financial freedom and paying wasted fees and, in some cases, becoming a victim of fraud.

With so many candidates from which to choose, you need to learn some of the industry jargon, understand the options and define your needs — much like you would with any other professional service.

Here are 10 things the Securities and Exchange Commission, as well as many financial planners, say you should know.

1. They’re not all pros.

Anyone can call themselves a financial planner, but that doesn’t mean they’re an expert investment adviser. So look for experience and credentials.

Check out the person’s background and designations at the SEC and FINRA websites. You probably want a certified financial planner, CFP, at the very least, someone who has passed rigorous standardized exams about managing personal finances.

2. An investment adviser may not be a financial planner.

Most financial planners are also investment advisers, but not all of them. They may be able to recommend some or all of the range of products out there: stocks, bonds, mutual funds, exchange traded funds. They may not, however, be able to assist you in other aspects of financial planning: insurance, taxes, retirement and estate planning.

Either is fine, depending upon your needs. Find out the professional’s limitations, if any. If you’re just starting out or are not a “do-it-yourselfer,” a financial adviser who can offer you all types of services and products, as well as a comprehensive financial plan, may be the way to go.

3. Meet the prospective adviser in person.

Meet the person face to face. You should be able to feel confident that your adviser is trustworthy and that your personalities match. In times of financial insecurity, this will be the person you will turn to. If you don’t feel comfortable after meeting with the adviser, keep looking.

4. Make sure they have a clean track record.

You want an adviser with a clean history. If your prospective planner has received complaints, you should know about them. Obtain a copy of their Form ADV Part I from the SEC website. This document contains information about whether the adviser has had problems with regulators or clients.

5. They should act in your best interest.

Make sure your financial adviser has pledged to act in clients’ best interest at all times. This is called “fiduciary duty.” (Brokers are held to a lesser standard, though they have to sell you “suitable” investment products.) You are looking for fiduciaries who have pledged to be part of the financial planning honor system.

6. Check out their references.

Ask for the names of three other financial professionals with whom the adviser has worked. You might be able to learn more about the adviser’s abilities and strategies from them. Also inquire whether these individuals get a referral fee from the adviser.

You can also ask your adviser about speaking to other clients, but privacy laws severely limit how much information can be shared. Still, it is worth asking about the number of clients and money under management, and if a single adviser or team will provide all services and oversight.

7. Understand how your adviser gets paid.

Is it an hourly rate, flat fee or commission on the value of assets they manage for you or on the securities they sell? Ask for a copy of their Form ADV Part II— or get it from the SEC —which outlines an adviser’s services, fees and strategies. This is the fine print that they may not bring to your attention immediately, but you should certainly ask about it.

8. Know what services are offered.

Some advisers assess every aspect of your financial life, such as savings, investments, insurance, taxes, retirement and estate planning. Others focus on a single objective. Outline the services you need and find out what you will be paying for. An all-of-the-above approach may not work for you if you want advice on, say, just taxes.

9. Ask about the investment strategy.

Are they stock pickers, manager of managers (private funds and mutual funds), buy and hold, active management or frequent traders?

You may not know how to pick the right investment, but you should understand how the investments will work. Ask questions if you don’t understand and research material or websites where you can get more information. Don’t hesitate to ask for a second opinion.

10. Know how often the adviser will be in contact.

Communication is key when determining your financial future with a professional. But how that communication will happen can make or break your experience. How often will your prospective adviser expect to communicate with you and how? Will it be telephone calls, in-person meetings, emails?

You may find that regular reviews and ongoing communication are necessary to keep you on track for your investment and other financial goals. You want to make sure the adviser you hire offers that kind of support.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

Sometimes selecting a Financial Advisor can be daunting, but this article can help you in your decision process.

How To Pick A Financial Advisor

Visit Forbes.com to see the entire article.

At Forbes we long have provided advice about how to manage your personal investments yourself. But the hard truth is that not everyone is equipped or comfortable with a “do it yourself” approach, even with the fine computer software programs now available. While no heavy lifting is involved, it requires a certain amount of knowledge and aptitude, not to mention the ability to think long-term for a future retirement. Moreover, it can be very painful at times, or, in the case of 2011, all the time. It also takes time and effort to monitor your investments.

So it’s no shame to ask for human assistance. The trick is to get good help at a price that gives you added value.

Accompanying this story is a slide show listing 12 steps for finding and vetting a financial advisor. Take a close look at them all.

There essentially are two phases to preparing your financial future. The first is financial planning. At its core, this is straight-forward, especially because it usually amounts to planning for retirement. You ascertain your current net worth–assets minus liabilities (what you owe on mortgages, credit cards, etc.).  Then you estimate what you’ll need to live on in retirement, taking into account stuff like life expectancy, inflation and health-care costs.  The difference between the two determines the amount of risk–stocks instead of fixed income–you’ll need to fund everything. There are a lot of variables to consider, but the thought process is relatively linear.

The second phase is implementing and maintaining your plan.  This involves picking specific investments–stocks, bonds, mutual funds, ETFs or whatever–to match the amount of risk your plan says is appropriate. Then the portfolio has to be monitored and adjusted as warranted to handle changed circumstances. This can be anything from developments in your own life–advancing age, declining health, a desire to make gifts the younger generation–to persistent changes in the economy,  like high volatility and low interest rates.

Whatever advice you decide you need and whomever you select to provide it, the help won’t come for free. But what you pay can vary widely, and not just because of the amount of assets you want managed. And it is often true that you get what you pay for.

It’s possible to hire a financial planner who will just develop a plan–essentially, a strategy.  Such a planner is paid by the job or by the hour. Since the planner has no invested interest in how you proceed, you get conflict-free advice, which is good.  It then would be up to you to follow through and implement the plan, either by yourself or by hiring someone else.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

The following information can be found on the U.S. Securities and Exchange Commission website on how to choose a Financial Adviser.

Investment Advisers: What You Need to Know Before Choosing One

To see all of the questions and answers, visit sec.gov

The Securities and Exchange Commission (SEC) receives many questions about investment advisers—what they are and how to go about choosing one. This document answers some of the typical questions we receive from investors about investment advisers. This Q&A is for the benefit of investors. You should not rely on it to determine if you need to register as an investment adviser.

Q: What is an investment adviser?

A: An investment adviser is an individual or a firm that is in the business of giving advice about securities to clients. For instance, individuals or firms that receive compensation for giving advice on investing in stocks, bonds, mutual funds, or exchange traded funds are investment advisers. Some investment advisers manage portfolios of securities.

Q: What is the difference between an investment adviser and a financial planner?

A: Most financial planners are investment advisers, but not all investment advisers are financial planners. Some financial planners assess every aspect of your financial life—including saving, investments, insurance, taxes, retirement, and estate planning—and help you develop a detailed strategy or financial plan for meeting all your financial goals.

Others call themselves financial planners, but they may only be able to recommend that you invest in a narrow range of products, and sometimes products that aren’t securities.

Before you hire any financial professional, you should know exactly what services you need, what services the professional can deliver, any limitations on what they can recommend, what services you’re paying for, how much those services cost, and how the adviser or planner gets paid.

Q: What questions should I ask when choosing an investment adviser or financial planner?

A: Here are some of the questions you should always ask when hiring any financial professional:

• What experience do you have, especially with people in my circumstances?
• Where did you go to school? What is your recent employment history?
• What licenses do you hold? Are you registered with the SEC, a state, or the Financial Industry Regulatory Authority (FINRA )?
• What products and services do you offer?
• Can you only recommend a limited number of products or services to me? If so, why?
• How are you paid for your services? What is your usual hourly rate, flat fee, or commission?
• Have you ever been disciplined by any government regulator for unethical or improper conduct or been sued by a client who was not happy with the work you did?
• For registered investment advisers, will you send me a copy of both parts of your Form ADV?

Be sure to meet potential advisers “face to face” to make sure you get along. And remember: there are many types of individuals who can help you develop a personal financial plan and manage your hard–earned money. The most important thing is that you know your financial goals, have a plan in place, and check out the professional you chose with your securities regulator.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

In the following video, Dave Young, President of Paragon Wealth Management, discusses why the size of an investment firm so important when determining who should manage your money.  He talks about the benefits of a small investment firm and the advantages they have in managing a portfolio.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

continued from last week…

Pick a Planner Who Can Spell ‘Fiduciary’

by Alina Tugend
visit The New York Times to view the complete article

So, what do I want to look for (and avoid) when finding someone to help us? One word kept arising over and over — no, not money. It was fiduciary.

Someone who legally has a fiduciary duty will “have to work in the best interests of their client,” said Robert J. Glovsky, president of Mintz Levin Financial Advisors. That means they have to put your interests ahead of theirs at all times by providing advice on investments that will serve you — not them — best.

Investment advisers have a fiduciary duty, while brokers and financial planners may or may not. It’s a confusing legal situation, so the best bet is to ask anyone you are considering hiring straight out, “Are you a fiduciary?”

“If an adviser doesn’t know what you’re talking about or can’t say ‘yes’ with conviction, then that’s your answer,” Ms. Garrett said. And you should walk. Even if they do say “yes,” ask for this and other terms you agree to in writing.

The other big question to ask potential advisers is how they get paid. Commissions on investments they sell to a client? Fee-only, meaning paid by the project or an hourly rate? A percentage of assets? Or a combination of these?

Most experts I talked to said to be leery of financial advisers who work on commission because they have an incentive to get clients to trade and buy on the highest-commission products — an inherent conflict of interest.

Find out what experience and education your planner has. A minimum, say the experts, is a degree as a certified financial planner, which means the adviser has a certain level of education and experience, as well as attends continuing education classes. Certified financial planners are also bound by a code of ethics that includes fiduciary duty. By going to www.cfp.net, the Web site of the Certified Financial Planners Board of Standards, you can learn how to find a consultant with such a degree, as well as how to check for any disciplinary action against him or her.

What should raise red flags? If a planner is solely pushing investments put out by his brokerage firm. If she is advocating buying annuities, particularly variable annuities, for your 401(k) or I.R.A. rollover.

And be wary if all your planner wants to do is talk about investments and is not looking at your overall situation, like whether you are near retirement, are trying to save for a new house or for college.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

Deciphering whether an advisor has fiduciary responsibility can be difficult unless you know exactly what to look for and the right questions to ask. The following article outlines how to go about selecting a financial advisor.

Pick a Planner Who Can Spell ‘Fiduciary’

by Alina Tugend
visit The New York Times to view the complete article

Like many people, especially in these financially unsettling times, I long for someone to look at our portfolio — such as it is — and tell us how to manage everything so that we can send both our children to the college of their choice, retire at 65 and be able to send postcards from exotic locations to our future grandchildren.

I also do not want anyone to tell me that I am living in a dream world or that just to build our savings, we will have to cut down on expenses like eating out, the occasional shopping spree and tennis lessons.

I want a magician. Or a liar.

But a financial planner would probably be a good start. We do have a stockbroker who assists us in investing our retirement fund. But analyzing where we are financially and where we should be going isn’t a bad idea. What I learned, though, is that while most people hire a financial planner more casually than they might, say, choose a hair stylist, you really should go into it as if you are selecting a marriage counselor.

“This is a person giving you advice over some of the most important decisions in your life,” said Sheryl Garrett, author of “Personal Finance Workbook for Dummies” (John Wiley & Sons, 2007) and founder of Garrett Planning Network.

The trouble is, pretty much anyone can hire themselves out as a financial adviser, so you very much have to do due diligence. According to a 2005 survey by the Securities Investor Protection Corporation, four out of five who took the survey failed it — meaning they did not understand how certain investments worked and they did not do rudimentary checks of their planners. The corporation was established by Congress to protect investors in the case of a bankrupt or financially troubled brokerage house.

Just one of every five people surveyed said they read their financial prospectuses, regularly reviewed account statements, checked out the disciplinary background of their stockbrokers or financial planners, and had a financial plan in place.

Yikes. Time to do some homework.

I set about learning the terminology. According to the nonprofit Investment Adviser Association, there are three broad and overlapping categories: investment advisers, stockbrokers and financial planners.

An investment adviser — also known as asset manager, wealth manager or portfolio manager — is a legal term that describes people who are in the business of giving advice about securities, stocks, bonds, mutual funds and annuities. Anyone who manages $25 million or more in securities generally must be registered with the Securities and Exchange Commission. In most states, advisers who manage less than that should be registered with their state’s regulatory agency.

A stockbroker is also a legal term that refers to people who buy and sell securities on behalf of customers, and can also offer a broader range of investment planning. They can work for themselves or for brokerage firms and must take a test given by the Financial Industry Regulatory Authority, a nongovernmental body that oversees securities firms.

A financial planner or consultant, on the other hand, is not a legal definition. It generally refers to providers who develop and possibly carry out comprehensive financial plans for customers based on long-term goals. Planners can deal with such topics as estate and tax planning, insurance needs and debt management as well as help plan college savings or retirement funds.

You may want an investment adviser to provide oversight and management of your portfolio, a stockbroker to help you with the mechanics of buying and selling securities, or a financial planner to look at your entire financial picture and come up with a long-term comprehensive plan.

So, what do I want to look for (and avoid) when finding someone to help us? One word kept arising over and over — no, not money. It was fiduciary.

to be continued…

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

In simple terms, advisers with fiduciary responsibility have a legal responsibility to put your needs ahead of their own. There are a number of important differences that separate advisers who have fiduciary responsibilities from those who don’t. The following article outlines who is and is not a fiduciary, responsibilities of a trustee, and the differences between advisors, consultants, and money manager.

Fiduciary Responsibilities and Liabilities

visit Paladin Registry to view the complete article

Two pension laws, ERISA and the 2006 Pension Protection Act, establish the regulatory requirements for trustees who are responsible for the investment of retirement plan assets.

This article provides fiduciary information to trustees who use the services of financial advisors to help them invest assets and educate plan participants.

Who is a Fiduciary?
Anyone who has discretionary authority or control over the management of plan assets is a fiduciary. All trustees are fiduciaries. Non-trustees who also exercise control, for example the CFO of a company could also be labeled a fiduciary based on his or her responsibilities.

A financial advisor is a co-fiduciary if that person exercises control or influences trustees who are the decision-makers for plan assets. Influence and control can have a blurry distinction. For example, some trustees follow advisor advice 100% of the time. After all, the advisors are supposed to be the experts. But, in this example, the advisors are also the decision-makers.

Trustees are Always Fiduciaries

Trustees are always fiduciaries, but they have critical choices to make that enables them to delegate certain duties to qualified professionals and reduce their fiduciary responsibilities and liabilities in the process.

• Trustees can make unassisted investment decisions in which case they are exposed to the Prudent Expert Law
• Trustees can hire financial professionals who have the expertise to help them discharge their duties.
• Trustees who use the services of financial professionals must make prudent selection decisions when they hire experts.
• Trustees are named fiduciaries and they are liable for the advice of advisors unless they follow strict guidelines for selecting, monitoring, and obtaining disclosures from advisors.

Advisors, Consultants, and Money Managers

Two types of professionals provide financial advice and make investment decisions on behalf of retirement plan, endowment, and foundation trustees.

• Advisors and consultants provide the same core services.
  • Written Investment Policy Statements
  • Asset Allocation Models
  • Money Manager Selection
  • Risk Management
  • Performance Analysis & Reporting
• Money Managers provide the following core services
  • They manage individual portfolios (separate accounts) or pooled portfolios (mutual funds)
  • Money managers only provide discretionary services – make and execute decisions without checking with trustees in advance
  • Economic Research
  • Investment Outlooks
  • Security Analysis
  • Security Selection (buys)
  • Security Sells
  • Multiple Levels of Asset Allocation
• Advisors and consultants provide discretionary and non-discretionary services.
  • Most advisors and consultants provide non-discretionary services. That is, they give advice, but trustees are the final decision-makers.
  • A small percentage of advisors and consultants provide discretionary services. That is, they make and execute decisions without checking with trustees in advance. For example, they may sell a fund and buy another fund with no authorization from trustees.

Non-Fiduciaries

A high percentage of trustees of smaller asset amounts (under $25million) have unknowingly hired sales representatives to advise them on the investment of plan assets. Sales representatives are not fiduciaries. That’s because their role is limited to selling investment and insurance products. They are not compensated to help trustees and participants achieve plan and personal financial goals. The selection of sales representatives increases trustees exposure to fiduciary liability.

While it is important to review an advisor’s past performance, if you are not aware of the dangers outlined in the following article, it is easy to be misled.

How to Avoid Choosing the Wrong Investment Advisor

by Kim Renners
visit Physicians Money Digest to view the complete article

The volatility of the market returns along with the cracking of the Wall Street foundation has left many uncomfortable with the idea of just “staying the course.” Before you switch firms, or advisors, here are some important considerations.

The Dangers of Reviewing a Firm’s Past Performance

A common mistake individual investors make when evaluating or selecting a financial advisor is to overrate the importance of an advisor’s past performance. There are reasons why this approach is flawed. Let’s examine some briefly:

The Time Frame May Be Too Short. When looking at an investment “track record,” many clients will ask for gross returns on a 1-year, 3-year and 5-year basis. This is simply not enough data to make any concrete conclusions about an advisor’s skill vs. randomness or even dumb luck. Even 10 years of data may not be enough.

Comparisons of Results Likely Not “Apples-to-Apples.” Even the common question, “How did your portfolio perform (last year)?” can lead to misleading answers in cases where portfolios are designed for individual clients. For example, many clients have customized portfolios based on their risk tolerance, age, time horizon, tax bracket, objectives and a variety of other factors.  As a result, it is entirely possible that Client A could see returns of 3%, while Client B could boast a gain of 20% over the same period. Both of these investors could be equally satisfied — or not — and neither of these results may give you any helpful advice about your particular situation. Only in situations when two investors have very similar goals, circumstances and objectives is any comparison worthwhile.

Past Performance is No Guarantee of Future Results. Anyone who has ever watched an investment firm’s commercial on TV, listened to an ad on the radio, or read one in a newspaper or magazine is familiar with the phrase “past performance is no guarantee of future results.”  While this is required by the firm’s legal compliance department, and can be easily discarded as “legalese” by consumers, it is crucial for investors to understand. To illustrate one aspect of this principle, examine the chart below showing the returns of leading investment asset classes over the past 28 years.

Factors for Choosing a Financial Advisor

Independent Custodian. Ideally, an investment firm does not custodian, or hold, its clients’ investments in the firm. Rather, the firm should have arrangements with a number of the largest independent custodians (such as Charles Schwab, TD Ameritrade, etc.) to hold their investments for safekeeping, while the investment firm manages the accounts. This “checks and balances” arrangement prevents the insular secrecy that allowed Madoff, Stanford and other criminals to operate.

Client-Aligned Fee Model. In addition to a transparent business model, you want to look for a firm that has a clear fee schedule. With an “assets under management” (AUM) model, advisors charge a clearly defined fee (typically a percentage of AUM). Contrast this with the traditional, convoluted transaction-based model that most brokers utilize, where a client pays based on trades in the account — regardless of whether the trade added value or not. In a fee-based model, not only do clients understand exactly what they’re paying, they also know the firm’s interest — seeing the portfolio increase in value — is the same as their own. The more money in your portfolio, the more money the firm earns.

Your Biggest Expense? It’s Not Fees

Many investment clients focus primarily on management fees and expenses when evaluating advisors. While such costs are important, for most physicians, the annual fees might range from 50 basis points (0.5%) on the low end to 300 basis points (or 3.0%) on the high end. Instead of haggling over fees, individual investors need to focus on their largest expense: Taxes.

The cost of federal and state income taxes, and capital gains taxes, on a portfolio depends on many factors — the underlying investments, the turnover, the structure in which the investments are held, the taxpayer’s other income and state of residence, and other issue. For higher-income investors such as physicians, taxes will nearly always be high. To gain perspective of how much taxation reduces your returns, consider this one statistic: Over the period from 1987-2007, stock mutual-fund investors lost, on average, 16% to 44% of their gains to taxes, according to a report on CNN.

Given that some investors are losing up to half of their gains to taxes, you’d think this would be a focus of value-added investment firms. Unfortunately, you’d be wrong. Mutual funds provide no tax advice to their investors, apart from the 1099 tax statements they issue in January. In fact, stockbrokers, money managers, hedge-fund managers and financial advisors typically don’t offer tax advice because they are prohibited from doing so. “Tax advice” could include specific techniques for limiting tax consequences of transactions or more general “tax diversification” in portfolios. As a result of these limitations, most investment clients are not getting the tax advice they need.

With the unraveling of some of the country’s leading investment firms behind us and volatility and tax increases ahead of us, many are wisely re-examining their financial advisor relationships. If you are one of these, be sure to focus on the right factors in evaluating potential new advisors so you make intelligent, well-informed decisions.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

The following article provides a basic overview of the importance of asking for a track record and what to look for from potential advisors.

Getting The Record Strait

by Jack Waymire
visit Worth to view the complete article

How do you know how a financial advisor has performed for his or her clients? By asking for the advisor’s track record-and reading the fine print

All investors ask prospective financial advisors what type of performance to expect from the advisor’s stewardship of their money. Advisors’ responses are sometimes true, sometimes exaggerated and sometimes dishonest. How can an investor figure out what’s true and what isn’t? By looking for the characteristics of track records you can trust-and the warnings for records you can’t.

The Sales Pitch

Representatives and advisors who cannot provide legitimate track records must still convince you they can produce competitive results. They will make sales claims describing the results they have produced for current clients. For example, they may claim they have produced 20 percent returns, using references to back up the claim. But sales claims, even those supported by references, are not legitimate track records. You need …

Disclosure & Documentation

All legitimate track records are based on disclosure and documentation. Disclosure is usually in the fine print, but it should describe the methodology used to produce the track record. Documentation is your record of what is communicated to you before you sign on with an advisor.

Composition of Track Records

The most reliable records are based on the performance of all of the advisor’s portfolios. Second best is a composite of portfolios that still contains a large number of accounts. Be leery of track records based on a limited number of portfolios, which may include only the best performing accounts.

GIPS Compliant

The formula an advisor uses to calculate his or her track record should be in compliance with Global Investment Performance Standards, an industry code established by the CFA Institute.

Third Party Auditors

Independent third parties with no relationship to the advisor or money manager are the best auditors. Beware of unaudited track records and auditors you’ve never heard of.

Investment Expenses

The most reliable track records should reflect all of the fees that would be deducted from your account: advisory fees, money management fees, custodial fees, marketing fees, administration fees and transaction expenses. Expenses can range from 1.5 percent to 3 percent and occasionally even more.

The Free Lunch

Watch out for track records that appear to be too good to be true or an advisor who claims he can produce high returns for low risk. High returns for low risk do not exist.

The Hot Product

Many sales representatives and advisors will show you the performance of hot products (specific mutual funds and hedge funds, for example) and represent the results as their track records. Unfortunately, it’s virtually impossible to know when they began recommending the funds to their clients. In my experience, they usually selected the funds after the performance occurred.

Bottom Line

Some investors feel awkward asking potential advisors for their track records. Don’t. It’s your money.