-
Notifications
You must be signed in to change notification settings - Fork 0
/
toughquestions.html
94 lines (92 loc) · 10.2 KB
/
toughquestions.html
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
<!DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd">
<html xmlns="http://www.w3.org/1999/xhtml"><!-- InstanceBegin template="/Templates/template.dwt" codeOutsideHTMLIsLocked="false" -->
<head>
<meta http-equiv="Content-Type" content="text/html; charset=UTF-8" />
<!-- InstanceBeginEditable name="doctitle" -->
<title>Michael Butkus & CO</title>
<!-- InstanceEndEditable -->
<link href="styles.css" rel="stylesheet" type="text/css" />
<!-- InstanceBeginEditable name="head" -->
<!-- InstanceEndEditable -->
<!--[if gte IE 9]>
<style type="text/css">
.gradient {
filter: none;
}
</style>
<![endif]-->
<script>
(function(i,s,o,g,r,a,m){i['GoogleAnalyticsObject']=r;i[r]=i[r]||function(){
(i[r].q=i[r].q||[]).push(arguments)},i[r].l=1*new Date();a=s.createElement(o),
m=s.getElementsByTagName(o)[0];a.async=1;a.src=g;m.parentNode.insertBefore(a,m)
})(window,document,'script','//www.google-analytics.com/analytics.js','ga');
ga('create', 'UA-18166885-6', 'auto');
ga('send', 'pageview');
</script>
</head>
<body>
<div id="container">
<div id="header"><img src="images/header.png" width="900" height="200" alt="header" /></div>
<div id="wrapper">
<div id="menu">
<ul>
<a href="index.html"><li>Home</li></a>
<a href="about.html"><li class="gradient">About Us</li></a>
<a href="philosophy.html"><li class="gradient">Investment Philosophy</li></a>
<a href="account.html"><li class="gradient">Opening an Account</li></a>
<a href="toughquestions.html"><li class="gradient">10 Tough Questions</li></a>
</ul>
</div>
<!-- InstanceBeginEditable name="content" -->
<div id="content">
<h2>How To Find An Advisor Who (Really) Knows Investing.
</h2>
<p>Finding a financial person who is an expert investor can be like finding a highly competent doctor: As a layperson you may have no earthly idea if the doctor is expert or mediocre. His colleagues know, his nurses know, his classmates know but being an outsider you don't...nor probably do you even know the germane questions to ask. The truth is often suppressed by the profession itself. Ditto for the investment business---how do you smoke out the non-experts from the experts? Here are 10 "insiders' " questions to ask a prospective financial advisor. These questions are specifically for the purpose of determining the investment acumen of your candidate. The questions are probing and some answers controversial but think of what's at stake: it is highly unlikely you will ever re-earn the money you have now. Find yourself an "investor-advisor" not just an investment advisor:</p>
<ol>
<li><em>"Do you sell annuities?"</em><br />
In my opinion, a yes answer to this question is almost a sure sign you're talking to a salesman not an investor-advisor. Most annuities pay very high commissions, some even 5, 6 or 7%. They do have their place, but in my opinion the vast majority are sold to people for the high commission paid to the salesperson. They also have very high annual internal charges, which drag on returns, and are extremely illiquid and highly complicated. Annuities are not even investments per se, they are contracts with the insurance company. Many investor-advisors won't suffer these negatives and will stay away from annuities.<br />
<br />
</li>
<li><em>"What is '<u></u><u></u><u></u>Enterprise<u></u><u></u> Value'?"</em><br />
This question in itself is not of utmost importance. However, it is a (rather softball) question regarding investment analysis. <u></u><u></u>Enterprise Value is what you'd owe if you bought an entire company. First multiply the number of shares outstanding times the price of each share. In buying the company you'd get back any cash the company has but also have to take on the company's debt. The net of all this is Enterprise Value. (Market value plus debt minus cash). Not being able to answer this question isn't the end of the world but someone steeped in investment analysis will know what Enterprise Value is.<br />
<br />
</li>
<li><em>"What returns have you made for clients?"</em><br />
It is grotesque and shameful that investment performance has become an ugly stepchild among some in the investment business. <em>Investment performance! </em> Why does one invest in the first place? While a considerable number of investor-advisors publish their results, many times you'll get this answer: "I don’t know, all of my clients are different". There is a lot of legitimacy to this answer; 1) they are all different and 2) regulators require considerable documentation for advisors to offer their investment performance. But many advisors try to sidestep the question. The investment business has gotten to the point that many financial people call themselves "relationship managers" who "outsource" the investing function to others... their words, not mine. At least ask the question.<br />
<br />
</li>
<li><em>"What are your educational qualifications?"</em><br />
All of the following degrees are great: corporate finance, accounting, economics and/or an MBA. Other business degrees such as marketing, management, leadership etc. are of very little use in investing. This is one of those qualifier questions, not so much a disqualifier. I've known of several liberal arts majors who became successful mutual fund managers.<br />
<br />
</li>
<li><em>"What designations do you have?"</em><br />
(I would separate this question from the education question so you get a distinct answer on each.) Have you noticed a lot of financial folks have a long string of acronyms behind their names? The fact is, many of these are fluff-type designations which require only a few evenings or weekends of study. The gold standard? The "CFA", or "Chartered Financial Analyst". This is numero uno in the investment analysis world. It's kind of like the CPA of finance and securities analysis but there are far fewer CFA's than CPA’s. (By the way, I think being a CPA can be very desirable in an advisor as well.) Not every good investor-advisor is a CFA but an advisor with the CFA designation is highly likely to be good investor-advisor. Then there's the "CFP" or Certified Financial Planner. This designation is highly useful, though not absolutely necessary, for those who advise clients on college funding, estate planning, insurance, social security, etc. These things are very important but they are not investing, they are planning, and the two have very little to do with each other. These days financial planners try to both plan and invest for clients, often "outsourcing" the actual investing part. Many CFP's are good investor-advisors but note that folks from insurance agents to CFA's have CFP designations. Regardless, whether the investment person has a long string of acronyms or a just a middle initial, use these questions to make sure he is also an investor-advisor. There is no reason to settle for less.<br />
<br />
</li>
<li><em>"What is 'Goodwill'?"</em><br />
Another softball question except this is from the accounting world. If you don't know a fair amount of about accounting it's hard to be a good investor. Goodwill is an intangible asset on a company's balance sheet. As an example, goodwill can be the value in being a long-standing, successful, well-known, respected company versus that of a startup company in the same business.<br />
<br />
</li>
<li> <em>"Do you practice dentistry?”</em><br />
The answer will of course be: "Are you crazy? Of course I don't, you are looking for an expert investor-advisor". Okay, fair enough, then ask them: "Do you primarily sell insurance?" If the answer is "yes" this person is highly unlikely to be an investor-advisor. Investing is investing, insurance is insurance, and never the twain shall meet.<br />
<br />
</li>
<li><em>"How long have you been doing the specific kind of investing you are doing now?"<br />
</em>This takes the usual experience question one step further and may elicit more specific information about the advisor's experience. It's possible the candidate worked in a firm's back office, worked as a mutual fund wholesaler, or was a broker's sales assistant. That they work in the industry doesn't automatically make them an investor-advisor.<br />
<br />
</li>
<li><em>"What do you think of _______________?"<br />
(Insert "real estate", "silver", "timber", or“______” here). </em> This question may give you more color regarding the depth of an advisor's general investing knowledge. No investor-advisor knows about every area of investing. However good investor-advisors seem to have an intense curiosity about investments generally and love analyzing and talking about investments of any kind. If the answer to this question is "I'm not an expert on_____”, that's not a bad answer either.<br />
<br />
</li>
<li><em>"How do you view risk?"</em><br />
My view is that risk is the number one consideration in investing. If I was on a desert island and had to choose between the considerations of risk and reward, I'd choose risk (unless coconuts were also an option). It is easy enough to lose money investing without asking for it, and licking your chops over potential returns is asking for it. You will lose money if all you focus on is reward. A seasoned, expert investor-advisor knows this and hopefully you'll get a diatribe about risk when you ask this question.</li>
</ol>
<p><em>Copyright 2014 Mike Butkus</em></p>
</div>
<!-- InstanceEndEditable -->
<div id="footer"></div>
</div>
</div>
</body>
<!-- InstanceEnd --></html>