Trust Everyone – Tie Camel Tree
Trust Everyone – Tie Camel Tree is a discussion about covering your ass and performing regular investigation to make sure that your brilliant investment advisor isn’t ripping you off. While the traditional context is a stockbroker or a business manager, we have seen advisors repackaged for alternative asset hedge funds, distressed assets/debt, and the surprise the cannabis industry.
Rather than drone on about specific ripoff situations, we thought it would be much more useful to provide a general framework which can be used to develop a program to monitor your own investment advisors. So here goes.
- Your investment advisor should provide financial reports on a monthly basis which summarize performance and summarize transactional activity for the month. The reports should be received no later than the 15th or so of the following month. The reports should be summarized by status discussions at regular intervals, quarterly or semi-annual may be appropriate, and valuation of closely held investments may be less frequent, as agreed.
- You should review the reports as quickly as practicable after receiving them. Pay attention to increases and decreases in both the overall value of the holdings and individual investments, noting increases and decreases in value. Make sure you consider deposits and withdrawals from the portfolio account as well.
- If there are decreases you don’t understand, reach out to your advisor and get them to explain why…follow up aggressively on any delays or if you become concerned that you are being put off.
- If there are increases, compare the percentage increase with the same period last year, and compare the increase in a particular position with other investments and the portfolio in the aggregate. If something looks out of line, or “too good to be true”, it just might be, so ask questions.
- Review sale or dispositions of investments to make sure that they were both authorized, and consistent with instructions and investment objectives that you and the advisor have agreed to.
- If there are new investments or increases in the size of investment positions, make sure you understand what the investment is, that it is consistent with your specific authorization, and the objectives which you and the advisor agreed to. Ask and understand how they are supposed to earn you a return, over what period of time, what the liquidity of the investment is, and the costs and conditions to liquidate the position.
- Once you have investigated the individual positions, ask yourself if the additions and dispositions are consistent with your overall investment strategy.
In addition to the steps identified above, particularly if the portfolio includes alternative investments such as real estate, distressed assets/debt or cannabis industry investments, it a good idea to review the portfolio positions with your CPA, attorney and tax advisor regularly to ensure that they are aware of what you are invested in, and get the benefit of their “smell test”.
Trust Everyone – Tie Camel Tree
While we are at it, we have provided comprehensive guidance about the proper procedures for vetting attorneys, certified public accountants [“CPA’s], Enrolled Agents [“EAs”], and other tax pros. You can review the information here. We have additional background information on professional ethics for tax practitioners here. Finally, we have the discussions about: