Dear Mr. Berko: My wife and I are 74 and 72 and retired with an unmanaged 401(k) worth $380,000. We are thinking of moving our 401(k), which is currently invested in poorly performing Fidelity funds, to a hometown brokerage that is partnered with our hometown bank, which we trust and have dealt with for years. These are local people, and my wife and I prefer to work with people we know rather than young kids working for a big Wall Street firm who can’t identify with our needs. Because our Fidelity funds haven’t done so well as the market (we want more oomph in our performance), our bank’s vice president recommended we move our account to a broker at a local firm here. This adviser is a very sweet man with 24 years’ experience in business and manages $94 billion in money and over 100 accounts. He gave us this new investment proposal to consider. It explains the 10 mutual funds he would buy for us and how well they have done. I’m trying to do the due diligence on these investments, but I need your sage advice. Our goal is income so we can travel more and preserve this capital for our later years.
Dear FG: It was terribly generous, gracious and thoughtful of your local bank to be personally interested in your financial well-being, and it was overly kind of the vice president to recommend a hometown brokerage and a broker to assist you with the professional advice you need. However, that referral gives me the collywobbles, and your bank certainly didn’t perform the due diligence you should expect of it.
To begin, I strongly suggest that you check this broker’s background with the Securities and Exchange Commission. The SEC’s Investment Adviser Public Disclosure database will tell you that the hometown broker has not been in this business for 24 years; rather, he has only been in the brokerage business since 2010. That’s four years. And I sincerely doubt that he has $94 billion under management and over 100 accounts. If those were true numbers, I assure you this fellow wouldn’t be working for this hometown brokerage, because this outfit doesn’t have the skill sets to manage accounts of that magnitude.
If you review this fellow’s background, be prepared for a major disappointment. He declared bankruptcy in 2002 and was convicted of misdemeanor (petit) thefts in 2007 while in Florida. We all have made mistakes in the past, but some mistakes of the past are easier to repeat in the future.
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