top of page

Considering there are hundreds of thousands of Financial Advisors in the world,  just how does one go about deciding which one to hire? 

The obvious answer is...the one that will make you the most money with the least risk. How can you decide that? What are the questions you should ask to determine which advisor has the knowledge and capability to actually grow and compound your money? How do you choose an advisor who will make you feel ”safe” in unstable, risky markets? I have worked in the financial services industry for 27 years, and believe it comes down to just (2) things; read on. Let me make it simple and uncomplicated for you.

(1) Is the Portfolio Manager or Financial Advisor willing and able to act in your best interest? 

Willingness is determined by integrity; they either have it or they don’t. Do you sense that you are important to them? Do you feel that they care about you and your money? Do they appear to be honest? Are they consistent in their approach to managing your money?


By able, I mean will the broker-dealer they are employed by, permit them to sell you what is best suited for you? Or, does the advisor have to choose among the investments that the broker-dealer has made financial sharing agreements with, or the broker’s own proprietary products? 

Is the advisor compensated by commissions or fees? When commissions are involved, the Financial Advisor could be swayed to recommend the product that pays the most commission instead of the investment best suited for your needs. If the firm uses fees for compensation as a percentage of your assets they manage, then their fees are tied to performance. If the fees are tied to performance, that is really good for you. It means that when the money manager makes your money appreciate, he/she gets paid more; if your assets depreciate, he/she gets paid less. We believe fees tied to performance are the best way of compensating your financial advisor, and it is the only way we do business.

(2) Do they actually manage your money or just gather a person’s assets and turn the management over to a separate entity or product?

The Wall Street business model for Financial Advisors is to gather the assets and send them out for separate management. This business model is used because many advisors have a degree in something other than finance, and may or may not be qualified to manage your money. Additionally, by delegating money management to a separate entity, the business can be scaled up faster and more efficiently. What happens is the advisor becomes focused on increasing assets under management by selling to new clients. The usual result is that not enough attention is paid to the old clients. The client’s money may or may not be invested efficiently because the investment strategy should have been changed and it wasn’t because the advisor was focused on getting new clients. You will have to search diligently to find a firm that done not operate this way. 

At O’ Connor Portfolio Management, we don’t use mutual funds, index funds, annuities, or any Wall Street product because they are bundled. Mixing “bad” investments with “good” ones, drags down the investment return. Instead, we sell the inferior investments quarterly, making room for new superior investments to grow and compound. This is a thoughtful, planned approach to making the most of your money; over time your portfolio may get stronger.

When you invest in ”products”, your money is lumped together with everyone else’s money. The assets we manage are not all in the same “pile”; each person has their own separate portfolio. Assets lumped together cannot compound properly due to the fact that people enter markets at different times. Person #1 invests in January; person #2 invests in November. Person #2 usually has to pay the same capital gains per share as person #1, even though their investment may not even have profits yet, due to commissions paid. This is a common problem with mutual funds; paying taxes on money you never earned, and being surprised at income tax time.

We’ve been discussing products for growth, now let us review products for income. Here is Head Trader and Assistant Portfolio Manager, Jeffrey Dolgos’ view on Bond Mutual Funds.


When I worked on the municipal bond trading desk of a large national brokerage firm, we used to get calls from the retail Financial Advisors with relative frequency that went something like this: “I am looking at XYZ bond mutual fund and they are quoting a yield of 5.25%, while the highest yield I am seeing in your individual bond inventory is 4.00%. Why in the world would I buy one of your individual bonds versus the bond mutual fund?” 

Like I tell my daughter all the time, if you have a question in class you need to ask it, because I can guarantee you that others have the same question.  I gave the Financial Advisors a lot of credit, because they called and asked. Many others probably had the same question but didn’t ask…they bought the bond fund, not the individual bond, based on the higher yield they were quoted. That 5.25% yield quoted by the mutual fund department is a factual number, but it is not the number you should be looking for as an investor. There are a number of yields in fixed income investments, and the seemingly too-good-to-be-true number usually is just that. What they are quoting is the “distribution yield”, or trailing twelve month yield (TTM).

This TTM yield can contain many things….typically it is annual interest earned, but sometimes there are special dividends and capital gains included, which can boost the number. “Current yield” is similar; it is simply the coupon rate divided by the price of the bond.  A 6% coupon bond trading at a price of 115 gives you a 5.22% current yield. This only tells you what you are receiving on an annual basis considering current price, not face value, which is what you will receive upon maturity.  

A more accurate measure of your potential return on a bond fund investment is the “SEC yield”.  This is a complex calculation that tries to incorporate the actual yields to call or yields to maturity. It is mandated by the U.S. Securities and Exchange Commission and approximates the yield an investor would receive over a yearly period. 


Bond mutual funds serve a purpose in the investing world, but I feel their role is limited. For a beginning investor there are low barriers to entry; you can start with hundreds, not thousands of dollars. For example, municipal bonds trade in minimum multiples of $5,000, and even this is considered an “odd lot”. $10,000 and more will get you a better buy price and a better sell price should you need to liquidate before maturity. For investors that have substantial assets, bond mutual funds are not something we would think about buying; the performance just isn’t there and there is risk...

I am talking about principal risk; the risk that your investment is worth less than you started with. Bonds in a managed portfolio product are bought and sold with varying frequency depending on the goals of the manager. What this means is that the fund as a whole never matures, as does an individual bond. The share price will fluctuate as bonds of different prices are bought and sold, and in theory, an investor exiting the fund may never be able to recoup their original investment due to a drop in the share price. In contrast, while an individual bond will fluctuate in value over its lifetime, upon maturity you will receive face value or 100 cents on the dollar.

Principal risk also exists with respect to interest rates. While all fixed income investments are subject to fluctuations in value as interest rates rise and fall, individual bonds will pay 100 cents on the dollar upon maturity (barring a sovereign or company bankruptcy) no matter how high interest rates go. In contrast, a bond mutual fund’s share price may never fully recover before the investor liquidates it.

When you think about ‘which financial advisor should I hire?’ or ‘how does my wealth manager compare in results?’, remember to ask 2 questions....

1.  Do they act in my best interest like they care about me?

2. Are they actually managing my money, or do I just have ”products” managed by somebody else?   EG

bottom of page