10 Questions For Your Financial Advisor

 

How savvy is your investment advisor? Ask these questions and find out.

 

By Dwight Cass

1. Is the market inflating tech bubble 2.0? IPOs for LinkedIn, Groupon, Pan­dora and others have Wall Street’s tech-sector shills taking to the airwaves. But worries that tech is a bubble about to burst are prolifer­ating. Several companies are offering small numbers of shares, as they did in the dot-com bubble, so their prices can be pushed up easily. (Up … and down.) Should I steer clear? Look for opening day gains? Or short the sector?

2. Are the multinational corporations in my port­folio squeaky clean? After a recent scandal involving one of its biggest companies, BAE Systems, damaged the country’s business reputation, Eng­land passed a stringent anti-bribery law. There’s a lot of that going around these days. Considering that trend and laws such as the U.S. Foreign Corrupt Practices Act, my portfolio companies must be honest in their dealings overseas, particularly in emerging markets. Are they?

 

3. Can my advisors translate the new accounting rules? The accounting practices of corporate and financial institutions are changing as standards-setters move to harmonize U.S. and foreign rules. Most important, the U.S. Financial Accounting Standards Board is moving ahead with its convergence project, so companies with consolidated accounts and operations in FASB’s jurisdiction and elsewhere don’t have to file two sets of reports. Will the changes help investors like me?

4. Do dynamic index funds make sense? An actively managed index fund sounds like an oxymoron. But pension funds and other big inves­tors have been snapping up commodity-based dynamic index funds to gain exposure to that sec­tor while controlling risk. What are the drawbacks?

5. Is Vietnam poised to outperform? The coun­try’s stock market sold off sharply in the first half, but emerging-market watchers believe its low labor costs and growth potential could put it at the head of the so-called “frontier markets” pack. Investing directly in its stocks is cumbersome. Is there a more efficient way to get exposure to the country?

6. Have regulators fashioned a U.S.-E.U. investment opportunity? G20 regulators are at loggerheads over whether standardized trades in the $600 trillion over-the-counter derivatives market need to be conducted through clearinghouses. The E.U. doesn’t think so, meaning a lot of the global derivatives business could migrate there. Given the import of that business, should I short U.S. banks and buy European ones?

7. What fees am I paying on my alternative mutual funds? The new breed of mutual funds that employ hedge fund investing styles are supposed to benefit investors by offering much lower fees. But some are ramping up the costs. Am I paying exorbitant prices for mutual fund performance?

8. When will Europe’s problems go away? A recent survey of investment managers by Bank of Amer­ica showed that 43 percent of those polled—up from 36 percent in May—see the E.U. sovereign debt situation as their biggest risk. After over a year of European debt wrangling, when and where can I look for opportunities in the region?

9. Should I trust China’s central bank? To rein in lending and tem­per inflation, it just raised bank reserve requirements by half a percentage point, to a record 21.5 percent. While inflation is continuing to rise in China, economic growth figures remain encouraging. Should I rearrange my China portfolio to defend against runaway inflation?

10. What should I learn from Glencore? The commodity firm, which went public in May in the year’s biggest IPO so far, released disappointing earnings in June. Investors were already scratching their heads over the struc­ture of the complex trading house, and Glencore’s stock price fell three per­cent. What does its perfor­mance say about investing in this sector?

Curator