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Tips to Colorado Investors for Investigating Asset Managers

If you’re like most Colorado investors trying to figure out who they should trust with their investment decisions, you rely on the recommendations by word of mouth from your friends, neighbors and family. Bad, bad, bad!
We are grateful for recommendations of a fabulous new restaurant or a new hotel with an ocean view. If we screw up on a restaurant or hotel, we haven’t drained our bank accounts. In contrast, we rely upon our investments to provide for the “rainy day”. Most people plan their retirements upon the assumption that their decades of hard work and wages will sustain them after they quit working. Parents spend months scouting the proper college for their children. Why treat the security of your financial portfolio any differently?
Misguided friend and family recommendations for an asset manager have cost investors billions of dollars. Relying on the recommendations of family and friends, many Colorado investors trusted Denver area businessman Shawn Merriman with nearly $20 million of their life savings. As I disused in a previous post, A Colorado Business Litigation Lawyer’s Recommendations: How To Spot A Ponzi Scheme, it turned out the “investments” they were making involved enhancing Merriman’s lavish lifestyle with expensive artwork, exotic automobiles and sports memorabilia including a baseball glove autographed by legendary New York Yankee Lou Gehrig.
It doesn’t take a financial wizard to investigate your proposed asset management firm. There are a number of solid sources of public information available to you with a few keystrokes on your computer. My friend Jeff Beachell of Veritable, LP suggests doing at least the following:
Review regulatory filings carefully.
For Registered Investment Advisors (RIAs) searches, go to: www.sec.gov .
o Look under “Investor Information” and click on “Check out Brokers and Advisors”.
o Under “Protect Your Money”, click on “Research Investment Advisers (Firms Only)”.
o Review Form ADV Part I and Part II (if filed) carefully.
o Review Form 13F. This form lists all assets held by the money manager and is a quarterly filing. Madoff’s 13F showed $200 million in assets being held and yet his ADV showed billions of dollars. If anyone had taken the time to review each of these forms, they would have immediately noted the disconnect between the ADV and the 13F.
Check out brokers and investment advisers filings online.
For broker dealers searches, go to FINRA BrokerCheck: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/index.htm• Review broker check reports for both the firm and all employees. These background checks are critical. Sometimes an employee might engage in fraudulent conduct that the firm can only uncover with a background check.
• For mangers utilizing futures and options strategies, go to: http://www.nfa.futures.org/BasicNet/
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