Today's column will be a little different from others that I write as it will contain a reaction to something that I previously published Below you will find a letter on my Editor's Note in the November issue of Practical Accountant. The Editor's Note may be found online at
I am publishing the letter for a number of reasons. For one, I think the subject of the column and letter will be taking on increasing importance to accountants as well as their clients. And even more importantly, my column simply raised concerns, while the letter provides very specific examples that accountants can effectively implement to deal with these concerns.
Here's the text of the letter that I received from Brooks C. Sackett:
"Thank you for your Editor's Note "Judged By Other People's Work" (November 2003). Whether we enter into strategic alliances or make referrals of our clients to other professionals, the perception is qualitatively the same in the eyes of our clients. They trust us to do our best in serving their interests, to look out for their welfare, and to protect them before all else. They assume a duty of loyalty and feel betrayed if that is violated through our acts or the acts of those we have referred our clients to.
"A serious accountant can begin to develop an effective checklist for confirming the details and quality of an investment consultant's work by asking to see his or her Form ADV, by asking how a client's risk profile is measured, how investments are selected, how the mix of asset classes in a portfolio is determined and maintained, and how the monitor and review process regarding investment performance and volatility is carried out on a continuous basis. Ask what steps are taken to reduce expenses incurred by the portfolio and, very critically, what checks are in to place to guard against self-dealing and prohibited transactions. Inquire how the professional is compensated, what the investment management consultant's plan of continuing education is, what specialized designations are held, and ask to see copies of client newsletters and other service communications. An accountant could easily imagine what questions he would pose to another accountant to scrutinize his colleague's processes and procedures. That array of questions should serve as a guide in developing a checklist for evaluating another professional's work.
"A start in this direction, no matter how intuitive and basic, is vastly superior to no checklist at all. After more than twenty years of financial planning and investment management and consulting I have only been asked twice to explain my process for selecting the mutual funds I use in client portfolios. In both cases, I was thrilled to have the opportunity to explain the details of what goes on behind the scenes. Unfortunately, both parties didn't want to hear too many of the details even though they seemed to appreciate the fact that a stated, rational process was in place and adhered to each month.
"Thanks again for stressing the need that all accountants (and other financial professionals) must expand their vision of risk management and implement procedures to deal with risk wherever it exists."
Respectfully,
Brooks C. Sackett, CFP, CIMA
Chief Capital Management, Inc.
San Jose, Calif.
