One of the primary reasons a client works with an adviser – and vice versa – is for guidance in choosing appropriate investments. Many advisers develop and recommend a portfolio of specific holdings for their clients. The percentage of such holdings often will vary with the different risk appetites of each client. Even where an adviser does not have specific allocations, advisers typically will recommend specific investments to their clients.
A good question for a client to pose to an adviser then – and one which advisers would do well to think about – is what is in the adviser’s portfolio? Would it not be interesting to know that your adviser is using one of the allocations he or she has developed and is recommending to you? Would it matter if the adviser chose different securities for his or her portfolio than were recommended to you?
Think about it. If your adviser says one thing to clients but does something else, that disparity has some meaning. You might want to have the adviser provide you with a thoughtful no BS explanation where the adviser does not practice what he or she preaches.
A related question should be whether your adviser manages and invests any of his or her own money and personal investments. I have known several advisers who created and tried to sell investment allocations to their clients but would not put their own money there. What does that say about the adviser?
It might be useful, too, to consider whether proprietary products are being recommended to clients, what incentives are provided to the advisers recommending them, and, of course, whether the advisers themselves own any of those items.
Leave for a separate discussion the question of when and how an adviser trades in his or her account vis-à-vis trading the same securities in client accounts. That is more of a question of compliance and conflict of interest that is dealt with separately. There is no bar for an adviser to trade in securities recommended for clients but the timing of such trades is rigorously scrutinized.