AKAMAI MONEY

By Deborah Adamson

Q: My financial adviser has all my retirement money invested in mutual funds. Most of these funds are run by the same brokerage that employs my financial adviser. Is this good or bad for me? Is there some reason my broker is choosing these funds that I should know about? — Ann Batterman, Wai'alae, Hawai'i

A: What you're talking about are proprietary funds — in-house funds owned by brokerages.

"They're usually more expensive to the investor and are pushed by the financial planner because there are added incentives to sell these," said Gerald Clay, a Honolulu lawyer specializing in individual investor issues. "People expect neutral, unbiased advice. ... What they get is the company sales pitch."

In February, New Hampshire regulators sued American Express Financial Advisors for allegedly rewarding advisers who steered clients toward in-house mutual funds that didn't perform as well as outside funds.

But Steve Connolly, a spokesman for American Express, said "on the whole, we feel we have acted in the best interest of our clients and we're still working with the state of New Hampshire to resolve this."

However, the conflict of interest isn't only with proprietary funds. Also under fire are brokerages that recommend certain outside mutual funds to clients without adequately disclosing all compensation received.

In December, Edward Jones & Co. agreed to pay $75 million to settle "revenue-sharing" charges filed by the Securities Exchange Commission, New York Stock Exchange and the National Association of Securities Dealers. The brokerage did not admit or deny wrongdoing.

So how can investors, who do not want to manage their own money, get less biased advice?

You could choose a fee-only certified financial planner, said Roy Weitz, publisher of Los Angeles-based

FundAlarm.com, a investor advocacy Web site. Fee-only planners are not paid by commission and thus won't be as motivated to push certain mutual funds. There's a list at www.fee-only.org. But these planners tend to be established and mainly accept clients with high net worths, said Robert Brokamp, editor of Motley Fool's "Rule Your Retirement" newsletter in Virginia.

If you're dealing with financial planners who take commissions and fees, don't automatically invest in their recommendations. Investigate them yourself, Brokamp said. It's not hard.

Go to www.morningstar.com and type in the fund's ticker symbol. Check out its long-term performance — at least five years — versus the benchmark index, which will be listed. Also, take a look at the fund's fees, turnover and manager tenure, and compare them with similar funds.

To do a comparison, at the home page of the Morningstar site, click on "Morningstar Tools" and then "Fund Screener." Set the criteria for your fund. If you're trying to find other U.S. large-cap growth stock funds, choose those parameters. The screener will list similar funds.

If you find out that your fund lags in performance against the benchmark or most other funds, or it's more expensive, ask the planner to recommend other funds. If he or she works for a brokerage, ask for outside funds.

"They're not limited to their own funds," said Brokamp, a former financial planner for a brokerage. "If they say they can't sell other funds, that's not true."

One tip: it's not a good idea to invest in a brokerage's index fund, he said. These charge higher fees for following an index and there are similar funds with no commission or load at companies such as Vanguard.

Got a personal finance or consumer question? Contact Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.