Posted by on May 25, 2013 in Blog, Featured, Posts |


By Jason Zweig

May 22, 2013  10:00 am ET

Last weekend’s Intelligent Investor column looked at the rare but growing occurrence of investors buying a stake in (or lending money to) their financial adviser.

Borrowing from clients is prohibited under the professional standards set by the CFP Board, which licenses and disciplines advisers who hold the certified financial planner (CFP) designation.  (The prohibition is enforceable only among the roughly 68,000 advisers who are certified as CFPs.) Since 2007, there have been 11 cases in which CFPs have been disciplined for borrowing from clients. (To view these cases, select “Borrowing from Client” in the “Select Keywords” menu here, then hit “Full Search.”) Often, borrowing from clients is only one of several inappropriate actions for which a CFP has been sanctioned by the board.

It’s worth noting that isn’t just individual investors who have been known to take a stake in their money manager.

In March 2012, for instance, the Teacher Retirement System of Texas, one of the largest pension plans in the U.S., invested $250 million for a minority equity position in Bridgewater Associates, the hedge-fund behemoth run by Ray Dalio. Part of the rationale, says Howard Goldman, a spokesman for the Texas fund, was “creating a deeper, strategic relationship between [the pension fund] and Bridgewater” as well as the “opportunity to invest in a premier, profitable, global investment-management firm.”

The Ontario Municipal Employees Retirement System, or Omers, which holds approximately $60 billion in assets, owns Borealis Infrastructure, a firm that manages a $10 billion global portfolio of energy, transportation, health-care and other facilities.

And it isn’t uncommon for pension funds or endowments to take a minority ownership in startup money managers to whom they provide “seed capital,” say industry experts.

Such giant firms have negotiating leverage that individual investors lack. Buying a piece of your financial adviser, or lending money to his firm, will generally make it harder for you to cut him loose if his advice goes sour and can create all kinds of conflicts of interest. For most individuals, it’s a bad idea.


Source:, Total Return blog