Why do my advisors make most of their trades at the end of the month?
It seems that my advisers make most of their securities trades at the end of the month. Is there a rationale for this?
My follow-up to you would be: tell me more about your "advisers". Their role, their company, or their strategies could help explain their rationale. But my first instinct would be this (especially if they are compensated on commission): many companies reward/recognize advisers who had "the best month" in terms of sales and commissions. So it's possible that your advisers are looking at the calendar and thinking "I need to make some moves to increase my commissions". Wire houses specifically will have monthly sales meetings, where the top advisors are listed in a Top 10 format on the overhead projector and given small gifts for their "hard work".
If you are not referring to a wire house or commisionable agents, then they might be using a strategy that involves systematic trading. If you are leary, compare them to an adviser who is paid a flat rate (or is not incented to make trades). If it were me, I would press them further - ask them directly.
Thanks for the question!
Many advisors charge fees at the end of the month or the beginning of the next month. If they do a trade or two before they assess your fee, they will make it seem as though they are really doing something rather than just sitting on their butts.
My personal opinion is that trading is like firefighting. You can't decide one day to make a trade any more than you can put on your firefighting suit whenever you are in the mood and get into your fire truck. If there isn't any fire then you're wasting resources. The time to trade was during the past two weeks when we had the lowest prices in several years for many emerging-market funds. That was the fire and then was the time to fight it.
You are asking a very specific question related to your account and a good one. The easiest solution is to ask the advisors- there may be some good reason for it- maybe they think they are getting better prices at the end of the month. I hope this answers your question.
Yale Bock, CFA
Y H & C Investments
The most likely answer if your "advisor" is commission-based (which he/she is if they work for a bank, brokerage firm, credit union, insurance company eyc, anyone except a RIA), is that the advisor is simply putting on some unecessary trades with a view to churning your account, generating commissions from you and/or meeting quotas imposed by management.
Every advisor places trades at different times which can be dependent on a few variables. A few of these variables coule be based on the advisors outlook on the current market conditions, your risk assesment that should have been done when you opened your investment account, and lastly dependent on the type of investment account in either a qualified account or non-qualified account taking into consideration short-term and long-term capital gains tax. You should consult your investment professional and tax professional for further information pertaining to you.
Matthew T. Palumbo, AWMA®
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