This Guy Made Advisors Lose $20 Million Accounts

The former RIA, who no longer manages money himself, insists that he is not anti-advisor.

Though he co-authored a book (Your Nest Egg Game Plan) with Craig Israelsen geared to do-it-yourself investors, he understands that many investors want the involvement of a professional.

"I'd tell my clients, 'You don't need to pay me, just read the book,' but a lot of them want hand holding," he says.

That includes his wife. While Fragasso manages the family's investments, he already has an LPL advisor lined up to assist his family as part of his will.

"I have no problem with advisors as long as they put the client first," he says.

But too often that seems not to be the case. He cites the example of a 71-year-old widow about half of whose money is in an IRA managed by an advisor she says is "a nice guy."

The $173,000 account is half invested in equities, but spread out over 21 different individual stocks, meaning positions are quite small. The widow did not know whether she was paying commissions to buy and sell the securities, and in any case there were no small or medium-sized firms among the lot, so she'd have been better off with an S&P 500 index fund or well diversified large-cap, Fragasso says. What's more, over the past 10 years when the S&P 500 generated an average annual 7.8% return, the widow's IRA returned just 3% a year. The 3% difference represented a loss of $5,000 a year, or $50,000 over 10 years, the widow could never recover, he adds.

Fragasso boils down his review and recommendations to something like two pages, saying the large tomes advisors produce are a big part of the obfuscation that confuses investors.

"People would come in with reports 50-pages long with 20-year projections. You can't project 20 years out that you're going to get 8% returns on the S&P," he says.

"I help clients understand enough of the basics so they can manage their money on their own, or if they want to work with an advisor," he says, adding that "I know a lot of reps who really do put their clients first, so I am not trying to move people away from their advisor. I will not recommend another advisor. I'll just say, 'these are the kinds of questions you should ask.'"

He charges 10 basis points, so $100 on a $100,000 portfolio and $500 on a $500,000 portfolio, with a mutually agreed smaller fee on accounts of $1 million or more. His goal is build up the business and then train others to do the evaluations, saying at this stage of his career he just wants "to give back."

Fragasso, who mainly served in financial services marketing positions prior to becoming an advisor, traces his impulse to audit advisors in part to the marketing ploys he was tasked with employing to draw investors to poor performing products.

"I worked for a number of years for firms whose funds I would not recommend to family and friends," he recalls.

"A lot of products were very expensive and not just underperformed but greatly underperformed," he says. "They were all commissioned products; it was hard for me to work for companies whose products I never owned."

While Fragasso wants to look over your shoulder, advisors with a will to do what's right and address potential problems probably have little to fear.

"Most people don't want to change advisors [even when you] show them horrible stuff," he says.

"I'm not trying to get people to change their advisor. I just want to make sure that either on their own or with their advisor they're going to reap the maximum reward with the money they've worked so hard to save," he says.

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