3 "Yellow Flags" in Your Investment Portfolio

Q1: What are A-share mutual funds and why should I be concerned if I own them?

A-share mutual funds are easy to spot on your statement—you'll see the letter "A" after the fund name. These funds charge a commission on the front end. If you invested $100 into an A-share fund, after the commission is paid to the adviser, you'd have roughly $95 actually invested. There are also typically trailing commissions built into the fund structure.

The concern isn't necessarily that something illegal happened—these were commonplace decades ago when advisers acted more like salespeople. But the industry has shifted to an advice-driven model where you pay a fee for ongoing advice and management, not a commission for buying a product.

If you own A-shares, ask yourself: have you heard from the adviser since they sold you that fund? If not, you're probably not getting ongoing advice. If you are in regular contact, ask whether there's a cheaper share class available now that you're paying for ongoing management. Many A-share funds have lower-cost investor share classes that could save you money.

The bottom line: what are you paying and what are you receiving in return? If you're dealing with a salesperson collecting upfront commissions and nothing else, they may have ulterior motives.

Q2: Why is owning an annuity inside an IRA a potential problem?

Annuities are typically sold for their tax-deferral benefits. But an IRA is already tax-deferred by its very nature. Putting a tax-deferred annuity inside a tax-deferred IRA doesn't give you double tax deferral—you're still just getting the same tax deferral you already had.

The concern here is that the annuity likely gave the adviser who sold it a nice commission check, and there may be better, lower-cost investment options available for your IRA.

Now, there are legitimate reasons to hold an annuity in an IRA in certain situations. But if you see an annuity on your IRA statement, you should ask your adviser a very specific question: "Why do I hold this annuity, and what benefits am I receiving from holding it inside an already tax-deferred vehicle like an IRA?"

Q3: How can I spot a potential conflict of interest with my adviser?

This one is harder to identify just by looking at your statement. The red flag here is when your adviser works for a larger corporation or has a relationship with a holding company, and you're placed into a specific fund—often one managed by that parent company—that may not be the best solution for you.

In a recent example, a client portfolio came in where the adviser was at a local bank. The biggest fund in the client's account was managed by the parent company of that same bank. When we looked at the performance, it was trailing its benchmark over the last 10 years, and the expense ratio was much higher than a simple index fund tracking that same benchmark.

The question to ask: if you weren't working for this particular institution, would this still be the best fund option for you? If the answer is no, that's worth digging into.

What should I do if I spot any of these yellow flags in my portfolio?

None of these things necessarily mean anything was done incorrectly. But they do mean you should be asking some further questions. Start with your adviser. Ask about the A-shares—why you're in them and whether a cheaper share class exists. Ask about the annuity in your IRA—what specific benefit it provides. Ask about any proprietary funds—whether they'd still be your best option if your adviser worked somewhere else.

If you don't know which questions to ask, borrow the ones from this discussion. Or get a second opinion from an outside investment professional. Bring those questions back to your adviser. If they don't have great answers for you, chances are you should be looking elsewhere for somebody to take care of your money.