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CITY OF COLTON <br />AGENDA REPORT <br />For Council Meeting of MAY 11 1990 <br />TO: Honorable Mayor and City Council <br />FROM:, MIKE WILLIAMS, CITY TREASURER <br />SUBDate:JECT: APPROVAL OF CONTRACT FOR INVESTMENT ADVICE APRIL 26, 1990 <br />I have evaluated the use of professional investment advisors used by the City over <br />the past four years. My conclusion is that the advisors benefited more than the City <br />did. Because of this, I severed all relationships and researched different methods <br />of obtaining independent, objective assistance. <br />The normal relationship between an investor and a broker is usually adversarial, the <br />broker only makes money when the investor buys or sells securities. Also, the highest <br />commission securities are usually the riskiest investment, which violates at least <br />the spirit of the investment policy. It is therefore unwise for an investor to rely <br />solely on the advice of the broker whose motivation is to maximize his income by <br />selling or buying high commission securities as often as possible. <br />Another approach is for investors to turn their portfolio over to a money manager <br />and give them discretion to trade the account. Depending on the method of compensation <br />problems can again arise because of the types of investments done and the loss of <br />control on the account. <br />An additional option is to pay an investment advisor for advice only. This approach <br />takes away the incentive for the advisor to recommend unnecessary buying and selling, <br />as well as risking funds on speculative investments. I have interviewed three money <br />managers and only one appeared interested in working with me without turning the <br />portfolio over to their control. The firm of Advanced Financial Management has worked <br />with me on a trial basis, at no charge, for the past several months. When most other <br />brokers were telling me to buy securities Advanced Financial Management advised me <br />to wait. Waiting has proved to be the best advice. <br />Given the past performance of advisors for the City, I recommend entering into a <br />contract with Advanced Financial Management because their investment philosophy and <br />the City's objectives are the same. Should the relationship prove to be unfruitful, <br />the contract can be easily terminated. <br />MW/bjw <br />City Manager's Concurrence <br />Attachments: <br />Item No. �- / <br />Page 1 of-- — <br />