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Auditing Financial Advisor Total Portfolio Returns

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  • Auditing Financial Advisor Total Portfolio Returns

    I have a very complicated financial portfolio involving the usual non-retirement brokerage accounts and retirement IRAs, 401Ks etc but also ownership in a family investment LLC and manage 4 trusts and have multiple underlying private investments which call capital and distribute returns on all different schedules.

    I am actually very happy with my fee structure, returns over the last 10yrs, etc so this post is not about the advisor itself, investments, or AUM costs.

    BUT it is becoming very hard to track and audit the returns on any individual entity and portfolio in total given the underlying complex structure, ownership stakes, and underlying investments.

    I have always been a trust but verify type of person and looking for any advice on where to find an accounting firm that audits an investment portfolio to calculate its performance

  • #2
    You know about XIRR?
    Helping those who wear the white coat get a fair shake on Wall Street since 2011


    • #3
      From the description, I suspect that many of the returns are not in cash. The XIRR function needs inputs. The challenge for something like this is what to use for those inputs. How does one verify reported values and compute returns based on stated values of illiquid private investments?
      An audit might include checking the inventory in warehouses, getting third party estimates of the values of holdings, accounting for the varying timing of investments and distributions particularly when some are not in cash...

      Or at least, I think that is where Sparky is looking for help.


      • #4
        Auditing Financial Advisor Total Portfolio Returns”

        This is what CPA firms primarily do.
        Two or three choices:

        •Audit of Financial Statements
        •Review of Financial Statements
        •Special engagement
        The extent of the procedures performed and the costs will be different.
        Financial Statements have a definition:
        Income Statement, Balance Sheet. Statement of Cash Flows, Footnotes and Opinion all performed in accordance with Generally Accepted Accounting Principles (Audit & Review).
        I suspect you actually want a special engagement.
        For that you and the CPA have an engagement letter specifying exactly what you want them to do. You set the scope of the review/confirmation or calculations you want verified. For example, if one of the assets is a holding in a brokerage account, do you want them to obtain the detail independently or from you or the trustee or do you want them to look at every statement?
        They will “sample” or use whatever you wish. It sounds like you want a special engagement, for an independent party as a check and balance on what you have been doing. Accounting rules on valuations maybe different for financial statements than what you might be desiring (leases-operating or capitalize)(cost or FMV)(book basis or tax basis). You can define the scope which will greatly decrease the cost.

        About the only time true financials are needed is if a bank requires personal financial statements.