MW 'I have an out-of-state adviser in a Republican state': How can I tell if his political views influence his investment advice?

By Quentin Fottrell

'I don't know how he feels about the current decisions being made by the administration'

Politics and finance are part of the same economic ecosystem.

But what if you suspect your adviser is steering you towards investments not based on projected revenue and earnings, but due to their own political biases? How can you tell if your advice is based on sound analysis rather than political opinion?

I often hear a lot about advisers advising their clients to keep their politics out of their decision-making, but rarely do I hear that concern aired the other way around. To paraphrase Maya Angelou, when people show you their political hand, believe them.

A Moneyist reader, concerned about the partisan political environment and recent plunge in stocks, asked this question: "To what extent do you think fiduciary financial advisers let their own personal political beliefs guide their actions in the management of your funds?"

Having opinions on Trump's tariffs does not necessarily equate to bias.

"It never really occurred to me up until this past month," they wrote. "I happen to have an out-of-state adviser in a heavily Republican state. We have never discussed politics - so I don't know how he feels about the current decisions being made by the administration."

Here's the uncomfortable truth: Whether or not your adviser is giving you investment advice based on his political affiliations, it will be hard to escape bias - explicit or otherwise. That said, having opinions on the Trump administration's tariffs does not necessarily equate to bias.

But there's one precious value that must exist between client and adviser, whether or not they are on different ends of the political spectrum: trust. It may even be healthy to have opposing political opinions, if they help create an environment where decisions are not based on emotion.

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Striving for objectivity

Typically, the ruling party does not have an outsize impact on the market, but President Trump's policies are impacting stocks. Uncertainty is a complex beast, and Trump's dislike of Federal Reserve Chair Jerome Powell and the question mark over tariffs is sending stocks reeling.

Nothing is entirely objective in this world, as much as we all strive for it, but if a trusted adviser is telling you to bail out of the market entirely or, on the other hand, go big or go home on U.S. stocks based on unsubstantiated opinions and/or projections, you have your answer.

But there's one quality that your adviser, whether a Republican, Democrat or Independent, should have: good judgment. If that judgment is impaired by their love or loathing for a particular figure - the president or chairman of the Federal Reserve - you have a problem.

'Infallible' instructions reek of fervent political opinions.

Seemingly "infallible" instructions reek of fervent political opinions. You will recognize them because they will advertise their bias. In other words: be wary of an adviser who doesn't listen to your fears or concerns, and expresses irrational exuberance for one choice over another.

An irrational belief in the supremacy of U.S. stocks despite market turmoil, which economists attribute to Trump's trade war, or an irrational despair that the economy is headed for disaster will give you an indication if political biases are impacting your adviser's judgment.

That goes for individual stocks. This Moneyist reader said he was "sweating" over big losses in Trump Media & Technology Group $(DJT)$, founded by Trump four years ago; it's a volatile and speculative stock. Trump's election did not mean that the company became profitable.

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Changes in sentiment

If your adviser has had a sudden surge or fall in economic confidence with no sound reasoning, and they want to make major adjustments to your allocations, take note. Republicans' pessimism about their finances fell 40 percentage points from a year ago, Gallup says.

At the same time, Democrats' pessimism rose by 55 points in the early months of Trump's presidency. "Independents are slightly more pessimistic today than last April, contributing to the negative overall shift," Gallup researchers wrote.

Overall, however, consumer sentiment is on the decline. "Americans' expectations for the stock market, economic growth and employment have turned negative and consumers are feeling unusually pessimistic about their personal finances," they added.

There's a fine line between strategy and political guesswork.

A 2019 University of Kansas study found that fund managers' political biases can cost their clients money. Managers weighed their portfolios with stocks run by their people with similar political views 4%-7% more than those with whom they're not affiliated with politically.

The findings, published in the Journal of Financial and Quantitative Analysis, were true for Republican and Democratic fund managers. Researchers looked at almost 1,300 actively managed mutual funds between 2000 and 2015 (before the two Trump presidencies).

"We find that this bias is not associated with improved fund performance," they wrote. "Partisan bias is more evident when fund managers are less experienced, in more informationally opaque firms, and when the U.S. president comes from fund managers' own party."

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Impact of political bias

"This has occurred against the backdrop of Trump's shifting tariff policies and an emerging trade war with China that has roiled the stock market," the researchers wrote. "The administration has argued that higher prices and declining stock values are essentially short-term medicine.

An adviser who 100% supports Trump may argue that the U.S. will ultimately secure itself as a manufacturing hub, bringing newfound economic independence. "Most Republicans seem to have faith in that plan, while Democrats are beyond skeptical," Gallup added.

Republican or Democrat, your adviser should take a balanced view. After all, using election results to make decisions is a risky business. The S&P 500 SPX tends to do well in the weeks leading up to a U.S. presidential election, as far as 1952. After? That's a different question.

Using election results to make investment decisions is risky.

There's a fine line between financial strategy and political bias. This reader was, perhaps rightly, upset that their adviser did not sell their stocks as requested. They lost $20,000. Assuming no political bias, the adviser may have been trying to save the client from their own fears.

As the last few weeks have illustrated, each new administration will have its own economic agenda, and Trump's tariffs and unhappiness with Powell's reluctance to cut interest rates, has led to a fall in U.S. stocks. This is an important conversation to have with your adviser.

If your adviser is giving you a politically motivated steer, you won't need to be Warren Buffett to figure that out. Make sure you are diversified both between stocks and bonds, and within your equity portfolio. If all else fails, ask your adviser how they handle their political affiliations.

If you want honest direction from your adviser, be direct.

More columns from Quentin Fottrell:

My portfolio lost 20%. With Trump's trade war, do I sell my stocks and buy gold?

I'm 63 and nearing retirement. How should I invest my $80,000 inheritance?

'I'm just being practical': I'm cashing out and selling all my worldly belongings

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-Quentin Fottrell

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April 23, 2025 13:16 ET (17:16 GMT)

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