When it comes to hiring a money manager, investors have no shortage of options. But that\u2019s also part of the problem.\u00a0Finding the right manager is challenging and stressful, especially when you are likely trying to live stress-free.<\/p>\n
So, in an effort to make your search easier, we\u2019ve compiled 10 good questions you might ask each manager you\u2019re considering hiring. You\u2019ve worked hard for your assets, and you deserve a manager that will work hard for you too.<\/p>\n
TRUST…<\/strong><\/p>\n 1. Is Your Firm a Registered Investment Advisor?<\/strong> 2. What Custodians Do You Use?<\/strong> 3. How Are You Compensated?<\/strong> 4. Can You Provide Me with a Copy of Your Form ADV?<\/strong> 5. Are There Penalties\/Fees if I Decide to Leave Your Firm?<\/strong> PERFORMANCE\u2026<\/strong><\/p>\n 6. How Have Your Investment Strategies Performed\u00a0vs. Their Benchmarks?<\/strong> 7. How Will Your Advisor Manage and Measure Risk?<\/strong> 8. What is The Background of Your Portfolio Manager(s)?<\/strong> 9. How Long Have You and Your Firm Been Managing Investments?<\/strong> 10. In Terms of Client Service, What Can I Expect Working with You?<\/strong> (Bonus Question!) Can You Show Me What a Typical Statement Looks Like?<\/strong> When it comes to hiring a money manager, investors have no shortage of options. But that\u2019s also part of the […]<\/p>\n","protected":false},"author":1,"featured_media":4511,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[71,75],"tags":[],"class_list":["post-3020","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-private-client-group","category-the-savvy-retiree"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/3020","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=3020"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/3020\/revisions"}],"predecessor-version":[{"id":11485,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/3020\/revisions\/11485"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=3020"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=3020"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=3020"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\nRegistered Investment Advisors are required to maintain a \u201cfiduciary standard.\u201d This phrase means your advisor has an obligation to not only provide you with proper investment advice, but also to always act in your best interests. You may find that to be an obvious requirement of an advisor, but it\u2019s not. Many broker\/dealers are only held to what\u2019s known as a \u201csuitability standard,\u201d meaning they can recommend proprietary products for which they earn commissions, as long as the product is \u201csuitable\u201d for you. Still, know that registration as an investment advisor with the SEC or state regulator does not imply a certain level of skill or training \u2013 additional questions below will help you determine these things.<\/p>\n
\nThird-party custodians often provide clients with independent reporting statements, secure online access to your account, and trade notifications. You might look for money management firms that work with custodians you trust.<\/p>\n
\nIdeally, an advisor is only paid fees by the client. In other words, the advisor ideally will not make additional commissions from the product sold or obtain referral fees. A fee-based arrangement is typically best, where the advisor is paid a competitive percentage of the assets under management. Before you enter into an arrangement with an advisor, be sure that the fee structure is outlined clearly and in writing.<\/p>\n
\nThis question may sound a bit \u201chard-ball\u201d for an early conversation. Still, a Registered Investment Advisor is required to have a Form ADV that provides helpful illumination on the advisor\u2019s business including compensation, experience, fees, service offerings and, perhaps most importantly, disciplinary history. The SEC requires Registered Investment Advisors to have this and make it available to you upon request. It is important to read this document carefully before hiring a manager.<\/p>\n
\nIf you change your mind about your money manager, or you simply become uncomfortable with their approach, you should be able to leave at no cost within a reasonable notice period. Some managers will penalize you for changing your mind. If you have to pay the manager a fee, or if you lose a percentage of your initial investment upon withdrawal (such as with annuities, insurance products, loaded mutual funds, hedge funds and private equity), then you should think twice about that investment.<\/p>\n
\nIt may sound impressive if a large-cap growth manager\u00a0was up +15% in 2013. However, if the Russell 1000\u00a0benchmark (for large cap growth) appreciated +30%\u00a0on average that year, then the 15% manager is lagging\u00a0far behind. A common industry term that applies here\u00a0is called \u201calpha\u201d \u2013 that is a measurement of the value\u00a0your manager adds (or subtracts) to a fund\u2019s total return\u00a0(you want to look for an alpha figure for the investment\u00a0option that is a positive number showing the opportunity\u00a0has outperformed its benchmark). For example, if your\u00a0\u2018large cap growth\u2019 manager was able to achieve +35%\u00a0growth\u2014meaning they outperformed the benchmark\u2019s\u00a030%\u2014it may be a sign they have the ability to make smart tactical decisions.<\/p>\n
\nYou may have heard of the term \u201cbeta\u201d used by investment professionals. \u201cBeta\u201d is a measure of a\u00a0portfolio\u2019s volatility (risk) relative to the market \u2013 a beta of \u201c1\u201d means the portfolio is expected to
\nmove with the market, whereas a beta less than one means the portfolio will be less volatile than
\nthe market (but may render lower returns). Having the advisor tell you the beta of a portfolio isn\u2019t
\nenough\u2014you want to know what steps they take to diversify away risk and how they manage it
\nover time. A clear risk management strategy is important.<\/p>\n
\nYou want to know how long the management team has been in place and what type of experience\u00a0each member possesses. Have they been in the investment industry for at least several years?\u00a0What is their educational background? What is the combined experience of the team? Are they\u00a0the ones responsible for the listed performance of the fund? Some investment managers leverage\u00a0an Investment Committee approach which can mean key decisions are considered amongst a\u00a0group of professionals leveraging their collective pool of knowledge. Some management firms\u00a0employ a sole portfolio manager to guide your investments. Either approach can be effective and\u00a0is a matter of preference.<\/p>\n
\nAny tenure less than 10 years for the firm and\/or advisor presents some risk\u2014it means they\u00a0haven\u2019t managed through a full business cycle and \u201cthe ups\u00a0and downs\u201d that come with each one. If the manager and\/or firm doesn\u2019t have this experience, they will not have a\u00a0sufficient track record for you to truly ascertain their longterm\u00a0performance track record.\u00a0A manager\u2019s performance in the last year or over the last\u00a0three years is valuable, but it is not as critical as how well\u00a0they\u2019ve done over the last 10+ years. Be sure to ask how the\u00a0manager navigated the last two bear market cycles: how was performance during 2000 \u2013 2002, and\u00a0what did the manager do during the 2007 \u2013 2008 financial crisis (did they stay steadfast and see their\u00a0clients recoup and grow their investments since)? Additionally, it\u2019s always a good idea to request\u00a0performance figures \u201csince inception\u201d for the investment strategies being proposed for you.<\/p>\n
\nExcellent service is more than just receiving a phone call or a free lunch every three months. Your money manager should personally know you and your family\u2019s goals, while being cognizant of the level of risk you want to take with your assets. If you\u2019re a \u201csmall fish in a big pond,\u201d you may not receive the one-on-one type of attention your estate deserves. You might ask your advisor if you\u2019re going to have direct access to the decision-makers, if phone calls are returned promptly based on your own definition of \u201cpromptly\u201d, and if there is a team or points of contact available to handle all of your operational needs<\/p>\n
\nIt is not critical that performance is listed on each statement, but for some people it helps. You want to be sure that the custodian being used reports in a way that is easy for you to follow and has an online login that will allow you to access your account whenever you wish. Also, if there are transaction costs or fees being paid, you want to have those listed clearly on your statements.<\/p>\n","protected":false},"excerpt":{"rendered":"