The age of the internet has given us a lot of good information, and it’s made research easier for the average person. Wondering who won the Oscar for Best Picture in 2017, what happens to muscles as you age, or how to train a cat? The answers are just a few keystrokes away. As information becomes more and more accessible, it’s become easier and easier to learn how to DIY thousands of activities that used to be regulated to the realm of learned experts (ie. car repair, investment management, and self-diagnoses).
Even for those things that you choose to outsource to an expert – and there are more than a few things that are still worth outsourcing to a trustworthy expert – there is a huge amount of power in understanding (at least the basics) how their processes work.
That’s why WrapManager believes in educating people about how to research a money manager. Knowing what different indicators mean can empower you with tools to identify and invest with money managers that could help you meet your financial goals.
An overarching piece of advice that we give to those who chose to do the research themselves would be to take your time, be rigorous in the examination, and spend a lot of time talking to your wealth manager before hiring any money manager that isn’t included in your existing financial plan. If you have a specific money manager in mind, the first step is to request a money manager report from our directory.
5 Tips for Researching a Money Manager
As you engage in the process of researching a new money manager, here are five tips you can use as a checklist to better understand how they could work with your existing investment plan.
- Evaluate the Long-Term Track Record of Performance and Results. Performance isn’t everything, but it is perhaps the most significant driver of the decision to hire a manager. If a prospective manager has demonstrated solid performance over the last few years, that could be a good start. But the real question is, how well have they done over the last 10 years? 20 years? Long-term results matter more. The key is to find a money manager that has demonstrated the ability to perform well across various market conditions and cycles—something that takes a lot of time and experience.
- Measure Performance Against Other Managers and their Benchmark. If your small-cap value manager was up 35% last year, for example, that may seem like a great accomplishment. But what if other small-cap value managers were up an average of 40%, and the best one in the category was up 55%? It’s important to compare your manager with other managers within the investment category, and against an appropriate benchmark, like the S&P 500 for large cap US managers.
- Learn More About the Management Team. Researching a money manager shouldn’t be much different than doing a background check on a new employee. Investors should learn as much as possible about the decision makers’ backgrounds, experience, and values. Then from there, it makes sense to understand more about the operations and support teams, because after all, they’re critical to making the business run. Get to know the team as though they’re going to become a part of your family, because in a sense, they should do just that.
- Dig into the Details of the Investment Strategy. Here investors should examine details about the investment strategy, like risk profile, portfolio turnover averages, tax efficiencies/strategies, buy and sell disciplines, and so on. You’ll then want to objectively compare these against your own personal investment goals and how well they align. It is probably a good idea to have a fiduciary advisor like WrapManager help with this step since fiduciary’s must act in your best interest at all times and it’s hard to be objective about your own financial future.
- Consider All Fees and Expenses Associated with Investing. In addition to annual management fees for each manager that you’re interested in, be sure to check if there are any account related maintenance fees, transaction fees for trades, or any other fees. If you are genuinely seeking to invest in only two or three manager strategies, and you qualify for each managers’ minimum investment, you’ll pay separate management fees to them all.
In some cases, conducting the above research can be exhaustive, and the information can be difficult to obtain, which makes it hard for the average person to conduct on their own. At WrapManager, we specialize in conducting research and due diligence on money managers, and we can provide you with information on many different money managers free of charge. Our Investment Policy Committee and wealth managers help hundreds of investors find money managers that could help them meet their goals.
Want to know more about how to research a money manager? The Guide to Researching Money Managers can help you learn more about the key differences between money managers and financial advisors, the warning signs to watch out for when choosing your money management team, and the role of a financial advisor in managing your investments. Get it here.
WrapManager can also help you evaluate which managers might make sense for you based on your individual financial wants and needs. Give us a call today at 1-800-541-7774 to learn more or send us an email to start a conversation about your investment portfolio at firstname.lastname@example.org.