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Researching Money Managers

Posted by Seton McAndrews | CFP®, Vice President Investments
January 28, 2015

Researching-Money-ManagersMoney manager strategies can be likened to the fuel for your retirement plans. Much like gasoline in a car or wind for a sailboat, money managers can propel your investment plan forward along the way to your retirement goals. As such they need to be researched and monitored closely.

How do you know if your money manager’s performance is real? What should you look for in a good money manager? What are things to watch for? While each person’s approach is different, these are important questions to ask, especially if you’re noticing any of the following with your current or prospective money manager.

A Short Performance Track Record

A track record of less than three years doesn’t give you enough data to analyze. While there are exceptions, investing your retirement savings with an unproven money manager should be considered carefully.

Hypothetical Performance

If you meet with a money manager who back-tests investment strategies, you should be cautious. Back-testing means creating a strategy now and then testing it as if it were around ten or fifteen years ago to see how it performs. This is dangerous for a couple of reasons.

First, hypothetical performance has the benefit of hindsight. Second, it doesn’t involve actual client money. Investing large amounts of client money is quite different from tracking the performance of an allocation over time.

Portfolio Manager Tenure

Portfolio managers may have short track records because they’re new to the business or because they have recently been hired to manage a strategy. In either case, some may say that a strategy is only as good as the people managing it. It’s smart to scrutinize a portfolio and its returns if the strategy was governed by different portfolio managers over time.

Confusing Strategy

Some wealth management strategies are particularly complicated, and this isn’t necessarily a good thing. If your money manager or financial advisor encourages you to sign several hundred-page documents, be cautious. Likewise, if your money manager won’t or can’t tell you about the investments in their strategy or whether or not your money will be tied up for a long time, take a step back and evaluate your options.

Steps to Take During your Money Manager Due Diligence

Once you know what to watch for, you can begin evaluating money managers. Here are a few steps to get started:

  1. Verify that a money manager’s performance numbers are real and accurate
  2. Verify that performance is GIPS compliant
  3. Figure out a money manager’s prime objective, and determine whether or not that objective matches your own wealth management strategies
  4. Review a money manager’s long-term management performance
  5. Measure a manager’s performance against an appropriate benchmark
  6. Compare performance against competing managers’ performance
  7. Research the portfolio management team behind the money manager
  8. Learn about a money manager’s fees and other expenses

Your financial advisor should review this information with you, while focusing on creating wealth management strategies specific to your needs. Thoroughly vetting a money manager strategy can help solidify your confidence in your wealth management strategy.

For more information about researching money managers and to see which ones we’re recommending, call us at (800) 541-7774. A Wealth Manager will be happy to speak with you about your concerns or help you to begin planning for your future.


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Past performance is no guarantee of future results. This information is general in nature and provided for informational purposes only.


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