Choosing a Money Manager
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If all you need is an adviser to help you invest and you’ve got plenty of bucks, you might want to hire a money manager. Usually, money managers require at least $100,000 (sometimes far more) to invest, though some will take $50,000. The advantage of using one of the nation’s 8,000 money managers rather than just buying professionally managed mutual funds on your own is that you more control over how your cash is invested. For instance, you could tell the money manager not to buy certain types of stocks for you, such as tobacco companies. This brain won’t come cheaply, though. Many money managers charge 3% of the amount you invest, which is more than twice the fee of an average stock mutual fund.
Brokerage and financial-planning firms will find a money manager for you, if you like. Instead, get an independent specialist known as an investment management consultant or talent scout to find one for you. Chances are you’ll wind up paying less in fees and have more personal contact this way. For the names of talent scouts near you, call the Institute for Investment Management Consultants (602-265-6114). Once you have the names of a few money managers, read through their ADV forms and ask them to supply you with performance figures going back at least five years for portfolios similar to the one you would like. After you have hired a money manager, monitor his or her performance quarterly. If, after a year, the manager hasn’t beaten the appropriate market averages, you may want to make a switch.
A wrap account is an increasingly popular way for people who can’t afford a money manager to buy the services of one. Most brokerage firms now offer wraps. They work like this: You hand over a chunk of money –typically $25,000 and up –and the money manager selected by the brokerage firm decides which stocks, bonds, or sometimes mutual funds to buy for you and moves your money around at will. Cost: up to 3% of the assets you invest. You needn’t pay 3%, however, and shouldn’t. Instead, negotiate the fee with your broker. You may well be able to get it down to 1.5% or so. The average brokerage annual wrap fee is 2.3%; mutual fund wrap accounts tend to charge 1% to 1.5% plus annual expenses of 0.5% to 2%. Your broker must give you a brochure explaining the compensation arrangement for the wrap and how the manager’s track record is calculated (these brochures aren’t required for wraps that invest exclusively in mutual funds).
Should you take the wrap? That depends on how much money you have to invest. Wrap accounts make the most sense for people investing $250,000 or more. Once you have that amount of money, you have the best chance of cutting down the fee. What’s more, you can then diversify among two or three wrap managers.
If you decide to get a wrap account, be sure you can select among managers with different investing styles. Be sure each manager’s performance record has been verified and calculated according to the standards of the Association for Investment Management and Research, a trade group for money managers. You’ll also want to find out how much personal attention you can expect to receive from the manager.
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One Response to “Choosing a Money Manager”
Most people do not have that much cash to invest with a money manager although the tips are great if you do. For the person who may only have $5-$10K, what strategy would you recommend for them?
Craig
http://www.budgetpulse.com
By
Craig (Who am I?) on Sep 25, 2008