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Seven Things to Look for in a Money Manager

March 2009

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It is perfectly possible for most individuals to learn to manage their own money. For all of you just starting out with your first 401k or 403b, learning basic money management is an essential life skill. Even those of you who have built significant wealth beyond your employer-based retirement accounts can learn to manage your own money. But what if you truly have no time? What if you know yourself well enough to know you won’t be able to sleep at night if you are doing it yourself?

Fortunately, competent honest money managers do exist but finding them—and keeping an eye on them—does take work. Building wealth and keeping it is never a task that you can completely delegate. Your best protection, no matter who you work with, is knowledge and personal involvement. Too often people chose their money managers because someone they know said “go to my guy.” Then they turn over the job and never check up on the manager until something goes wrong.

The better way is to choose a manager by deliberately and carefully comparison shopping just as you would when buying a house. When shopping for a money manager, you must do your homework. Interview several different money managers before making a decision—and plan at least two or three visits with the top two firms before you sign over your money.

Here are seven things to look for when selecting a money management firm:

  1. Low fees, preferably less than one percent per year in total,including the management fees of any mutual funds, sub advisors or exchange traded funds owned in the account. Fees should be clearly discussed and disclosed in writing.
  2. Minimum turnover and tax-sensitivity. Good managers typically trade less than 20% to 30% of the portfolio in most years. If you are moving money from another firm, a good management firm will help you make the transition gradually, changing asset allocations and specific investments slowly to minimize market timing risk and tax costs. A good firm will spell out this plan in advance, mapping a strategy that will generally take about two to three years to fully execute.
  3. Individual stocks and bonds. Managers can rarely add value by just buying a bunch of mutual funds—that’s just layering expenses on top of expenses. For many investors, particularly those with portfolios over $1 million, it makes sense to hold most of the money in individual bonds, stocks, with a handful of low-cost index and actively managed funds added for diversification. For those with portfolios much under $500,000, a mix of very low cost stock and bond index funds should make up the bulk of the portfolio, along with CDs and money market funds to cover short and medium term needs.
  4. Depth on the bench. Avoid one-person money management firms—there are too many chances that the solo manager will drop the ball. As Yale University’s legendary endowment manager David Swanson points out, it takes a dedicated team of specialists to make money. Be sure to meet several of the people who will be handling your account. How are people on the team trained? What is their experience? How long have they been working together? Ask what sort of oversight exists within the firm—does your manager have someone watching over him? Is he or she required to follow guidelines established by an investment policy group?
  5. Transparency and access. You should have access to your money at all times and you should be able to view your accounts online, with prices updated in real time. Statements should be clear and understandable and issued on a quarterly or monthly basis. Goals, strategies, and procedures should be stated in writing and reviewed regularly. Your manager should clear trades through a major third party broker, such as Fidelity or Schwab. The management company’s accounts should be audited by a well-known accounting firm (ask for the name of the auditing firm and get your accountant to check up on them). The account should be ensured by the Securities Investor Protection Corporation (SIPC). But on your side, you must be open and honest with your manager about your family finances: key financial needs, other accounts and the investments held in those accounts, major life changes that might be coming up.
  6. Realistic goals. Your management team should carefully and regularly review your family finances—both your need for money over the next one to five years, as well as your long term goals. You should be clear about how much authority the manager has over your money: how much can he deviate from the plan? When must he call you before executing a trade or change in strategy? The firm should clearly and carefully explain how the strategy they are recommending will help you meet both short and long-term financial goals. There should be regular meetings scheduled to review changes in your financial picture. Your managers should never promise a particular return—if it sounds too good to be true, it probably is.
  7. A professional relationship. As in hiring a contractor to build your house, you are looking for a specific set of skills. Understand that it matters little if you like your advisor if he consistently costs you more than he earns for you. While changing advisors willy-nilly is not a good idea, you should always feel emotionally free to fire your manager, in other words, hiring your best friend or your brother-in-law to manage your money puts you in a dangerously conflicted position.

At Responsible Investing we create individualized education programs that can help you learn to work more effectively with your money manager. We can help you decide whether it makes sense to change money managers. And we can coach and guide you through the process of selecting a money manager, providing objective feedback that will help you make a sound, well reasoned choice. At Responsible Investing we work strictly for you on a fee-for-service basis and do not accept finder’s fees or commissions from any investment house or money management firm. Click here to schedule a free initial consultation.

Responsible Investing is an independent financial coaching and investment advisory firm, registered with the Commonwealth of Massachusetts.


The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Past results are not indicative of future performance. Outside sources used in this article are believed but not guaranteed to be accurate. Examples provided are for illustrative purposes only and are not representative of intended results that a client should expect to achieve.