By Kevin FitzGerald
My mother died last year and left me and my sister property in Ireland. With property valued so high back home, we decided to sell and invest the money. I picked a few stocks myself and I seemed to do OK, but my sister (who is more aggressive than I am) selected a money manager and she seems to be doing better. My sister’s manager isn’t right for me; how can I find my own?
— M.C., Queens
Sitting in front row seats for the World Series. Getting the best table at a prestigious restaurant. Receiving the best medical or legal advice from a world famous professional. These things are out of reach for most Americans because gaining access to them usually requires having a lot of money, knowing people in the right places or a combination of both.
Gaining access to some of the most highly respected professional money managers to handle your investment portfolio used to require a lot of money — in most cases a minimum investment of $1 million. But now you can gain access to the nation’s leading investment managers through a service offered by some financial services firms.
Who needs an investment manager anyway? Professional athletes have help from the best personal trainers available to help them stay in top form. Shouldn’t that same type of professional help be available to investors who want to keep their portfolios in top shape?
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Most affluent investors, small- to mid-sized companies and other organizations lack the time and resources to manage their investment portfolios successfully. In fact, many of these investors would prefer to hand over the day-to-day investment decision- making to a full-time professional manager. But conducting the research to choose an appropriate, quality manager from the more than 20,000 management firms listed with the Securities and Exchange Commission can be both time consuming and expensive. Often the best of these managers will only handle accounts of $1 million or more.
Some investment executives at financial services firms can offer their clients access to these investment managers for a lower minimum investment, typically $100,000. Here’ s how it works. The investment executive acts as a consultant between investors and an elite group of top investment managers. Usually the managers will be pre-screened and carefully reviewed by the investment executive and his or her firm before becoming a part of the program.
A program like this is more than just giving clients access to top-rated investment managers. It is a comprehensive approach to total portfolio planning and ongoing management. The process must include three important steps: defining your investment objectives and risk parameters, choosing an appropriate money manager whose investment philosophy is consistent with yours, and ongoing monitoring of the manager’s performance.
Defining investment objectives
For any long-term goal, a well thought out game plan is required to achieve success. Your investment management program should begin with a thorough understanding of your current financial status, liquidity needs, long- and short-term goals, and your tolerance for risk. This will help you get a picture of how all your assets — cash, stocks, bonds, inheritance money, real estate holdings, retirement savings, etc. — can work together so that you can achieve your financial goals.
Choosing a manager
Whether your investment style is conservative, aggressive or somewhere in between, there’s a manager for you. Your investment executive can help you choose among specialists in domestic equity, international equity, fixed income or balanced investing. Together you should carefully review the manager profiles and select one that will complement your investment philosophy. You should also consider the manager’s track record. Don’t limit yourself to one manager; perhaps a combination of managers to handle different aspects of your portfolio would be the best approach for you.
Finally, one of the most important parts of your program is the ongoing monitoring of your money manager’s performance to determine if your investment objectives are being met. Performance monitoring should include quarterly reports that give you and your investment executive an objective, statistical analysis of your investment manager’s performance. The report should list all your account holdings and compare your rate of return with appropriate market indices, as well as other professionally managed portfolios with similar investment objectives. And because performance is based not only on return, but also on the level of risk incurred to achieve that return, the report should clearly assess the volatility of your portfolio during specific time periods.
Many of these programs are convenient and cost effective. Look for one that features an annual "wrap" fee — an all-inclusive fee that includes the cost of determining investment goals, investment manager selection, professional portfolio management, quarterly performance monitoring, ongoing consultation with your investment executive, all commissions, custodianship of securities, and automatic sweep of uninvested funds into a money market account. This fee is usually based on a percentage of assets in the account.
The key to successful portfolio management could be at your fingertips. Call your investment executive today for further information about professional portfolio management.
The information contained herein has been obtained from sources believed to be reliable, but we cannot guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.
Kevin FitzGerald is first vice president-Investments at PaineWebber. He focuses on the areas of professional money management, asset allocation and retirement planning. He can be reached at 1 (800) 423-3381.