Saturday, October 14, 2006

Notes on selecting a money manager

Additional questions to ask financial advisor:
1. What is the highest yield offered on money market-like instruments? (needs to beat CPI after tax)
2. What is the (lowest discounted) fee for equity and income assets for a $1M portfolio?
3. What are your views on MPT?
4. How many accounts are you currently managing?
5. What do you have to offer vs XXX financial institution, or vs XXX group within your institution (some of these institutions are so huge they have multiple groups competing for your assets)?
6. What contacts do you have for tax accountants and lawyers?

Signs that your financial advisor is doing right by you:
1. Recommended a 50-50 split between equity and fixed income for my asset level. Means lower commissions for him.
2. No hedge funds recommended for a $1M portfolio.
3. Showed me his own personal account statements, he was trying to demonstrate that he follows the same strategies himself for all of his assets (he has a decent chunk of change for his age).
4. Pretty straighforward about fees, showed me the entire proprietary fee schedule, including discounts. Broke down how fees are paid to money managers, wirehouse, and broker.
5. Sent me some free research reports and reading materials which I learned from.


Anonymous said...

Hey R2R,

I really enjoy your blog. I am the Int'l Private Banker @ Merrill Lynch, so please take all my comments with a grain of salt. I think your questions are excellent. I have written some comments below on a few.

3. The financial advisor's view on MPT should not interfere with his/her's ability to provide great service. In fact, the private wealth manager's main concern is to fully comprehend the client's view of the MPT and how the market risk should be allocate in terms of risk profile. For example, I believe MPT is excellent for a small part of my market risk portfolio, where a large portion is in aspirational risk. However a client may have different goals and objectives than mine, which I must understand and implement.
6. I would suggest that asking a financial advisor for tax accountants and lawyers is dangerous. Would you not feel more comfortable with an independent tax advisor, as opposed to one that was referred to you by a person who generates fees from your account?

1. commissions are always negotiable and if you have an annuitized account, you may have higher or lower fees than you would normally have in a straight commission account. This comment was too general.
2. Hedge funds for a US$ 1 MM portfolio may be appropriate if the total wealth of the client is much larger, but the account in that institution is only US$ 1 MM.
3. See my comment above.

Rags 2 Riches said...

Great comments. Thanks! I'll keep them in mind in my search.

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