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We all remember those old television commercials where a little old
lady, disappointed with the puny hamburger she just purchased,
shouts out, "Where's the beef?" In
last week's article, we discussed
how investors often pay top dollar for below average results. How
can you be sure you are receiving the service you are paying for?
The first factor you need to consider, is what kind of financial
service do you need? While some people mainly want a comprehensive
financial plan, or just help with allocations, most people really
want a professional who can put their money in the right
investments, monitor those investments closely, and make adjustments
to grow and maintain their wealth.
I call this person a money manager. They are the ones who make the
daily decisions about your money. Advisors that sell products aren't
true money managers, because they are handing off the daily
decisions to someone else. That doesn't mean all advisors are bad,
just that you aren't paying them to manage your money.
If all you're looking for is a way to split your money between
different mutual funds, then you don't need an advisor. You can
easily get free mutual fund allocations from a number of sources.
Why pay a high commission for something you can do yourself?
Let's say that you are looking for someone to invest, monitor, and
adjust your investments as needed; an actual money manager. What
questions should you ask a potential financial professional to find
out if they can deliver? First, let me tell you what questions don't
matter as much.
While credentials are important, they don't prove that someone is a
good money manager. I've known people with all sorts of wonderful
initials after their names who only deliver sub-par performance
along with high-cost service. I've also known guys with no college
education who, while working out of their garage, consistently
outperform Wall Street pros.
Another question that doesn't offer a fool-proof answer is how many
years someone has been in business. This can be helpful, but again,
just because someone has been doing this for decades, doesn't mean
they're going to do a great job for you. Neither does the amount
they have under management. As mentioned in last week's article,
having billions of dollars in assets doesn't automatically mean your
money will experience superior performance.
Here are the questions you must ask, but almost none do. Your first
question should be what kind of strategy or approach does he or she
have to investing? Are they mainly buy and hold or do they practice
more active trading? Do they mainly use mutual funds? Do they employ
a combination of strategies?
Using those strategies, what kind of performance results have they
actually delivered? Ask them what their worst investment decision
has been, and what steps they took to correct it. No matter how
brilliant you are, no one hits a home run every time at bat. A good
money manager isn't one who never makes a mistake, but one who
adjusts properly when they do. Investors between 2000 and 2002
didn't lose 30% to 40% because of bad investments, but because of
bad strategies.
Another very important question to ask is what processes does he or
she have in place to reduce loss in the accounts they manage? How
often do they monitor your investments and their performance? If
another 9/11 strikes and the markets take a major tumble, what plan
do they have in place to deal with it? Is any rebalancing they do
automatic, and if so, how often?
Talking to clients who are actually using a professional's service
is invaluable. Ask for multiple client references and be suspicious
if you are only given two or three to choose from. Being able to
call or at least email referrals is far more informative than merely
reading a written endorsement. Talk to several and ask them what
kind of gains and losses they have experienced and how quickly their
concerns are addressed.
If you ask the right questions, you're much more likely to get the
results you desire. Ask about the strategies and processes a
professional has in place and the performance they have delivered,
and you won't have to be disappointed when you look at your account
statement and ask, "Where's the beef?"In addition to being a
nationally syndicated columnist and Certified Financial Planning
Practitioner, Mr. Voudrie provides personal, private money
management services to clients nationwide. Read more
articles about finances
or investing, or
ask Jeff
financial question. |
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