Do you make the investment decisions yourself, or do you delegate the investment decisions to a team of professional Private Money Managers?
When it comes to investing your money, your investment advisor has three choices they can make:
- Your advisor can choose to buy stocks and bonds (generally done through a stockbroker);
- Your advisor can decide to invest in mutual funds which provide professional money management; or
- Your advisor can employ dedicated, professional Private Money Managers.
Stocks and Bonds
If your advisor recommends stocks and bonds, he/she will either:
- act as principal recommending stocks/bonds from their in-house brokerage account or
- act as agent by going out to an exchange and purchasing the stocks/bonds on your behalf.
To make their own lives easier and to attempt to treat their clients equally, financial advisors often suggest mutual funds rather than individual stocks and bonds.
This selection allows them to access the expertise and services of the mutual funds’ professional investment management team.
This selection also reduces the advisors’ workload in terms of research and client management. They can then provide you (their client) with the information and research data supplied by the mutual fund companies (Sometimes this is self-serving data).
This selection is a somewhat better solution, as the responsibility for investment selection is now passed onto the mutual fund investment management team and doesn’t rest on the individual stock picking ability of the advisor.
While this may be an improvement, some problems still exist.
Why? Your advisor must now research the thousands of mutual funds available for sale in Canada and suggest several for your consideration. This process is labour-intensive and can be a daunting task for the advisor as there are more mutual funds for sale than stocks listed on the Canadian Stock Exchanges.
Alternatively, the advisor may rely on their in-house research teams to recommend a mutual fund.
And advisors (stockbrokers) still must manage each client portfolio individually, just like a stock portfolio. Instead of recommending individual stocks and bonds, they are recommending individual mutual funds.
Private Money Management
The third choice and the one that I recommend is Private Money Management.
Private Money Management involves using professional Portfolio Managers to make the individual stock and bond decisions on your behalf.
This approach is more customized than simply buying mutual funds. This is the way many high net worth individuals and families have their money managed.
Portfolio Managers are individuals or firms that manage customized investment portfolios on behalf of foundations, pensions funds, endowments, financial institutions, and private clients.
Portfolio Managers differ from mutual fund advisors and stockbrokers because they are fiduciaries and generally have a higher level of education and qualification.
Portfolio Managers manage larger portfolios for fewer clients. They provide much more personalized management of investment portfolios that is not available with mutual fund advisors and stockbrokers. Since Portfolio Managers manage fewer and much larger portfolios, they often charge their clients lower management fees.
With Portfolio Managers, you get a dedicated investment management team. Their responsibility is to create Optimized Portfolios that maximize the expected return at a given level of risk.
They accomplish this by developing a written agreement known as an Investment Policy Statement or (IPS) that considers your specific investment needs and goals.
Your IPS forms the basis upon which your Portfolio Managers select an appropriate mix of investments and make discretionary adjustments to your portfolio to optimize the asset mix and minimize the overall investment risk.
They employ strategies to make the necessary investment changes to all client portfolios at the same time, so clients large or small get exactly the same treatment at the same instant in time.
I cover this extensively in my book Who’s Investing Your Money? – 7 Key Questions to Ask Your Financial Advisor. This book examines the various types of advisor registrations, their limits and abilities and will help you find the right advisor for you.
You have worked hard to achieve what you have. Make sure that you hire the right wealth advisor who comes with a family business or farm-aware team.
To learn how a Portfolio Manager can help you maximize portfolio returns while minimizing portfolio risk, please call me at (604) 855-6846 or email me at firstname.lastname@example.org
Who’s investing your Money? is available as a free PDF download at www.whosinvestingyourmoney.com
Alternatively, the book is available from Amazon.ca as a paperback and Kindle version from this link: Who’s Investing Your Money? – Amazon