Questions for Two Point – The Advisor Paradox: How to Find the Right Investment Manager

“Questions for Two Point” is an ongoing series on our blog to answer commonly asked questions from clients, friends and the community. We will discuss topics to help people understand more and worry less about their investments and focus more on enjoying the things in their life that mean the most. What questions do you have about finance or investing?  Submit questions here.

A fundamental question facing many people: How do I search for and evaluate a new investment manager for myself and my family? There is an interesting paradox associated with this search.

Typically, when an individual is ready to take that step, they have already reached a certain level of accomplishment in their life and career. They are accustomed to making decisions based on a strong set of skills and personal knowledge. Yet most people who are looking for new financial advisors are not financial professionals themselves. They may or may not enjoy dealing with money matters. They may feel greater or lesser degrees of skill in the financial arena. But very few are confident investment managers.

Which leads to the dilemma: how to select the right partner when you do not have the tools and information to fully judge the advisor’s capabilities? Given this choice involves your current and future net worth, the stakes can feel high.

Understanding the Landscape

What capabilities, perspectives or proof points may signal that you have found a person and firm you can trust, both relative to their integrity as well as financial performance?

A disciplined advisor has a mix of skills that are critical to get beyond talk and achieve the kind of consistent performance that helps clients meet their life goals.

  • First, it is important to understand that there are significant portions of the financial advisory and investment industry that are highly skilled at listening and relating to their customers. This is important and positive. Yet many of these professionals are limited in their investment expertise and often lack a consistent track record when it comes to financial performance.
  • On the flip side, there are other firms which have good investment skills and track records yet leave much to be desired when it comes to connecting with the real-life needs and personal goals of their clients – beyond just numbers in a portfolio.

It is challenging to take investment expertise and apply it to specific portfolios crafted for specific clients to meet specific personal goals. This is precisely what individuals should be seeking in a first-rate investment manager.

Bridging the Gaps

Bridging the gaps seems to be a challenge for many investment firms.

These gaps may take the form of technology or tools that are lacking to fully leverage financial market intelligence or operations. The gaps may be in the level of experience of the actual investment managers on the team. The gaps may be in those managers’ ability to translate investment ideas into actual execution, day in and day out. There is a level of business process engineering to do this work successfully, which requires a tremendous amount of discipline. There is also a mix of art and science in determining how one decision leads to the next, as well as in cultivating the kind of timing that will drive successful outcomes over time.

So how do you assess if you have found that right mix of investment prowess, human connection and concern, and the ability to shape portfolios that drive results? The first thing to do is ask. That is, ask for proof.

Here are specific questions to ask your potential advisor about their results and decisioning:

  • Will the individual or firm you are evaluating share audited results? Better yet, do they already share the results publicly?
  • How do they evaluate potential investments?
  • What factors drive decisions to buy or sell?
  • Have these factors changed over time, or have they been consistently applied?
  • How do they align potential risk and return of individual investments and your portfolio as a whole with your life goals?
  • Will your taxable investments be managed the same as your tax deferred investments?

After you gain confidence in their ability to generate favorable investment results in the future, ask about specific changes they will make as your goals change over time. The last piece is to make sure you feel confident that they are truly listening to your concerns.

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