EDITOR’S NOTE: This is the last in a series about questions you should ask your wealth advisor.
“Mama may have … Papa may have … But God bless the child. Who’s got his own … who’s got his own.” — “God Bless The Child” By Billie Holliday (1941)
When shopping for an investment advisor, there are several important questions to ask in a get-acquainted meeting. One is a simplistic but nevertheless very important inquiry: “Will you actually be managing my money?”
In addition to “Do you serve as a legal fiduciary to me?” and “Are you compensated solely by your clients?” this is one of the most important questions an investor should ask.
Many investors assume that the investment advisor with whom they sign an investment advisory agreement will be managing their money. But simply stated, many advisors do not actually manage assets.
They may serve primarily as asset gatherers and relationship managers, while someone else does the investing. Sometimes that “someone else” is someone within the company, and sometimes it’s a third party manager.
Either way, it’s very often not the person the investor considers their “advisor.” In addition, some advisors specialize in product sales or commissioned investments, like parent company mutual funds, and do not “manage assets” per se.
Sophisticated investors want to work one-on-one with the advisor who knows them personally and who also actually manages their assets. They are increasingly aware of the fact that with many advisory relationships their assets are managed by someone else in the company or by a separate account or third party asset manager. Usually they’ve never sat down with this asset manager and thus, the asset manager may have no awareness of their quantitative or qualitative objectives.
Corollary questions to “Will you actually be managing my money?” are “Do you actually select individual stocks?”, “Will you manage my assets in-house, or will someone else in the company be managing them?”, and finally, “Will you be investing my money with separate account managers?”
If a potential advisor says that he does indeed pick individual stocks for his clients’ accounts, this is a good sign that he may actually be managing your money and possibly even “custom-creating” your portfolio, which is what most many savvy investors desire. If the advisor says, “No, I don’t pick individual stocks. Instead, we use mostly mutual funds,” this can be a sign that the advisor is more likely to throw your assets into a “model,” with possibly less accompanying consideration of your unique financial goals.
Lastly, if an advisor says that he will be utilizing a separate account manager, then you know that your assets are being “farmed out” to another investment team or person, and you can rest assured that your advisor is not managing all of your money.
“Who will actually manage my assets?” should rank high on your list of questions for a potential advisor.
Margaret R. McDowell, ChFC, AIF, a syndicated economic columnist, chartered financial consultant and accredited investment fiduciary, is the founder of Arbor Wealth Management, LLC, (850-608-6121~www.arborwealth.net), a fee-only registered investment advisory firm located near Sandestin. Arbor Wealth specializes in portfolio management for clients with $250,000 or more of investable assets.