Evaluating A Money Manager

Scams and frauds are designed to take your money through false promises and phony claims. Money management is supposedly designed to increase your net worth. Sometimes these two worlds meet and the results are not in your favor, i.e., you have a considerable decrease in net worth.

The information in this article won't keep future money managers honest but it will help you find the one who is right for your situation. There are four criteria you must consider before you give your money to anyone to manage.

1)  Philosophy-- This is the thought theology used by the money manager to make your money grow. In other words, does (s)he focus on stocks, options, mutual funds, annuities, a blend of investment vehicles, etc.? Does this philosophy coincide with your risk tolerance? If stocks are too risky, a manager concentrating in that arena isn't for you. The philosophy also points you to their performance.

2)  Performance-- We all know the markets are not stagnant. They go up, they go down. No investment manager can predict the market with absolute certainty. But, they should perform well, or even above average, in their specialty. For example, a stock focused money manager in today's market environment should have performance numbers that would make even Warren Buffet take notice. You want as long a performance record as possbile. To be fair, one market cycle should give you a decent indication of the manager's performance in his/her area(s) of expertise.

3)  Process--  This is the means the manager uses to select securities for the portfolios. For example, does (s)he rely
only on in house research or does (s)he incorporate research
from outside sources? If so, who are they and on what frequency are they used?

4)  Personnel-- Besides wanting to know the manager's experience, you'd be wise to learn all you could about the folks working in the office. Who actually manages the portfolio? His/her experience? How long has (s)he been in business? Who will manage your account when (s)he is out of the office, on vacation, on business?

Some people would say cost is one of the criteria. I say it is, but to a lesser degree. In over 30 years in this business, I can guarantee that paying the highest commission did not necessarily result in receiving the best advice. Paying the lowest commission did not necessarily result in receiving the worst advice.

Cost comes in the form of fees and commissions. ALL money managers charge. Cost, initially, should not be in your criteria because it often becomes the ONLY determining factor. That will skewer your thinking and could result in not having a
winning team working for you. Make the above four parameters your
primary criteria and cost will take care of itself.

How? You will be quoted a charge. If you are not comfortable with that price, negotiate. All fees and commissions are negotiable. If the manager refuses to negotiate, then and only then, make cost a member of the criteria team.

This article won't solve all of the money management problems or costs associated therewith. However, it'll at least start you thinking in the right direction and keep
your money in your pocket until you are ready to hand it over.

2004 (c) This article may not be reprinted without permission of the author who can be reached at tom-koziol@excite.com

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