Interviewing a Money Manager

Financial planners can act as money managers. Brokers can, too. The guys who run your mutual funds are money managers. Hedge fund managers, guys who trade "separate accounts," and virtually anyone who promises to oversee your investment capital are money managers. In fact, so long as you follow a few regulatory rules, you could hang out your shingle as a money manager, even if you don't have a lick of financial sense. As such, that makes "money manager" an odd job among the financial experts you will work with in your lifetime. It can be completely personal and one-on-one, or it can be as impersonal as the nameless, faceless guy who makes sure your index fund actually replicates its benchmark.

To show just how much confusion there is over the role of a "money manager" and how confusing the titles can be, consider that is a service that is designed to introduce consumers to financial advisors. That said, in telling you to "find your advisor," it lists specialties such as portfolio management, retirement planning, estate planning, education planning, 401(k) rollovers, and debt-relief services. With the exception of portfolio management, I would suggest that those are not the roles of a money manager at all. The idea in hiring a money manager is finding a specialist who is focused on running the money, not doing the rest of it. Yet here was a site on money managers where the "featured" advisors were all typical, neighborhood financial-planning types (not surprisingly, I did not find the online service particularly worthwhile). That confusion is commonplace. In Chapter on interviewing a financial planner, I noted a message board posting that was in search of a money manager, but which was really all about finding a planner instead. For our purposes, however, a money manager is someone who looks after your investments only, implementing a financial strategy that is less targeted to your goals than it is to making money in all market conditions. Where the broker has a suitability standard and the financial planner a fiduciary standard, there's a question as to how well a money manager may actually know you; in many instances, you will be referred to a money manager by a broker or planner who knows your big picture and believes a specialist is exactly what you need. Think of it this way: The money manager's job is to give you the kind of performance that Bernie Madoff's clients thought they were getting from him. He was their money manager; as we have heard from victims since his massive fraud came to light, what is clear is that some of Madoff's victims knew him and dealt directly with him, others were funneled his way by other financial advisors and intermediaries. All were attracted by his performance claims and purported results, right up to the moment it all came crashing down. But the Madoff case shows precisely why choosing a money manager is difficult, and why it's important not to take a money manager's credentials, history, record, or reputation at face value. The scope of money managers runs a wide gamut, beginning with local financial planners and brokers who like managing money and working portfolios, and who may leave the other parts of the planning to colleagues to guys working in the towers on Wall Street. In some cases, you get to talk face-to-face with the money manager, in others, you are really asking your broker or planner questions before agreeing to take his or her recommended step of turning money over. That can make it hard to get comfortable with a money manager. The good news is that, if you can't get comfortable, you don't have to hire one. You can stick with ordinary investmentsâ

By Chuck Jaffe
Chuck Jaffe is a senior columnist and host of two weekly podcasts at MarkWatch. He has also been a guest speaker on several television and radio shows.

Copyrighted 2020. Content published with author's permission.

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