Is Your Investment Manager Skilled or Lucky?

Posted on: April 22nd, 2010 by

Financial Planning - Rockville, MDWhen hiring a financial planner or investment manager, past performance is one of the most important factors to consider.  For this reason, many investment managers and financial planners maintain a composite, which is an aggregation of portfolios they manage that represents a specific investment mandate.  Composite presentations will give you insight into the past performance of an investment manager’s strategy.  With an influx in direct marketing for investment management and financial planning services it is very important that you familiarize yourself with the ins and outs of these composite presentations so you can analyze them for yourself.

Composite presentations will typically display both gross-of-fee and net-of-fee total returns.  A copy of the financial planner’s fee schedule should be requested if the composite displays gross-of-fee returns only.  You should be wary of a composite that only show net-of-fee returns because that is a sign that it may only include one large portfolio that pays little or no management fees.

Another thing to look for in the presentation is the total number of portfolios and the total assets invested.  You can use this information to figure out the composite’s average portfolio size by dividing the number of portfolios into the total composite assets.  Sporadic changes in the number of portfolios could signal that the investment manager has a high client turnover.

Looking at the investment manager’s past performance numbers is not always enough.  The true quality of the financial planner’s performance lies in the details of the composite presentation and their investment philosophy.  It is important to speak with them about how they go about investing and the types of funds and annuities they tend to favor to determine if they are the best fit for your goals as a client.



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