Choosing an investment manager is a crucial decision for any investor, but high-net-worth individuals and their families need to be especially discriminating about how their portfolios are managed in order to grow and protect their sizable capital.
Complicating this time-consuming and research-intensive selection process is the fact that families with considerable assets often invest with multiple money managers in order to achieve proper diversification and assign the best experts to each segment of their portfolios. The benefits of using a multi-manager approach are numerous. It can provide access to comprehensive investment management strategies and more flexibility to choose investments suitable for specific objectives.
Diversifying among managers in different styles also typically results in less volatile returns. But building and maintaining the right team of managers requires a great deal of effort. Many wealthy families hire financial consultants who offer objective guidance and expert advice on asset allocation and manager selection.
A financial consultant can help you create a customized investment strategy for your unique financial situation. Through a consultant, you can gain access to a large pool of qualified, professional investment managers - often with smaller account minimums than might be required of institutional investors. The consultant can then assist you in finding investment professionals who are compatible with your needs and typically will continually monitor their performance and consistency to make sure you are meeting your goals.
Develop a strategy
The first step in adopting a multi-manager approach is to evaluate your current investment strategy. A financial consultant will review your financial needs and long-term goals with you and will discuss what styles and strategies you feel comfortable with. Taking into account your risk tolerance, liquidity needs, performance expectations, and personal situation, you and your consultant can then develop a customized investment plan.
The next step is structuring your portfolio and matching it with appropriate managers. Your financial consultant can recommend various asset allocations that could be used to achieve your goals and can then research the universe of investment professionals who could manage each asset class.
By studying experience and past performance through data analysis and personal interviews, your consultant can determine if managers have a proven record of success over the long term, sufficient staff and resources, formalized risk management, a tradition of style consistency, and a good client service reputation.
They can then compile a list of possible candidates with detailed information about their expertise and how they meet your requirements. With this information, you and your consultant can assemble a team of investment managers and assign segments of your portfolio to each accordingly. The end result is full-time professional portfolio managers who make daily investment decisions according to your long-range investment plan.
For a multi-manager investment approach to work optimally, constant monitoring of your portfolio and the managers responsible for it is required. Your consultant can establish a system for evaluating progress and communicating the results to you. They can make sure each manager is consistently sticking to the strategy you hired them for and track your portfolio's performance against benchmarks and indexes, looking at both relative and absolute rates of return.
Investing is a long-term proposition, and your financial consultant can help you adjust as your assets grow and your needs change. He or she can continually assist you in rebalancing your portfolio and making manager changes as necessary, responding to market conditions while holding steady to your goals.
This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service or as a determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on their objectives, financial situations, and particular needs. This article is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought.