INVESTING IN THE RIGHT MONEY MANAGER:
AN IMPORTANT FIRST STEP IN TRUSTING YOUR MONEY WITH OTHERS
ORLANDO, Fla., Sept. 22 /PRNewswire/ -- In today's volatile economic environment, managing your money can be a formidable task. Slick advertising and new product introductions all pledge generous results. Stock brokers, insurance agents, financial planners and banks are all competing to manage your money. Who do you choose? How do you find an investment manager that's right for you?
"The primary objective of an investment manager is not necessarily to 'beat the market' over the short run. Rather, consistency is the key," said David Koulish, a senior vice president/portfolio manager at Key Trust Company of Florida, N.A.
"The manager's role is to invest your assets in a manner that meets your stated investment objectives. In short, buying a portfolio of securities within agreed upon guidelines.
"Regardless of what many people think, greed is a powerful human emotion that often takes control of the investment decision-making process. A golden rule to remember is the greater the potential return, the greater the risk. Professional investment managers can help shift the investment decision process from an emotional level to an objective one."
Getting started can be overwhelming. There are more than 7,000 investment managers in the United States alone. "Finding the right one for your may take some time, planning and patience," said Koulish. "Once you make the decision to turn over the management of your assets, you should allow three to five years for your plan to show results." Koulish offered the following guidelines for selecting an investment manager.
The first step in choosing an investment manager is analyzing your goals, objectives and your tolerance for risk-taking. Are you investing for income to help cover your living expenses, or for short or long term growth?
Next, look for an investment manager whose philosophy best fits your risk tolerances and objectives. Management styles may range from aggressive to conservative, and managers can be classified as either active or passive.
A passive manager will assemble a portfolio that parallels one of the stock or bond indexes. Therefore, performance of the portfolio reflects the market's performance in both good and bad markets. This is basically a "buy and hold" approach. On the other hand, an active manager will use a selection discipline believed to help identify the "right" investment opporunities over time, thus outperforming the market.
Generally, an active investment manager will take one of two major approaches to money management: market timing or stock selection. Market timing involves trying to predict the future direction of the market, fully investing when the market appears to be moving higher, and maneuvering out of the market when it's expected to move lower.
Stock selection is a more traditional approach utilized by many investment managers. This process uses financial analysis to identify stocks that the market is either under -- or over -- pricing based on the underlying value. When investment managers find a discrepancy between the perceived value of a stock and its market price, they can buy or sell to lock in the difference to the client's benefit.
"In recent years, the investors' time perspective has become shorter and shorter," said Koulish. "While most investors acknowledge the need for long-term objectives, many hire or fire a manager based on short- term performance. Always trying to find last year's winner often results in being out of sync with the markets and eventually proves to be less profitable than staying with your original long-term objective."
Investment managers will charge an average of .75 percent to 2 percent of the value of your managed assets, depending on the size of the portfolio. This translates to about the same as the annual fee on an ordinary mutual fund. This way, the investment manager's profitability is more closely tied to yours, since the fee is based on the assets under management and increases only as the size of your portfolio grows.
Minimum portfolio standards for investment managers vary in size from as little as $100,000 to $250,000, all the way up to $1 million or $5 million, depending on the manager. The investment manager does not benefit from any commission revenue on transactions, eliminating the conflict of interest investors often feel when working with brokers.
Investment firms are typically structured in one of two ways. Independent investment management firms only manage money and should be properly registered with the Securities and Exchange Commission (SEC). Trust companies also manage money as well as performing related fiduciary and record-keeping activities, and are regulated by national or state authorities.
Some investment managers encourage regular personal meetings with clients while others merely provide statements of your account. "Once again," said Koulish, "try and find a firm that is compatible with your needs and objectives."
"Finally, when interviewing a manager, determine whether the track record being shown to you was produced by the portfolio manager who will be handling your account.
Once you chose an investment manager, clear guidelines and objectives will help you spot signs of potential trouble. Red flags include sudden and excessive employee turnover at your manager's firm, rapid reduction in your portfolio value, or investments in assets that have no relation to your investing philosphy. "While all investment managers have periods when their performance may be somewhat disappointing, any of these situations may indicate the need to look for a new one," Koulish advised.
However, before terminating your relationship with your manager, evaluate whether he or she has followed the objectives you agreed upon, has been attentive to your portfolio and to you, and whether you have been satisfied with the long-term performance and servicing of your account.
In summary, the search for a money manager should begin with a plan that outlines your investment objectives. Then, look for an investment manager whose style is compatible with those objectives and allow sufficient time for your portfolio to thrive.
David Koulish is a senior vice president/portfolio manager at Key Trust Company of Florida, N.A., responsible for investment and portfolio management of both pension and individual accounts. Key Trust Company of Florida, N.A. is chartered as a national bank with pure trust powers and a subsidiary of KeyCorp (NYSE: KEY), a multi-regional bank holding company with assets of over $25 billion headquartered in Albany, N.Y.
/CONTACT: Carolyn Reis of Carlman-Booker-Reis Public Relations, 407-628-2280, for Key Trust Company of Florida, N.A./
(KEY) CO: Key Trust Company of Florida, N.A. ST: Florida IN: FIN SU:
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