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Value Creation Blog

4 Reasons Outside Money Managers Might Be Important

Posted by Josh Patrick

Outside money manager

 

 

 

 

This blog entry is a guest entry from Peter Montoya.  I believe his organization is one of the best when it comes to providing information on general information about the investment, wealth management and financial planning business.  Please enjoy and let me know what you think.

Why do advisors "hire out" the management of portfolios? Some investors are puzzled when financial services professionals recommend third-party asset managers to supervise their portfolios. Why would they recommend turning over the active management of the portfolio to someone else?

It may be the right thing to do. When this suggestion comes up, it isn’t because the financial advisor wants to retreat from responsibility. It is actually made in the best interest of the investor. The portfolio management capability and resources of a single financial professional or small financial consulting group can pale in comparison to what an outside money manager might provide.

It can be a value-added service. Most financial advisors devote their time to helping their clients address retirement and legacy planning issues. A third-party money manager allows them to spend more time focusing on these issues instead of which specific investment should be bought or sold.

A financial professional or financial advisory firm does not make such decisions lightly. It evaluates the risks and goals associated with the investor prior to committing client capital, to ensure that the proposed move is appropriate for the client. It also looks at the third-party manager’s approach – its performance, how it hedges and why, what kinds of investments are being added and subtracted, how timely any changes in strategy have been deployed, and how often it communicates. The asset management firm that is hired is regularly monitored.

This is simply part of fiduciary responsibility. Before you can suggest a third-party asset manager to a client, you must study the makeup of the organization, its fund managers and its team plus the product offerings.

A potential “step up” for the investor. Bringing in a third-party portfolio manager may help an individual investor access more sophisticated institutional investment strategies. Many of these management firms favor “open architecture” – an investor’s portfolio can include a wider variety of investment accounts. Some allow the client and the financial professional the opportunity to monitor the portfolio in “real time” (or something approximating it). So “hiring out” the management of a portfolio could prove to be a wise choice.

Thanks for reading this entry.  If you would like to contact me about this entry please email me at Jpatrick@stage2planning.com or click on this link to set a convenient time to speak with me.

 

Josh Patrick

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Topics: financial planning, wealth management, investment management

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