Questions To Ask Your Money Manager

Canby Cruise In

Recently I was talking with a neighbor and I mentioned that I have been writing an investment blog for over 17 years.  The neighbor mentioned he has a money manager handle his investments.  When I have one of these conversations my mind begins to come up with questions I would ask a money manager were I to hire such a service.  Here are a few of my questions.  Some are basic, while others dig more deeply into what services are provided by the management team.

Basic Questions to Ask Money Management

• What are your fees?
  • Is it a one-time fee to provide overall advice or
  • Is the fee a monthly or annual fee based on the market value of the portfolio?
• What do you use as a portfolio benchmark?  If something other than the S&P 500 is the benchmark ask follow-up questions as to why a different benchmark.
• What securities are used to populate the portfolio?
  • Individual Stocks?
  • Mutual Funds?
  • Exchange Traded Funds (ETFs)?
• Are you able to show me sample portfolios and their performance over the past 5 or 10 years?  I would like to see the best and worst examples.
• Does the broker company have an analysis team making decisions for you as a portfolio manager or do you make decisions on your own?

Advanced Questions

• Do you have a method for tracking portfolio risk?
  • What metrics do you use?
  • What is the Jensen Alpha for a sample portfolio?  Can you provide examples for several portfolios?
• Do you provide tax harvesting services?
• Do you track the Internal Rate of Return (IRR) of the portfolio and an appropriate benchmark?
  • How do you determine an appropriate benchmark?
• What is your investment philosophy when it comes to portfolio construction?  How do you go about constructing a portfolio based on my tolerance for risk?

Conclusion

When it comes to money management, large numbers of folks saving for retirement don’t want anything to do with the daily, monthly, or yearly examination of their portfolio.  It is a little like hiring a gardener to mow the lawn and weed the flower beds.  Just get it done and let me know if I can take one major trip each year and/or how long will my money last if I maintain good health.

If you were to hire a money management firm, what questions would you have for them?  Place your ideas in the Comment section provided below.