Advice on Advice: How to select a management firm


Let me start with a question: do you have a plan?  For those of you who have read my previous columns, I hope that the answer is: “Yes!”

If you have a financial plan, it is time to select the person or firm that will manage your investments so that you can ultimately reach the goals in your plan.  There are three courses of action that you can take as an investor.  You could also blend the approaches together.

First, you could do it yourself.  Second, you could hire an asset manager, investment adviser or an insurance professional.  Third, which is relatively new, you could select a “robo adviser.” Some investors chose two or even all three. In fact, the do-it yourself firms and full-service advisers now offer “robo” options! Confused yet?

There has never been a better time to manage your own money as firms such as Schwab, Fidelity, TD Ameritrade, and Vanguard, to name a few, have developed investment and planning tools that are simple and effective. If you have the time, aptitude, and “stomach” to manage your own investments then there have never been more resources for you than today. In a future column, we will consider the specific offerings that are available to you as an investor with these firms.

The second option is to hire an adviser to assist you with the management of your investments.  You can find an adviser at a Bank, an insurance agency, a wire-house firm or as a Registered Investment adviser. Regardless of which type of firm you select, I strongly recommend that you work with an adviser who has a Chartered Financial Analyst (CFA) or a Certified Investment Analyst (CIMA) designation. If you are going to turn your hard-earned money over to another person to invest, you need to make sure that they have the training and ethics to provide the insightful guidance necessary to earn their fee and help you meet your objectives.

If you are going to work with an adviser who is going to manage your investments, I recommend that the adviser or someone on the adviser’s team has a CFA or a CIMA designation. Both designations require a high level of course work and exam(s) that must be successfully completed.

The CFA program is a professional credential offered internationally by the Association for Investment Management and Research. Globally, there are about 130,000 charter holders.  To obtain the designation, the candidate must have four years of qualified work experience, complete three exams, and adhere to the CFA Institute Code of Ethics.  This is a very challenging program.  In my twenty plus years in the investment business, I have met more people that have failed the program then have passed.

From my experience of working with advisers with this designation, they often use individual stocks and bonds to manage their client’s investments.  They have been trained to analyze individual securities and tend to like to use their craft.  For investors who enjoy holding individual stocks or bonds in their portfolios, working with a CFA can be a positive experience. Generally, the portfolio will consist of a broad mix of stocks and bonds to provide the proper diversification. An investor with a larger portfolio would be the most appropriate client for this strategy.

The Certified Investment Analyst (CIMA) program is sponsored by the Investment Management consultants Association (IMCA) and was founded in 1985.  There are over 10,000 CIMA Advisers in the U.S. today. To be a CIMA adviser, you must have three years of industry experience, complete a self-study program, attend a one-week executive education program and pass a qualifying exam.  The program provides a platform to help the adviser build quality portfolios using mutual funds, separately managed accounts or ETFs.  The adviser learns how to blend the different portfolios to provide the optimal return while attempting to minimize risk.  Because the CIMA adviser can use mutual funds and ETFs, they have the flexibility of working with both large and small portfolios.  It doesn’t take as many individual holdings to get a properly diversified portfolio when you are using a fund that may already hold many individual positions.

A relatively new concept in investing is “robo” investing.  Robo advisers offer you a computer trading program that is automatic, systematic, and completely unemotional.  You can work with an adviser or go directly with one of the many firms that have entered the marketplace.  You generally complete a profile that defines your investment risk profile and time horizon and selects a portfolio to fit your profile.  Your money is then invested in the strategy.  The strategy has been built through computer models built by programmers.  You can select more than one portfolio to provide more diversification.  For investors who are managing their own portfolio, the investment levels are low as are the fees in most cases. In addition to the low fees, you do not have to monitor the individual positions in the portfolio as the computer makes the decision as to when to buy or sell.  Many full-service firms are adding these portfolios as the demand has been growing from the investing public.

In summary, work with a Certified Financial Planner to prioritize your goals, then make an honest decision. Do I have the interest, time, capability, and stomach to manage my own investments?  If you do, then look for a firm that has the tools to fit your style and open an account.  Either select the investments yourself or use one of the “robo” options that the firms have today.  If you want to work with an adviser, then I suggest you work with a CFA or CIMA credentialed professional.  You are likely to get a better constructed portfolio that will have a higher likelihood of meeting your goals.

There have never been more ways to manage your investable assets than today.  This is both a benefit and a curse!

Craig R. Colbath is managing director of the Singpoli Private Wealth Group.


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