Choosing adviser can be as tough as picking stocks

Select a financial manager whose strategy matches yours

Knight Ridder Newspapers

MILWAUKEE -- After one of the worst market downturns in history, some shell-shocked investors are looking to professionals to make investment decisions for them.

Those investors -- rocked by three years of turbulence and searching for a lifeline -- are more than willing to give money managers the discretion to buy and sell stocks for them without permission before every move.

But selecting one of the many registered investment advisers that manage discretionary accounts can be just as daunting as choosing the stocks themselves.


With each firm offering different expertise, it's critical for investors to find a manager that fits them best -- from personality to investment strategy.

"Investors don't always want to hear this, but you can't just close your eyes and hope for the best," said Patrick English, president of Fiduciary Management Inc. "You have to be more educated than that."

Comparing advisers

The way many investors select money managers -- focusing on the firm's performance track record -- can lead to trouble.

"You can't compare someone who has a very aggressive strategy and someone who has a conservative strategy and vice versa," said Rich Wyler, spokesman for the Association for Investment Management and Research. "You have to compare a manager's performance record against an appropriate benchmark. Has he done what he said he'd do?"

A performance record also can become distorted when the manager or managers responsible for high returns retire or move. Or, a few lucky hits during the stock market bubble of the late 1990s could mask a poor overall record.

And if a client is investing for a retirement 30 years from now, for example, short-term performance isn't all that relevant, anyway.

"There's far too much emphasis on short-term performance numbers," said Michael Bostler, senior investment consultant with Alpha Investment Consulting Group, a Milwaukee firm that matches investors with money managers.


How to decide

"You are ultimately looking for the best manager relative to their peers, and the qualities that make a good money manager don't change, no matter what kind of market you are in," Bostler said.

Bostler and others recommend that those looking to hire money managers figure out what criteria are important to them, and then look at performance numbers. The amount of risk someone is willing to take, for example, will vary widely depending on the investment time table and return goals.

When market turmoil does come along, as it inevitably will, investors and managers should be of a similar mind about what measures to take. Some experts recommend asking a potential manager for examples of how specific falling stocks were handled in the past.

Personal compatibility can be as crucial as investment strategy. Clients can get a better feel for money managers as people through word-of-mouth recommendations or by sitting down to lunch with them outside the office.

Some experts recommend noting whether managers avoid jargon and talk plainly about a client's goals. Managers also can show commitment to clients by asking their own questions about the clients' needs.

"It all comes down to chemistry," said Jeff Brigman, principal of Legacy Capital Partners Inc. "If you don't trust someone, you're going to pull away early. And that's when you lose the big money."

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