Advisors’ Outside Managers OK

Does it matter who is running your money? Of course. An asset manager who consistently is all thumbs is no good to you. But what if your advisor has farmed out parcels of your wealth to different managers?
 
There’s an ongoing debate in the advisor community between so-called asset gatherers and asset managers. The gatherers outsource money management to others. The managers keep it in-house.
 
The managers say the gatherers are nothing more than marketers, who sometimes charge extra fees for the added hands tending to your assets. The gatherers defend their model as the best way to focus on top talent, on the theory that not everyone is an ace at everything.
 
“We see a lot of great expertise on the investment side” to use in running clients’ money, says Joseph Finn, director of business development at Argent Wealth Management in Weston, Mass. He adds that his firm doesn’t let outside managers do whatever they want. “We monitor what they are doing.”
 
Argent points to the wide-ranging expertise of its outside managers. In its winter 2012 Investment Report, Argent writes that it is “exceptionally bullish on a small group of highly skilled managers that focus on credit-oriented sectors” -- mortgages, high-yield and senior secured loans. 
 
Coordinating the hired guns is key. The risk: Too often, dividing your money among different advisors doesn’t work well, according to a study by State Street Global Advisors and Knowledge@Wharton, an affiliate of the University of Pennsylvania’s Wharton School. The study finds that having separate investment managers often ends up messy. One advisor may be going long on Apple, while a second advisor is shorting the stock.
 
At Barden Capital Management in Austin, Texas, 70% of the business is from gatherers who deputize them. “Our identity is analytics and research, so we rely on others to gather” many of the accounts, says Eric Barden, its president. The firm has an elaborate process to screen potential investments, and boasts expertise ranging from undervalued growth stocks to bank preferreds to frontier holdings (those in out-of-the-way nations such as in Africa).
 
Some gatherers are smaller firms who don’t have the expertise on staff. “The typical firm has one or two professionals, and we have nine,” says Ray Ferrara, president of ProVise Management Group in Clearwater, Fla. The smaller organizations wisely conclude that, as he puts it:  “You can’t do everything.”
 
Asset managers often display the bravado of the knight errant, risking much. Bill Jacobs, of Jacobs Investment Management in Nashville, puts it this way: “I’m a high-touch manager. I take the risk, and I might lose the client. If I give advice on a 529 college savings plan, it is on me. My name is on the line. So I am reluctant to farm out” an account.
 
Note that neither type is involved in more wide-ranging financial planning. How much life insurance should you have to take care of your family in case a meteorite mashes you? That’s not asset managers’ or gatherers’ concern.
 
Their specialty, running your portfolio, involves investing in mutual funds, stocks, separate accounts and other financial products.

Their goal, as set forth in a document called an “investment policy statement,” is to increase your portfolio’s worth from investments. Do you want $2 million in your 401(k) and other securities when you retire? Consult an asset manager. The IPS will set forth that objective. They generally charge around 1% of your financial assets yearly.
 
Be sure to stay involved with what you manager is doing. You should never be swept along for the ride. It pays you to understand what is happening to your portfolio. After all, it is your money – money you depend on to pay for your kids’ college education, your retirement and your ability to enjoy life.
 
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