Do it Yourself or Hire a Portfolio Manager

Do it yourself or hire a portfolio manager?
By Adrian Mastracci

Many investors receive good value from their investment advisors. Desirable signs are the frequency of appreciative comments from clients and when clients voluntarily provide advisor introductions to family, friends and colleagues. On the other hand, many investors question the wisdom of paying investment advisory fees.

Unfortunately, this disconnect occurs far too frequently. Hence, taking over management of the family portfolio seems a no-brainer to those unhappy investors. Release the adviser and pocket the management fees. Does it get any simpler? Digging below the surface sheds light on perceived values.

The decision to ‘do it yourself’ may be beneficial for some. However, it requires the self manager to be brutally truthful and realistic. We have reviewed self managed portfolios ranging from 3 to near 100 different investment selections. The majority did not pass the muster. We think this critical question has to be investigated: “Is the investor better off to manage the family portfolio and save the management fees, or hire a portfolio manager?”

Taking the responsibility of piloting the family nest egg through the long investing journey is far from an easy task. For example, a 40 year old could easily be at the investment wheel another 40 to 50 years. We salute the brave ones who have stepped up. It takes a lot of long term commitment.

Some have fared well on this multi-year voyage. Others have taken on a much bigger task than they can handle or ever imagined. Most investors also hold a full time job while stewarding the family nest egg. Be prepared for a tall and difficult assignment, even at the best of times.

▶  Management task highlights

Let’s highlight what it takes to achieve success at being your own wealth steward.

Start with plenty of personal time, confidence, patience, discipline, strategy and extensive knowledge. Know about retirement matters, income tax, managing risks, estates, investment selection and economics.

Plus experience and drive to design, implement, monitor and rebalance your nest egg. While at all times managing your nest egg rationally, without emotional attachments. Prepare to guide the nest egg through different markets cycles such as bullish, bearish and roller coasters. Ready to encounter an array of different economic cycles such as inflation, slow growth and deflation.

You are able to dismiss the daily distractions and put aside investing biases you may have. Make sense of the daily information overload that adds more confusion to investing decisions. Being fully conversant with investor profiles, asset allocation, asset location and personal asset mix strategies. Research a wide variety of investments and select the appropriate ones for the family.

You will need a few math skills to stitch together various retirement projections. You also know that it’s difficult to keep on top of everything that can change daily. Sell those pesky, losing investments as soon as possible and without regrets. Integrate the family financial planning and portfolio management into one seamless service.

Of course, you do things because they make investment sense, not for income tax reasons. Expect some things to fall through the cracks with any plan, including the one you so carefully craft. Plan on living through stormy and prolonged investing sessions. Lastly, in the extreme, you may have to survive a “Black Swan” rough patch as in 2008.

Not to mention, periodically revisiting your management value proposition to your family.

▶  Stewarding client wealth

The goal of the portfolio manager is to place client interests first and provide lasting values, like these:

• Listen to what is important about finances to the client and the family.
• Prepare conservative retirement projections.
• Set attainable and comfortable investment objectives.

• Design the appropriate, well diversified asset mix.
• Make logical and methodical portfolio decisions without emotion or bias.
• Implement a sensible road map custom designed for the family’s future needs.

• Focus on risk management, market volatility and reasonable growth.
• Rebalance the client portfolio according to preset targets.
• Provide frequent contact, periodic reviews and ongoing communication.

It works best to invest over time following a disciplined “pension plan” style of management.

▶  Your decision moment

You’re now at the crossroads contemplating a very important family decision.
One whose financial impact unfolds over years and decades to come.

Consider these two queries very carefully:

• Do you truly have sufficient time, knowledge, interest and resolve to successfully steward your family’s finances?
• Or, is it better to hire a portfolio manager you’re comfortable with and delegate some responsibility?

If you have what it all takes — go for the gusto, take the helm and save the advisory fee. If you’re struggling in the deep end — find a qualified professional for your family needs.

Doing your own management is not for everyone — neither is hiring a portfolio manager. Our experience is that the ‘do it yourself’ approach too often lacks the investment plan.

Accordingly, many investors seek and value these portfolio manager qualities.
A professional who:

• Places client interests first.
• Understands the total family situation.
• Is clear, proactive and has ample time.

• Provides objective advice.
• Sticks to an established plan of action.

• Levies a fully transparent fee.

Of course, be aware of the various adviser designations. They range from discretionary portfolio managers, to brokers, fund salespeople and planners.

Not every adviser is equipped to deliver the broad portfolio services described above. Some may have a financial interest in what you buy.

This exercise may also help you appreciate another key issue. That is, the ongoing wide scope of the portfolio manager’s role.

Your decision is about much more than the management fee. You have to determine how to deliver consistent investing value to your family, likely for decades.

One size does not fit all. For some it’s doing it yourself, for others it’s the portfolio manager.