by Jack Waymire
Paladin Research surveyed investors who claimed they managed their own assets. We were surprised to find, 81% of the time they were not actually acting as money managers, they were acting as financial advisors. Even more surprising, less than 10% of the investors we surveyed knew they were acting as advisors.
Managers have a unique distinction that differentiates them from all other financial service providers including: Planners, advisors, and sales representatives. Their distinction is working at the securities level. They research securities and they make portfolio buy/sell decisions for securities.
There are two primary types of money managers who share this distinction:
- Pooled account managers: Mutual funds, hedge funds, exchange traded funds
- Individual or separate account managers
Advisors do not select securities for portfolios. They help you develop investment strategy, select money managers, allocate assets to managers, and produce quarterly performance reports. A high percentage of financial advisors also provide various types of planning services including: Financial, retirement, estate, tax, and charitable.
You are acting as a money manager if you research and select your own securities. You are acting as an advisor if you select mutual funds, hedge funds, and exchange traded funds for investment – for example, you send your assets to Vanguard or Fidelity. The mutual fund family is the money manager because it selects the securities for the funds.
Most investors do not have the time or specialized knowledge to act as their own money managers. Consequently, there is a higher probability they are acting as their own financial advisors.
Why Be Your Own Financial Advisor?
Paladin Research has surveyed thousands of investors over the past ten years to determine why they terminate money managers and financial advisors and take on the roles themselves. There were five recurring answers:
- They had a bad experience with advisors
- They no longer trusted the financial advice of third parties
- They did not know any high quality advisors or managers
- The advisors and money managers did not deliver competitive rates of return
- They believed they were paying excessive fees for the services they received
Can an Investor Outperform an Advisor and Manager?
There is a high probability you can outperform a professional who is more salesman than advisor or manager. Salesmen do not have the necessary knowledge to deliver competitive investment performance for reasonable risk and expense. They are easy to beat because their main role is not investing your assets – it is maximizing the revenue and income they produce from your assets.
There is a low probability you will outperform a top quality advisor or manager who has degrees, years of experience, and high quality certifications (CFA®, CFP®, CIMA®) that are issued by accredited institutions.
An old saying is worth repeating. It is easier to learn to select a top quality professional than it is to learn to do the professional’s job yourself.
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