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By Liza Horvath


Do Money Managers Add Value to Your Financial Picture?


Many rely on money managers or brokers to develop and grow investment portfolios but do you really need a money manager? Is the cost worth it? Well, like so much else, it depends on a few factors.


Generally, there are two kinds of stock and bond investment professionals: brokers and money managers – also known as Registered Investment Advisors. Negotiations are currently underway to hold all investment professionals to a fiduciary standard – meaning that recommendations of a particular investment can only be made if the investment is truly in the best interest of the client. At present, only money managers are held to the fiduciary standard; brokers are not. (For purposes of this writing – the term “money managers” will include Registered Investment Advisors.) Normally, money managers collect an annual management fee which usually runs about 1 percent of the value of the portfolio. For this fee, the manager assists clients in developing appropriate investment allocation and helps clients stick to the strategy. Brokers are paid commissions for the sales they make.


In 2014, Warren Buffett, president of Berkshire Hathaway and self-made billionaire, stated in a letter to shareholders that when he passes away, the money in trust for his wife will be invested only in index funds so that she minimizes cost and maximizes the upside potential of her investments. Buffet, like many leaders in the investment management field believe that, while investing in financial markets is important, no stock picker can outperform the market. Buffett believes that investing in index funds – baskets of stocks that mimic a particular segment of the market – like the S&P 500 will outperform actively managed accounts. Index funds usually have little or no inside management costs and are typically income tax efficient – the reverse of most mutual funds.


So should you invest in a few index funds and avoid the annual fee paid to a money manager? For some, that may be a good plan but for most, a good money manager is extremely important.

Money managers and brokers are valuable to us when they incorporate financial planning into their investment recommendations. A manager is helpful during down times in the market when many investors may feel anxious and sell out – frequently at the bottom of the market only to buy back in when the market has rebounded. Managers should help manage or anticipate income and capital gains taxes of the portfolio and work with clients in longer term planning. Finally, a money manager should be able to tell you if you have sufficient assets to retire and enough to live the rest of your life in comfort.


Yes, money managers and brokers can be important but remember to ask the right questions: If a mutual fund is recommended, will a less expensive index fund fill the bill? Find out how your manager is compensated – is it strictly the fee you pay or will they receive payment from the company for placing you in the company’s funds?  Would the manager recommend the fund if he were not receiving payment from the company? Finally, educate yourself on investing in general. A Random Walk Down Wall Street by Burt Malkiel is old – but classic. Tony Robbins’ book, Money – Master the Game, is excellent for novice investors.


Well informed investors, plus a good manager may be a winning solution and can equal success.

Liza Horvath has over 30 years experience in the estate planning and trust fields and is the president of Monterey Trust Management, a financial and trust management company. This is not intended to be legal or tax advice. If you have a questions call (831)646-5262 or email liza@montereytrust.com










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