Choosing investment adviser can be as tricky as picking stocks

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Updated: 4/02/2012 1:02 pm

By Tim Cigelske
Milwaukee Journal Sentinel

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 at 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."

The way many investors select a money manager - 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 can also 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.

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

"If you're not comfortable with a lot of risk, then you shouldn't put yourself in that position," said Tony Beadell, president of A.D. Beadell Investment Counsel Inc. "Some people think they can take risk when the market is always going up, but when the trouble hits, they can be devastated."

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.

"There has to be an understanding of, `If things don't go right, how are we going to re-evaluate and set new objectives?''' said Burt Bartlett, managing director of Campbell Newman Asset Management.

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."

Managers differ not only in strategy and demeanor, but also in how they are paid. Managers can take commissions, fees or a combination of both. The way a manager structures payments may or may not be aligned with a client's best interests.

Whether it's about fees or philosophy, the more investors are prepared and willing to ask questions, the more likely they are to find the best fit, experts and managers say.

"I don't think there's a dumb question when it comes to choosing a money manager," Bostler said.


How to learn more:

Here are some of the places where investors can go to do their homework on their adviser or broker

_To review a registered investment adviser's ADV Part I:

Go to

Click on "Funds & Advisers" in the right-hand column

Click on "IAPD: Investment Adviser Public Disclosure Web site (Background Information)" in the right-hand column

Click on "Investment Adviser Search" in the left-hand column

Type the name of the firm in the box after "Firm Name" and click "Go"

- To review a broker or adviser's information in the central registration depository (CRD):

Go to

Click on "Check Broker/Adviser Info" in the second column from the right

Click on "Look Up a Broker Dealer Firm or Individual"

Click on "Agree" after reading the information on this page

Pull down the "Select Requester Type" menu and choose a category, then click on "Broker" or "Firm"

Enter the requested information about the broker or firm and click the button to begin your search

The NASD also will accept phone requests at (800) 289-9999.


© 2003, Milwaukee Journal Sentinel.

Distributed by Knight Ridder/Tribune Information Services.


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