How to evaluate a portfolio manager
A portfolio manager is a professional investment advisor who manages their clients’ assets. A portfolio manager is expected to keep a vigilant eye on all his/her client’s investments and take corrective action when appropriate should the market turn in the wrong direction leading to a decrease in the overall value of the portfolio. A portfolio manager must meet two conditions: 1. He/she should be registered with an investment authority 2. He/she should be certified to act as a manager A portfolio manager may not necessarily have an educational background in finance or accounting, but certifications in the investment field are good to have. A portfolio manager working on behalf of a bank or an internationally recognized firm like Merrill Lynch has access to investment products that independent advisors do not. It is important to include this information in your analysis of an advisor. A good way to evaluate a manager is to ask many relevant questions that relate to your own personal financial situation and your financial goals. Examples of questions to ask are: – How often will I receive messages from you? – How often will you make or suggest changes to my stock portfolio? – How many clients do you have? Will you be too busy to fully take care of my needs? Do you understand the needs of clients in my financial situation? – Is there a minimum amount that I must deposit in order to invest? – What is your commission structure? Are there any fees I should be aware of? – Who reviews your company’s financial operations? – How long have you been with your current employer and what happens if you leave organizations? Will my fund be transferred, or will I be assigned to a new investor? – Are there any fees or penalties if I withdraw my money? Questioning the portfolio manager’s specific knowledge of investment management is also important to make sure you are dealing with an individual who has enough knowledge of the market to suit your needs. More qualified managers can answer questions in a more confident and informed manner, such as: – How often will you perform an effective frontier analysis (advanced theory of portfolio analysis) of my portfolio? – What do you envision the beta and expected return for my portfolio? – What was the worst performing stock you bought for your clients and what did you do about it? How did you remedy the situation? How have you changed your strategies based on this event? – If I am not satisfied, what are some “exit routes”? – Do you offer the possibility to hedge my portfolio with options? – What is your short- and long-term view on currency fluctuations in the context of my personal portfolio?
Conclusion
When evaluating a prospective portfolio manager, it is important to understand their investment philosophy and make sure it aligns well with your financial situation and goals. A portfolio manager who believes in speculative investments and penny stocks may not be suitable for a client who is close to retirement and requires stability. Portfolio managers who engage in extracurricular activities related to investing, such as writing a column for a newspaper, hosting a radio show or leading financial workshops and seminars show that they have a firm, real understanding of investing, and would hopefully be able to manage your investments in a professional and successful manner. Choosing an investment manager who is active in many forms of communication will allow a client to gain a more detailed and complete understanding of the manager’s philosophy and personality to determine if the client will feel comfortable in the relationship.
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