“A money manager for me?” you ask. “Well, not until I win the lottery.” Wrong!
You may have more need of a money manager than a multimillionaire—because you
cannot afford to lose any money. Furthermore, investments and tax decisions
that you make long before death can make a huge difference in your legacy. Here
are a dozen questions to put you on track to a professional money manager.
What is your income, can you live on that, how long do you expect to work?
Take the time to analyze for yourself your own situation.
Do you understand what is meant by “growth and income”?
Generally, investments that produce a high monthly or quarterly income do not
produce large increases in growth from year to year—you have to choose between
high growth or high income. With inflation at 2.4% per year, $1,000 dollars
put in your mattress today will be worth $785 dollars in 10 years; therefore,
growth must be a vital part of your financial planning.
Where will your money be safe?
Savings accounts and government bonds are the safest investments, but they do
not provide the growth that other investments do. An experienced money manager
can advise you on a good mix of growth and income.
What about stockbrokers?
Experienced stockbrokers generally give excellent guidance for buying stocks,
bonds, and mutual funds. Mutual funds can be an excellent way to invest a relatively
small amount because the risk is spread over several kinds of investments.
Cautions: Insist on buying market leader stocks (investments that bankers and
lawyers call “prudent”). Inquire about load (cost) of mutual funds. And understand
that stockbrokers generally make their money in commissions from buying and
selling. The broker who counsels patience may be less apt to move your money
around to his own benefit than the broker who encourages you to get in and out
of the market.
What about banks?
Banks large enough to have trust departments with trained money managers can
do an excellent job of managing your money with a variety of investments. Expect
to pay about a 1% management fee; many banks won’t take your business unless
you have at least $100,000 to invest.
What about insurance plans?
Life insurance can be of great value under certain circumstances: protecting
a young family, providing for the transfer of partnership in a small business,
cash for estate taxes.
On the other hand, while insurance can be very well used as a protective device,
some salespeople take advantage of naïve customers to sell policies with dangerous
fine print. For example, some “nursing home” policies that appear to be cheap
pay for only one year’s care. Have an attorney examine any large insurance policy
or any policy that seems too good to be true.
How does a money manager make an income?
Professional money managers do not offer their services free. A legitimate financial
advisor will be willing to explain to you how you pay for his or her services.
For example, some managers charge “wrap” fees with the cost of advice included
in one figure with the trading costs; others may charge a trading fee plus an
How accessible will your money be?
While there may be situations where you may want your money to be inaccessible
(for example, you know you are a spendthrift and you have a limited amount of
money for your old age), inaccessibility can be a hidden pitfall for naïve investors
and a ploy of unscrupulous salespeople.
A Kentucky lawyer tells of a recent client of limited means. She invested her
total $40,000 savings in an annuity only to discover—too late—that if she needed
to withdraw any of the principal she would suffer a substantial loss of that
Does your prospective money manager say:
• “This method is always right.”
• “This will eliminate all tax payments.”
• “This method is the latest thing.”
• “There are no downsides to this investment.”
If so, run away, fast!
Is your prospective money manager prepared to tell you the downside possibilities
Legitimate money managers will be willing and able to explain long-term advantages,
short-term accessibility, and risks.
Is the investment something you have never heard of?
Penny stocks that your neighbor’s sister-in-law suggests, an obscure insurance
plan that only the salesperson knows about, or a gold mine in Timbuktu advertised
on the Internet are not wise investments.
Does your advisor know what will happen to the economy next year, or for
that matter, next week?
If the answer is “Yes,” keep looking. An experienced Kentucky stockbroker says,
“Maybe three times in many years have I heard someone say, ‘I can tell you for
a fact that such and such will happen with so and so company,’ and it has actually
happened. Yet, at least once a month someone comes to me with ‘I can tell you
for a fact that such and such will happen...’”
How to Find a Money Manager
Jim Thompson, Kentucky Living’s “Money Matters” columnist, suggests the
following resources for finding or checking the credentials of a money manager:
• Kentucky Department of Financial Institutions, (502) 573-3390, or go online
at www.dfi.state.ky.us for financial information or to verify the credentials
of a stockbroker or financial planner.
• Financial Planning Association’s Consumer Assistance Program, (800) 282-7526,
or use your computer to go online at www.fpanet.org/plannersearch/ for a wealth
of financial planning information.
• National Association of Securities Dealers Regulation, (800) 289-9999, is
a nonprofit self-regulatory association for stockbrokers and firms. Consumers
can verify stockbroker or firm credentials by calling, or going online at www.nasdr.com
and choosing “About Your Broker.”
• Deloitte & Touche offers a wide range of personal financial and financial
planning tips and information. Go online at their Web site at www.dtonline.com.
• Use your library card. Public libraries have books and magazines, such as
Money, on how to save and manage your funds.