Investing Tip:

What is a Money Manager?

There are a number of terms that are used for money managers: portfolio manager, investment manager, investment council, and investment advisor. But basically they all mean the same thing, a person or company that actually manages investments on behalf of the client.

What a money manager does is very targeted. A money manager is not a financial planner. A financial planner is concerned with all aspects of finance, including insurance, debt reduction, retirement planning, etc. A money manager has only two goals. 1) To preserve the client's assets and 2) To increase the client's wealth. A financial planner is like a family doctor, a generalist. A money manager is more like a brain surgeon. They do one job very well.

A money manager is also not a stock broker. The stock broker is a salesperson. His/her job is to sell financial assets to profit the brokerage firm they work for. They call their clients and sell them on a particular investment. The stock broker usually (though not always) earns a sales commission. The stock broker usually does not choose the investments. That's done by analysts at the firm. The broker's job is customer relations and sales.

A money manager doesn't talk a client into anything. The client and the manager agree on a course of action which the money manager does without bothering the client with sales calls. The client knows the money manager is working in the client's best interest for two reasons. First, ongoing discussion and documentation about the client's goals and risk tolerance. And by compensation. Generally a money manager takes a small sliver of the assets under management as their fee. That means the money management firm can only increase their fee by increasing the clients assets, not by selling something. The money manager and the client have the same goals: to preserve the assets and make them grow. Both the manager and the client benefit in that way.

That's what a money manager does in a nutshell. Now what do *I* do? Primarily I place my clients assets in stocks and some bonds. Why? Because these are the assets that have made the most money for investors over the last 100 years. I rarely work with open end mutual funds. A mutual fund already has a manager, and it's unfair to have a client pay me and also pay another manager. My day is spent in analyzing publicly available securities to look for great deals for my clients.

How do I do this? There are a number of methodologies that I use. I attend analyst conferences and company conference calls. I use stock screening software and subscribe to various investment publications. I read everything I can get my hands on. I comb through SEC filings looking for less obvious information. And I speak with company management to find out about just who is running the store.

This is all done against my three main criteria that I'm looking for in any stock I choose for my clients. I'm looking for: 1) A good company, 2) A profitable company and 3) One we can buy cheap. Companies that meet all three criteria are not easy to find, but they are out there.

I put my money where my mouth is. I invest right along with my clients. This isn't an intellectual exercise for me. I'm putting my own personal wealth on the line right along with my clients. And because I know that the security of my client's money is paramount, the funds are held by an independent third party and insured up to $75 million. My clients range in age from late 20's to 80's and include regular accounts and several different types of IRAs such as regular, rollover, Roth and SEPs.

So you ask, if this is so great, why doesn't everyone use a money manager? The answer has mostly to do with the amount of money required. Because a money manager like me is buying individual stocks, proper diversification takes some money, so my per client minimum is $75,000. That unfortunately leaves out many people. For them a no-load mutual fund is a good alternative.

Fees run from 0.6% (6/10ths of 1%) to 1.2% per year, about the same as you'd pay a no-load fund. On top of that there are small transaction fees to purchase stocks and bonds, which run another 0.1% a year or so.

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Donald Steinmann and Advanced Financial Management assume no responsibility for any actions taken due to comments made in The Investment Tip of The Week.

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"A good decision is based on knowledge and not on numbers."
-- Plato