Choosing the Right Advisor for Your Investments

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April 29, 2016

If you are seeking to improve the rate of return on your investments, selecting the right advisor for your unique circumstances is important.


“The advisor you pick shouldn’t just be smart,” says Lisa Kopp, Head of Traditional Investments Group at U.S. Bank, whose Wealth Management platform has 300 fund options. “The advisor should also have a systematic process in place for recommending funds for your portfolio. If the advisor doesn’t have an organized plan, mistakes can easily be made."


While Kopp and her team use a systematic process to conduct due diligence on money managers, not all investment advisors do. When you’re meeting with an advisor, Kopp recommends asking the following questions:


1. What type of access does your advisor have to research fund managers?
Although there is publicly available material about fund managers, your advisor should access
additional information to help make a
determination of how a manager may perform in the future.

Lisa Kopp


Learning how much access an advisor has to managers can help you decide if he or she is qualified to make specific recommendations.


For instance, Kopp and her team had identified several strong managers for possible inclusion on the platform in the core fixed income area. However, as she and her team interviewed a specific manager and dug further into the performance record, they found that one sector was the source of most of the performance advantage.

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April 29, 2016

“Given this information, we ultimately selected a different manager for our platform because we didn’t want to be dependent on one key sector for potential return generation,” Kopp notes.


Kopp also mentioned an interaction with a U.S. equity manager with a good track record and a seemingly straightforward approach. During meetings with the senior investment team, however, she learned they actually had a more complicated investment process. “In real life, they were not able to fully explain that more complex process,” Kopp says. “Thus, we were uncomfortable adding that manager to our platform.”


2. How much time and what resources does your advisor typically use researching fund managers?
If an advisor has access, find out how much time it will take to research fund managers. An advisor shouldn’t just depend on a one-time marketing meeting but should spend enough time with managers to help understand future performance potential.

Kopp says it’s essential to have multiple contacts with a manager over time.


She explains that this approach provides the potential for more exposure to the manager’s investment team and allows for a more complete review of aspects that can have an influence on success, such as organizational structure, culture, types of research used and nuances of decision-making.


“If, after some of these contacts, we cannot gather a clear sense of the possibility for competitive advantage or size key risks at the manager, we will elect to pass,” Kopp explains. “But for those managers who hold up to ongoing scrutiny, we believe we have identified quality managers for use with our clients.”

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April 29, 2016

3. How does the advisor decide to recommend?

An advisor should provide a comprehensive answer as to why a recommended fund manager has the potential for a competitive advantage.


An advisor who bases confidence solely on the size of a manager’s research team, for example, can be making the recommendation based on a somewhat limited scope, since size does not necessarily indicate quality of research.


But, if the advisor has interviewed the manager’s research staff and confirms the staff visits the factories onsite of the companies they invest in, then the advisor can demonstrate their homework to validate the depth of their research efforts.

To consistently find high-quality active managers, Kopp says advisors need to:


  • Understand the marketplace. It is complex and constantly changing, so advisors need to have a sound understanding of key dynamics.
  • Identify the value proposition of a fund manager. Advisors need to find out exactly how a manager seeks to outperform the market.
  • Size up the risks of the manager. Advisors need to determine if a manager’s weaknesses (every manager has some) are acceptable or too great to consider investment.

“While no one can provide a guarantee of a fund’s future performance, it’s worth your time to look for advisors who have a systematic process for recommending managers for your portfolio.”

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