How to Select a Quality Investment Manager – or At Least a Decent One
19 June 2020
19 June 2020
Henderson Rowe is disrupting the UK market by delivering institutional-quality investment solutions directly to private clients. In this investor education article, Neil Cockerill, a Senior Investment Manager at Henderson Rowe, looks at the five key aspects investors should keep top of mind when selecting a quality investment manager.
This article was originally published by City A.M. on 4 March 2020
If you have money, you were probably successful. Congratulations. That does not make you a good investor. Research shows that there is no correlation between investment results and wealth, social status, or education.
Believing otherwise usually results in the accumulation of ego-driven investments. And those rarely end well.
Few UK managers are experts in strategies which they invest clients’ money into. But that does not stop them claiming otherwise. These managers regularly (and sometimes outrageously) overstate their competence.
The truth is that most managers excel at sales and service. Most of them do not, on the other hand, excel at research and investing.
That would be fine (sort of) if they could admit the limits of their knowledge. But they believe their own hype, leading them to stake out ill-informed positions using other people’s money.
Despite the foregoing, investors who hire managers still earn better returns over time. This is because managers protect you from yourself while providing baseline advice.
But the best managers are honest about where they add value (and where they don’t). They don’t need to be Warren Buffett or our very own Jason Hsu — they just need to be trustworthy, informed, and engaged.
UK firms invest more in sales and marketing (service) than in-house investment research (product). Most are not managers at all — they are sales and distribution platforms buying third-party products.
It’s no surprise that these managers often put their clients’ money in trendy active funds with high fees. Our advice: when selecting an investment manager, find one that prioritises research, not sales.
Transparency and trust are at the heart of the manager relationship.
Steer clear of managers with complex fee structures. Instead, look for simplicity and predictability.
Moreover, it pays to avoid managers who cannot speak directly about their research. Managers who outsource their product may struggle to respond to these questions — but you deserve answers before you turn over your hard-earned cash.
Selecting a quality manager requires due diligence. However, if handled properly, it’s a decision you’ll make only once in a lifetime.
But if it still sounds too daunting, you might be better off without a manager at all. Just put your money in a low-cost, diversified exchange traded fund. Then walk away and check back in 20 years.
This document does not constitute a financial promotion under Section 21 of the Financial Services and Markets Act 2000 (‘FSMA’). Henderson Rowe is a registered trading name of Henderson Rowe Limited, which is authorised and regulated by the Financial Conduct Authority under Firm Reference Number 401809. Investing with Henderson Rowe or any other investment firm involves risks. Please ensure that you fully understand the risks before investing. The value of investments may go up as well as down and you may not get back the amount invested. Past performance is not an indicator of future performance.
The content of this article represents the writer’s own view. Nothing in this article constitutes investment, tax or legal advice.