When it comes to hiring a money manager, investors have no shortage of options. But that’s also part of the problem. Finding the right manager is challenging and stressful, especially when you are likely trying to live stress-free.

So, in an effort to make your search easier, we’ve compiled 10 good questions you might ask each manager you’re considering hiring. You’ve worked hard for your assets, and you deserve a manager that will work hard for you too.


1. Is Your Firm a Registered Investment Advisor?
Registered Investment Advisors are required to maintain a “fiduciary standard.” This phrase means your advisor has an obligation to not only provide you with proper investment advice, but also to always act in your best interests. You may find that to be an obvious requirement of an advisor, but it’s not. Many broker/dealers are only held to what’s known as a “suitability standard,” meaning they can recommend proprietary products for which they earn commissions, as long as the product is “suitable” for you. Still, know that registration as an investment advisor with the SEC or state regulator does not imply a certain level of skill or training – additional questions below will help you determine these things.

2. What Custodians Do You Use?
Third-party custodians often provide clients with independent reporting statements, secure online access to your account, and trade notifications. You might look for money management firms that work with custodians you trust.

3. How Are You Compensated?
Ideally, an advisor is only paid fees by the client. In other words, the advisor ideally will not make additional commissions from the product sold or obtain referral fees. A fee-based arrangement is typically best, where the advisor is paid a competitive percentage of the assets under management. Before you enter into an arrangement with an advisor, be sure that the fee structure is outlined clearly and in writing.

4. Can You Provide Me with a Copy of Your Form ADV?
This question may sound a bit “hard-ball” for an early conversation. Still, a Registered Investment Advisor is required to have a Form ADV that provides helpful illumination on the advisor’s business including compensation, experience, fees, service offerings and, perhaps most importantly, disciplinary history. The SEC requires Registered Investment Advisors to have this and make it available to you upon request. It is important to read this document carefully before hiring a manager.

5. Are There Penalties/Fees if I Decide to Leave Your Firm?
If you change your mind about your money manager, or you simply become uncomfortable with their approach, you should be able to leave at no cost within a reasonable notice period. Some managers will penalize you for changing your mind. If you have to pay the manager a fee, or if you lose a percentage of your initial investment upon withdrawal (such as with annuities, insurance products, loaded mutual funds, hedge funds and private equity), then you should think twice about that investment.


6. How Have Your Investment Strategies Performed vs. Their Benchmarks?
It may sound impressive if a large-cap growth manager was up +15% in 2013. However, if the Russell 1000 benchmark (for large cap growth) appreciated +30% on average that year, then the 15% manager is lagging far behind. A common industry term that applies here is called “alpha” – that is a measurement of the value your manager adds (or subtracts) to a fund’s total return (you want to look for an alpha figure for the investment option that is a positive number showing the opportunity has outperformed its benchmark). For example, if your ‘large cap growth’ manager was able to achieve +35% growth—meaning they outperformed the benchmark’s 30%—it may be a sign they have the ability to make smart tactical decisions.

7. How Will Your Advisor Manage and Measure Risk?
You may have heard of the term “beta” used by investment professionals. “Beta” is a measure of a portfolio’s volatility (risk) relative to the market – a beta of “1” means the portfolio is expected to
move with the market, whereas a beta less than one means the portfolio will be less volatile than
the market (but may render lower returns). Having the advisor tell you the beta of a portfolio isn’t
enough—you want to know what steps they take to diversify away risk and how they manage it
over time. A clear risk management strategy is important.

8. What is The Background of Your Portfolio Manager(s)?
You want to know how long the management team has been in place and what type of experience each member possesses. Have they been in the investment industry for at least several years? What is their educational background? What is the combined experience of the team? Are they the ones responsible for the listed performance of the fund? Some investment managers leverage an Investment Committee approach which can mean key decisions are considered amongst a group of professionals leveraging their collective pool of knowledge. Some management firms employ a sole portfolio manager to guide your investments. Either approach can be effective and is a matter of preference.

9. How Long Have You and Your Firm Been Managing Investments?
Any tenure less than 10 years for the firm and/or advisor presents some risk—it means they haven’t managed through a full business cycle and “the ups and downs” that come with each one. If the manager and/or firm doesn’t have this experience, they will not have a sufficient track record for you to truly ascertain their longterm performance track record. A manager’s performance in the last year or over the last three years is valuable, but it is not as critical as how well they’ve done over the last 10+ years. Be sure to ask how the manager navigated the last two bear market cycles: how was performance during 2000 – 2002, and what did the manager do during the 2007 – 2008 financial crisis (did they stay steadfast and see their clients recoup and grow their investments since)? Additionally, it’s always a good idea to request performance figures “since inception” for the investment strategies being proposed for you.

10. In Terms of Client Service, What Can I Expect Working with You?
Excellent service is more than just receiving a phone call or a free lunch every three months. Your money manager should personally know you and your family’s goals, while being cognizant of the level of risk you want to take with your assets. If you’re a “small fish in a big pond,” you may not receive the one-on-one type of attention your estate deserves. You might ask your advisor if you’re going to have direct access to the decision-makers, if phone calls are returned promptly based on your own definition of “promptly”, and if there is a team or points of contact available to handle all of your operational needs

(Bonus Question!) Can You Show Me What a Typical Statement Looks Like?
It is not critical that performance is listed on each statement, but for some people it helps. You want to be sure that the custodian being used reports in a way that is easy for you to follow and has an online login that will allow you to access your account whenever you wish. Also, if there are transaction costs or fees being paid, you want to have those listed clearly on your statements.


Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.

This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. The information contained herein has been obtained from sources believed to be reliable but we do not guarantee accuracy or completeness. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.