Steve Rohde, financial advisor at Hilltop Securities, explains why a financial professional might suggest a third-party asset manager to clients. Courtesy photo
Special to the Valley News
Some investors are puzzled when a financial professional recommends third-party asset managers to supervise their portfolios. Why would they recommend turning over the active management of the portfolio to someone else?
Why? Because it may be in the best interest of the investor. The portfolio management capability and resources of a single financial professional or small financial consulting group can pale in comparison to what an outside money manager might provide.
It can be a value-added service.
Most financial advisors devote their time to helping their clients address retirement and legacy-planning issues. A third-party money manager allows them to spend more time focusing on these issues instead of which fund family and/or funds to be buying or selling.
Before a suggestion like this one is made, the financial professional should evaluate the risks and goals associated with the investor prior to committing client capital, to ensure that the proposed move is appropriate for a client. They should also look at the third-party manager’s approach – its performance, how it hedges and why, what kinds of investments are being added and subtracted, how timely any changes in strategy have been deployed and how often it communicates.
These considerations are simply part of fiduciary responsibility. Before a financial professional can suggest a third-party asset manager to a client, they must study the makeup of the organization, its fund managers and its team and product offerings.
A potential “step up” for the investor.
Bringing in a third-party portfolio manager may help an individual investor access more sophisticated institutional investment strategies. Many of these management firms favor “open architecture” – an investor’s portfolio can include a wider variety of mutual funds, ETFs and separately managed accounts. Some allow the client and the financial professional the opportunity to monitor the portfolio in “real time” or something approximating it. So “hiring out” the management of a portfolio could prove to be a wise choice.
Steve Rohde may be reached at (858) 369-6500 or (844) 834-6864 or email Steve.Rohde@HilltopSecurities.com .
Hilltop Securities is a member of NYSE/FINRA/SIPC
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