A Buyer’s Guide for Hazard Insurance

Many a plumber has put his children through college by fixing the leaks that homeowners can’t stop. Yet, some non-professionals do well on their own with wrenches and solder.

Investing is like that, too. You surely know individuals who delight in following the markets and seem to have a golden touch. But most of us recognize the large gap between our own general investment knowledge and a professional’s skill in making investment choices.

Professional Knowledge

The risk of making serious mistakes gets more serious as money to invest increases. It makes sense to rely on the investment skills and experience of a professional to help maximize potential gains and minimize the risk. After all, investment professionals follow economic conditions and the investment markets full time. They are aware of the past performance and prospects of individual securities and funds. And, they know how to help their clients clarify their investment objectives and how to plan realistic strategies for achieving those objectives.

Experience

The following are some questions that you may want to ask when you are seeking professional help in managing money. What does it take to successfully manage one’s money? What experience level do you have as a money manager? Do you take a cookie cutter approach to managing investments or do you look at each individual situation differently? Do you analyze goals, look at present needs and look at potential future situations? Do you map out an investment plan and timetable that is appropriate for me and my family?

It’s easy to find “experts” who are ready to help you invest your money. What is not so easy is determining which of them is both skilled and worthy of your trust.

The Future Doesn’t Repeat The Past

Yes, performance is always a primary objective, but choosing an advisor based only on past investment performance can be a mistake. You cannot assume future performance will match past performance. Too many things change. Market conditions vary daily.

Strategies that were successful when the market environment was different may not always be as successful when repeated in a future environment.

Measuring performance against a market index may also be misleading. An investment manager aims to meet individual clients’ goals. That may call for a different mix of investments than a comparable index holds. When the investments are different, beating or not beating an index is not a valid comparison. You might be better off examining the capabilities and reputation of the manager.

The Characteristics to Look For:

Technical skills: The advisor you choose for your investments needs the experience and knowledge to plan portfolios and choose specific securities or funds within those plans. Doing that will involve analyzing your present investments and your needs in order to develop a custom investment portfolio designed with the potential to meet your specific objectives.

Personalized, custom service: The desirable qualifications of a manager extend beyond technical planning and investment skills. Successful investing is a long-term effort. Your manager should have the capability and stability to provide ongoing personal attention. Meeting your specific investment needs will take truly custom service from a well-established manager who knows you. Your manager should be easy to reach when you have questions or need something done and should be someone you can rely on to follow your instructions.

Flexibility: No matter how simple or complicated your portfolio is, professionals can help. If you don’t have time to constantly monitor your investments, having an investment account that is managed full time provides you with full-time supervision of your assets. If, on the other hand, you want to do your own research and make your own investment decisions, you could seek out strictly custodial services from an institutional organization. These services will help you with administrative details and reduce the paperwork of investing. If you are somewhere in the middle, you may choose an investment advisory account where you receive advice and your paperwork is handled for you, but you make the final buy and sell decisions.

Information resources: Fact-based investment decisions and recommendations begin with up-to-date market information. A manager’s resources should include easy access to complete, high-quality market research and broad economic data. The ability to process portfolio transactions quickly and efficiently is also needed. You should be kept well informed about your investment performance and the status of your account and receive full statements and annual tax information.

Service: Knowledgeable, Personal and Reliable: These desirable service qualities are essential characteristics of a high-quality investment and banking organization.

Reprinted with permission from The Family Business Report sponsored by the Goering Center at the University of Cincinnati College of Business Administration.