If you have money to invest but is relatively new to the investment world, seeking out a fund manager is a good idea. However, it’s difficult to ascertain whether it’s safe to entrust your money to someone you barely know. Even if the person is recommended by a peer, there’s no proof of competence until the fund manager actually delivers.
Hence, before investing in any fund, the crucial part is breaking the ice with the fund manager. You can size up a fund manager properly if you can prepare and list down a set of important questions. Thus, picking a good fund manager is equally important as picking a good fund for your needs.
A competent fund manager should welcome a probing investor. It doesn’t matter whether your queries are tough or ridiculous. The answers you get should be able to address your concerns and chase away whatever apprehensions you might have.
TJ Tan, CFA, DCG Capital, stresses on a couple of crucial things that he would advise investors to check on before jumping into any investment. “It is important to check to see if there is an alignment of interest between the fund manager and the client,” Tan said.
Other important things to ask your find manager would be to check for front and back end fees (at subscription and redemption), the Key Man risk, percentage of manager’s net worth in the fund and the percentage of fund that comprises insider capital.
1. What is your experience as a fund manager?
Fund management is a difficult task particularly because you need to meet your client’s income expectations. Thus, you can be forthright and ask the fund manager deliver is experience in the field of investments.
When you ask about work experience, it doesn’t necessarily mean that the fund manager is advanced in age. It’s actually the years of experience managing other people’s money. The skills and competence of a fund manager are acquired over time.
The fund manager position is a very sensitive one. You can’t be good at your job unless you have a good understanding of the markets and economy in general.
Ask about the number of clients and the volume of investments being handled. Follow it up with questions on track record and performance. You can sense the truthfulness when the answers can be given immediately. A well-organized fund manager knows precisely all his managed accounts.
2. What is your investing psychology?
It is important to know the investing psychology of the fund manager. The investing psychology is developed simultaneously while the skills are being perfected. Successful fund managers are those who are motivated to perform the tasks at hand.
They are not consumed by fear nor defined by greed. A good fund manager is not ruled by emotions but rather investment decisions are based on an objective reading or analysis of the market. It’s always the mental faculties that are at work and not the heart.
The answers to this question would more or less give you a feel for the person’s interest and temperament. You want somebody who is passionate about investing and focused on reciprocating the client’s trust with gains, not losses. If you think the person lacks the tenacity and views the task as a mere job, find another fund manager.
3. Where will you invest my money?
Before asking the fund manager where your money will be invested, disclose your risk tolerance. Unless you are clear about your risk appetite, the fund manager might invest in products not aligned with your financial goals and objectives.
A good fund manager should be able to spot opportunities that are consistent with the client’s expectations. Whether you desire fixed income, capital growth or both, ask what are the likely products and its attendant risks. Inquire about returns and investment pullouts just in case.
4. What will my investment portfolio look like?
Once you’ve articulated your investment objectives, ask the fund manager about the process and the investing activities that will ensue. He or she should be able to give a detailed explanation of each.
It is incumbent upon the fund manager to give prospective clients the key metrics in choosing the suitable investments. A good fund manager should be straightforward and not sugar coat the risk factors as well as the performance indicators. Parameters are laid down at the onset including worst-case scenarios. That’s a way of managing client’s expectations.
Since you’re on the topic of investing activities, you might as well ask for the updates on your investment. Trust between an investor and fund manager can be strengthened through open communication. There is nothing an investor wants from a fund manager but to keep them informed regularly or on a timely basis.
5. Are you invested in the fund?
A clever question to ask is whether the fund manager is also invested in the fund. In reality, not all fund managers bet their personal money on the funds they are managing. Don’t be shocked if the answer is in the negative.
However, you’d be extremely lucky if you can find a fund manager who has money invested in the fund. According to some reports on fund managers, those who have a personal stake on the line are more likely to outclass managers who have little or no funds invested at all.
Of course, it would be an advantage to entrust your hard-earned savings to a fund manager having the same exposure. But if that’s not the case, make sure the investment firm he or she represents is reputable and trustworthy.
Do not hesitate to ask these questions
ALL the listed questions here are relevant. Do not hesitate to ask them or add some more if you have to. They should bring out the answers you need to know. But you have to remember your choice is only as good as the results.
In fact, don’t be afraid to ask for information that the fund manager might not always disclose. As mentioned earlier by TJ Tan, CFA, DCG Capital, regarding the crucial alignment of interest between the fund manager and the client, you might wish to ask about employee turnover.
“The fund manager might also be unaware of how has style drifted over the years, and whether now’s the right time to subscribe to the fund,” Tan mentions. DCG Capital manages the DCG Asia Value Fund, which invests in publicly listed companies in Asia, ex-Japan, based on a value investing approach. Find out more about the fund here.
Everything is exploratory in the beginning and the fund manager’s performance hangs in the balance. You can only grade the fund manager when your expected results are fulfilled. Hence, preparing a list of questions before a face-to-face encounter is a must.
Talking to a fund manager shouldn’t be done via a phone call too. Your choice can be reinforced if you can see the person’s facial expressions, body language, and overall countenance. If your money is important to you, then it’s exceedingly important to scrutinize the fund manager you’ll entrust them to. It’s better not to fail on the first try.
ZUU Investment Disclaimer: The information given above is based on our experts’ field of expertise and their own personal experience, and should not be relied on or construed as financial advice. ZUU online recommends that our readers take these pieces of advice as a starting point, to research and then assess the merits of this advice based on their own financial needs, investment goals, and risk tolerance.
This is a guest post by ZUU Online, an Asian-based Finance Education Portal aimed at helping individuals to improve their knowledge on personal finance and money, through educational articles on business, investments, property and insurance.