Things to Consider while Choosing a Portfolio Manager

Portfolio managers are professionals who often work alongside other researchers or analysts to decide investment decisions, monitor market trends, research companies, etc. Many businesses and individuals require such a manager to boost their portfolio’s overall performance. Here is a guide on how to choose a portfolio manager that ensures the professional is suitable for you and your company's economic goals and investment mannerisms.

Choosing the right portfolio manager is vital for all individuals and businesses. Wrong choices can often lead to companies sustaining extensive losses in terms of time and capital.

Here is a list of 5 factors to consider while choosing a portfolio manager:

1. Know Their Financial and Investment Planning: Everyone has specific, sometimes complex financial needs for the future. Ideally, the hired portfolio manager must not be personally interested in you or your investments. Their job is to focus solely on you and assist you in accomplishing your economic goals. Portfolio managers should:

• Meet with their clients and sit with them for a discussion.
• Understand when and how their clients want to spend their money.
• Devise investment plans that align with their client’s future needs and specifications.
• Conduct yearly follow-up meetings to ensure their clients are economically on track.

It is advisable to hire a professional with a neutral and open attitude to any kind of situation that may arise.

1. Possesses Good Communication Skills: Portfolio managers frequently work with tons of complicated data, so working directly with them means understanding how the market fluctuates. However, to understand something, it has to be communicated appropriately first.

What is expected of a portfolio manager:

• Communicates recommendations and analyses to clients clearly.
• Must be transparent with their clients, so they should not use complex financial jargon.
• Answers their clients' doubts, questions, and concerns throughout investing.
• Communicates with clients routinely to keep them updated on market events – over the phone or in person.

While hiring a portfolio manager, individuals should ensure that they can communicate and comprehend the context and content of what is being conveyed.

1. Must Offer Above-Market Performance and Returns: Nobody wants to be average in life, and the same applies when it comes to individuals and businesses investing in assets. However, on average, investors of mutual funds have underwhelming returns. This typically happens when the investors use the wrong metrics to determine whether to invest or redeem with a portfolio manager. Portfolio managers may differ from each other by their:

• Types of clients they specialise in
• Career history and track record
• Investment ideologies and philosophies
• Portfolio profiles, styles, and fees
• Money-managing strategies and schemes
• Types of products and services they offer
• Hence, it is of the utmost importance that investors identify the goals they want to achieve and choose the portfolio manager in accordance with their needs and requirements.
• Should be Decisive and Analytical
• Portfolio managers have to be adept in the following:
• Sift through and deal with tons of research data
• Conduct economic scenario and circumstance analysis
• Plan for various outcomes to identify investment-related risks

Therefore, individuals and businesses need to have a professional who is proficient in all the aspects mentioned above and also:

• Understands how the market functions
• Can predict market trajectories
• Has an awareness of all possible risks involved
• Knows how events can affect the market

These qualities are essential to check for while hiring a portfolio manager.

1. Must be Trustworthy: You should hire someone you feel is honest, trustworthy, and professional. The majority of all portfolio managers are CFAs (Chartered Financial Analysts). Ergo, all of them should be skilled and trustworthy in handling money and accomplishing economic goals. While hiring a portfolio manager, remember to check their:

• Business and background
• Track record and history
• Credentials and certifications

These parameters ensure that your money is being handled by a reputable professional who understands your needs and requirements and, thus, will assist you in accomplishing your economic objectives.

In addition to having analytical and quantitative skills, here are the educational qualification and certifications a legitimate portfolio manager should have:

1. Bachelor’s degree in one or more of the following fields:

• Economics
• Finance
• Accounting

1. Master’s degree in one or more of the below disciplines:

• Business administration
• Finance
• Economics
• Financial analyst certifications:
• CFA – Chartered Financial Analyst
• CFP – Certified Financial Planner

1. Related disciplines required include:

• Mathematics
• Statistics
• Physics
• Engineering

Here are five essential questions to ask while hiring a portfolio manager:

1. What is your investment philosophy?
2. How do you assess and minimise risk?
3. On what basis do you estimate the value of a stock?
4. What reason would make you sell off a stock?
5. What non-economic factors do you analyse?

Here are all the costs of hiring a portfolio manager:

• Entry fee

A one-time admittance payment of 1% - 3% of the total fee of portfolio management service.

• Management fee

A recurring expense for portfolio management over time of 1% - 3% of the total fee of portfolio management service.

• Exit fee

Only charged if clients choose to end the management scheme before 1-2 years.

Additional charges that may apply depending on circumstances:

• Custodial fees
• Demat charges
• Statutory fees
• Audit charges
• Transaction fees
• Brokerage charges

Selecting a portfolio manager needs investing care and time into it. The right decision puts individuals and businesses on the correct path to success. However, wrong decisions can set back individuals and companies immeasurably. Upon assessing all of the factors above on how to choose a portfolio manager, you should discuss with a CPA and an attorney.