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New to Investing? Here’s How to Choose a Portfolio Manager

For new investors, selecting the right portfolio manager is one of the most crucial decisions that can shape the path to meeting long-term financial goals. While some people may prefer to manage their assets independently, working with a professional can help optimize investment strategies, especially during volatile market conditions. Here’s what to consider when choosing a portfolio manager, why having one is important, and signs that it might be time to move on.


A financial advisor discussing investment strategies with a client.
A guide to selecting the right portfolio manager to help achieve your investment goals. Photo: Unsplash

Why You Need a Portfolio Manager

An investment portfolio manager can help you navigate the complexities of the financial markets by constructing a diversified portfolio tailored to your risk tolerance, financial goals, and time horizon. According to Drayton D'Silva, CEO of Tower Hills Capital, the goal is not only to select the right investments but also to understand how they interact with each other. "A portfolio should be sufficiently diversified to optimize your risk and returns, meeting ongoing cash needs," he says.

Mihail Dobrinov, founder of Trimon Capital, agrees that professional management brings a structured approach to asset allocation, considering factors like risk, return expectations, and shifting correlations among assets over time. The dynamic nature of investing means that portfolio adjustments may be required to avoid style drifts, ensuring the portfolio remains aligned with your objectives.


What to Look For in a Portfolio Manager

  1. Credentials and Experience: A qualified portfolio manager should hold relevant certifications such as Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), or Certified Investment Management Analyst (CIMA). They should also have a strong track record and years of experience in the industry. In regions like the EU, UK, and US, compliance with regulatory bodies like the European Securities and Markets Authority (ESMA), Financial Conduct Authority (FCA), or the Securities and Exchange Commission (SEC) is a must.

  2. Personal Compatibility: Investing is a long-term commitment, often involving communication over several decades. Finding a manager you can trust and feel comfortable discussing financial goals with is essential. Jacqui Smith from Reynders, McVeigh Capital Management advises selecting someone who understands your values, motivations, and investment goals.

  3. Investment Style and Philosophy: Make sure the manager's investment approach aligns with your preferences, especially in terms of risk tolerance. Ask for their upside-downside capture to see how they perform in both strong and weak markets. This will indicate their ability to preserve capital during downturns while taking advantage of market gains.

  4. Fee Structure Transparency: A good portfolio manager should clearly disclose all fees and charges, ensuring there are no hidden costs.

  5. Communication and Proactivity: A reliable portfolio manager should keep you updated on the state of your investments, market changes, and any necessary adjustments. Shawn Carpenter, CEO of Stock Alarm, emphasizes that investing isn't just about picking stocks but also monitoring trends and making adjustments as needed.



When to Change Your Portfolio Manager

There may come a time when the relationship with your portfolio manager is no longer beneficial. Here are some warning signs:

  • Underperformance Relative to Benchmarks: If your portfolio consistently lags behind its benchmarks, it might be time to reevaluate the manager’s strategy.

  • Lack of Communication: If your portfolio manager is difficult to reach or only contacts you when there’s bad news, consider it a red flag.

  • Misalignment with Investment Preferences: If your manager doesn’t consider your risk tolerance or personal values (e.g., avoiding investments in certain industries), it may be time to move on.

  • High Turnover and Fees: Consistently choosing expensive funds without justifiable returns can indicate poor decision-making. Faris Khatib, CEO of Ideal Tax, notes that vague fee structures and excessive turnover could be signs of trouble.


How Should a Portfolio Be Constructed?

Constructing a well-balanced portfolio involves diversifying assets across different asset classes like stocks, bonds, and real estate, while considering geographical diversity (e.g., exposure to US, UK, and European markets). Steven Kibbel, a certified financial planner, explains that younger investors may prefer growth-oriented portfolios, while those closer to retirement may opt for income-focused strategies.

"Asset allocation typically drives around 80% of the results over time," says George McNeil, chartered financial planner at DGS Chartered Financial Planners. The aim is to spread investments across various asset types to share in the returns of the global economy, ensuring that the portfolio remains comprehensible and aligned with the investor's objectives.


The Bottom Line

Choosing the right portfolio manager involves evaluating qualifications, communication skills, fee transparency, and alignment with your investment goals. Regularly assess the performance and compatibility of your manager to ensure the relationship continues to support your financial objectives.


Disclaimer: This article is for informational purposes only and should not be considered financial advice. Always conduct your own research and consult a financial advisor.


Source: Euronews


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