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A Group that Should Use an Investment Manager

July 18, 2017

My previous blog discussed the reports a client received from their two investment managers. I received some calls and emails asking whether it is better to manage their own funds and skip using an investment manager.

Many people can manage their own funds and do not need to use an investment manager, but many cannot and need someone. However, there is a category of people that should engage an investment manager irrespective of their knowledge and experience. It is my belief that anyone in a fiduciary capacity responsible for other people’s funds should use a professional investment manager. Fiduciaries include executors of an estate, trustees of pension plans and trusts, board or investment committee members of not-for-profit organizations, and guardians and custodians.

Investment management responsibility should be delegated to experienced professionals, i.e. it should be outsourced. Fiduciaries need to act prudently and trying to do it themselves might not fall into this standard. There can also be some loss of objectively or independence when a board member performs these services. Also, professional managers have access to data, information and resources not usually available to nonprofessionals creating buying or selling opportunities that are not generally known. Their time and attentions are devoted to managing investments unlike board members that usually serve on a part-time basis. Further, engaging a professional frequently is accompanied with assistance in preparing the investment policy statement (“IPS”), which should then be ratified by the entire board, after being explained to them. The IPS then creates a protocol of investment handling and big picture directions for the investment manager. If there are multiple investment managers they should all be involved in the process.

When a board is assembled it is likely that some will be fully knowledgeable about investing and capable of executing transactions. What happens is that this individual or smaller group then assumes the full responsibility of the board since the less knowledgeable can claim inexperience and reliance on those that are the better informed. This places an unequal burden on those knowledgeable board members.

Investment management fees are generally reasonable and provide value to the organization or entity. Anyway, the fees are cheap when compared to legal fees [and time] and possible negative publicity when defending against charges of impropriety.

Use this article as a suggestion of how you should proceed and the level of responsibility you want to assume.

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