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Some Considerations for Medical Professionals
By Clifton N. McIntire, Jr.; CIMA, CFP®
By Lisa Ellen McIntire; CIMA, CFP®
Sometimes even the best made physician financial plans just don’t work out. And, despite extensive time and energy spent on due diligence before hiring an investment or portfolio manager, it becomes evident that you must change managers.
Some Thoughts for Doctors
Here are a few thoughts when considering a portfolio manager change:
- You should have initially hired the manager with a long-term relationship in mind. Realizing that styles go in and out of favor, we were not simply buying last quarter’s best numbers; in 2009.
- Market statistics often mask “real” performance of money managers, both good and bad. The S&P 500’s 2007 performance can be attributed to a few very large companies.
- Generally, a full market cycle would be required to assess money manager performance. Having said that, what could happen that would warrant changing managers? Here is a brief list:
- Style Drift: You have a growth manager and when growth stocks turn down, you begin to see the purchase of “value” stocks.
- Not Sticking to Previously Established Disciplines: If the process is to sell if the price declines 20 percent down from the original buy range and now they are holding because, “This time, it is different.”
- Personnel Changes: New analysts are hired with a different philosophy. Recent transactions seem 180 degrees off course.
- Principals Leave: Like professional sports figures, good money managers are in demand and sometimes change firms. The replacement may be a 29-year-old MBA with little experience.
- The Firm is Sold: This may be good new if it broadens ownership and helps retain good people. Look for long-term incentive driven “staying” bonus plans.
- Loss of Major Accounts: Reduced revenues may force cut backs in personnel and services. Attention may shift from portfolio management to marketing.
Assessment
Finally, sometimes it is just not working. Misjudgments in asset allocation and poor stock selection over a reasonable period of time can be reason enough to change managers.
Conclusion
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Filed under: Financial Planning, Investing, Portfolio Management | Tagged: asset allocation, certified medical planner, CFP, CIMA, Clifton N. McIntire, CMP www.CertifiedMedicalPlanner.com, david marcinko, Financial Planning, Lisa Ellen McIntire, Portfolio Management |
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On A, B and C Mutual Fund Shares
Did you know that Class C shares have no front or back-end load but charge a higher expense ratio for life?
As a general rule, that means they are the most costly shares for long-term investors. Still, they are popular with “financial advisors”, doctors and consumers because they feel like no-load funds by avoiding all sales charges.
Learn more about A, B and C shares right here:
http://www.fa-mag.com/fa-news/4669-death-of-the-c-share.html
Clarence
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IPSs
One way to avoid a situation where your advisor unexpectedly changes investment strategies is to have an Investment Policy Statement (IPS) in place.
An IPS is a document drafted between an advisor and a client that outlines general rules for the advisor. This statement provides the general investment goals and objectives of a client and describes the strategies that the advisor will employ to meet these objectives. Details about asset allocation, risk tolerance, and liquidity requirements are included in an IPS.
Brian J. Knabe MD CMP™
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Managers
Another real good reason to consider changing out your portfolio manager is when is becomes apparent that your manager is not “adding Alpha” or in other words is not giving you excess return relative to the return of the benchmark.
To determine if your portfolio manager is adding Alpha, it is important to compare the results of your portfolio to an equivalent benchmark. If you are invested in a portfolio consisting of ½ large company stocks and ½ in bonds, it would fair to use the S&P 500 index and perhaps an aggregate bond index as a combined index for comparison purposes. 2011 was a year in which the S&P 500 was slightly positive by just over 2% but most other indexes were negative by single and double digits, including the midcap, small cap and international indexes. If you had a well-rounded portfolio in 2011 that included the broad range of asset classes like most financial planners would recommend, it would likewise not be fair to expect your portfolio manager to have had a positive return on the stock portion of your portfolio just because the S&P 500 was up in 2011.
If your portfolio manager is not producing Alpha over a reasonable timeframe of 3 to 5 years, besides switching to another manager you may want to consider even moving your portfolio to low cost index funds and not even using a portfolio manager. The concept that a portfolio manager can consistently add Alpha to a portfolio is still hotly debated in the industry, in spite of the fact that some portfolio managers have consistently disproven this philosophy.
David K. Luke MIM
Certified Medical Planner™ candidate
http://www.CertifiedMedicalPlanner.org
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On Portfolio Managers
Before considering a portfolio manager change, it is important to ask yourself or your circle of colleagues what investing strategies you are comfortable with; what might have been a good investment strategy today may not simply be good enough for the future.
In general, there are the top-down or bottom-up investing styles. What style of the portfolio manager do you need to help your future investing?
Top-down approach involve selecting assets based on a broad scheme. The top-down portfolio manager will buy stocks across particular economic sectors such as high technology and industrial which tend to do better in a strong economy and shift their strategy to health care and consumer staples when the economy is expected to slump
The bottom-up portfolio manager will buy stocks not basing on the economy as a whole or sector in which that the company lies; he or she would analyze the strength of an individual company.
Ken Yeung MBA
Certified Medical Planner™ candidate
http://www.CertifiedMedicalPlanner.org
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