ZF Capital

MANY INVESTORS, ESPECIALLY those with significant sums, prefer money managers to oversee their assets. While there are some advantages — namely more control over your tax liability — the problem with separately managed accounts is that, from what I’ve observed, very few are actually managed. So even if you decide not to manage your money, you might need to take some steps to manage your manager.

Let’s define our terms. “Managing” an account doesn’t mean constantly trading it. In fact, one of the primary, yet oft-overlooked, responsibilities of an asset manager is to make sure a client’s portfolio matches his particular risk tolerance. This is usually done when the account is set up, but often stops there. The truth is that this should be an ongoing process.

Like many elements of investing, the concept of “risk tolerance” is often made a heck of a lot more complicated than it need be. Instead of actually focusing on hard numbers, advisers toss around vague descriptions of how much risk they plan to take. Let’s be frank: What exactly does being “aggressive” mean, anyway? (more…)