Choosing the Right Investment Manager for Your Needs

Would you like to know how investment managers are selected for your portfolio?  It certainly is not a case of “we like this guy,” or “who has the best return.”  There is a very clear and defined due diligence process.  But because our team of advisors recognizes that this may not be visible for you, it seemed valuable to share more about it.

Nick Lacy is the Chief Portfolio Strategist for Asset Management Services within Raymond James.   Nick took the time to articulate what goes into making investment manager selections.  Check out the video, or read more in the blog.

Investment manager selection is step 3 in our 4-Step Investment Process.  For a bit of review, step 1 is Forward Looking Capital Market Assumptions based on economic data and indicators.  Step 2 is optimizing asset allocation to maximize return potential at various risk levels.  For more on the 4 Step process, go to the RJ Freedom Investment Approach page, and click on “The 4-Step Investment Process” tab.

Now back to step 3:  manager selection.  This is where our advisors want to add top quality managers for each of the appropriate asset classes in the portfolio.  By its nature, our due diligence team takes their time, perhaps a year or more, in order to determine if a manager is a fit.  We want to understand, how has this manager generated good returns in the past, and can they repeat it in the future?  Did they hit a few lucky home runs?  Or are they consistent, with a well-designed and consistently executed investment strategy? 

In order to determine if a manager is actually consistent, Nick Lacy’s team will ask the manager for 100% of their trading history over the last 5 years, and evaluate every trade.  By going into such intense detail, the team can determine what is making the manager successful, and understand what economic environments the manager will perform well or poorly in, going forward.  Take note, even great investment managers may not look smart every year, since their process can come in and out of favor compared to the market from time to time.  Nick mentions Small-Cap Managers (which are tasked with investing in smaller, lesser known companies), who had a few very poor years, compared to other asset classes.  Yet they were doing quite well in early 2016, as Small-Cap investing came back into style, so to speak.

So, when would Nick’s team fire a manager from your portfolios?   Normally personnel changes are the catalyst.  Because we have done the due diligence, Nick’s team knows who the contributors are on the investment manager’s team.  If several of them are exiting, or the leadership is changing, that is a sign to us that things may not continue as we expect.  Recently, we made a major change away from a well-known Fixed Income investment manager for just this reason.  We don’t want the risk of an unknown team making decisions on your money.

Thank you to Nick and his team for all their time and effort to add a robust process to your investments.  If you wish to discuss Investments, feel free to call our office at 920-617-6830.


Patrick Stoa
Financial Advisor.

Any opinions are those of Nick Lacy, Mike Macco and Patrick Stoa and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss. Diversification and asset allocation do not ensure a profit or protect against a loss. Keep in mind that there is no assurance that any strategy will ultimately be successful or profitable nor protect against a loss.