The Insider – How To Choose An Investment Firm
Choosing the right investment manager or firm can be a complex process. Where do you even begin?
First you must know yourself. Before embarking on the selection journey you should first ask yourself one fundamental question. What exactly do you want from your investment? Be really clear and precise.
Do you want a regular income? Or are your needs more long-term? Or do you need both income and growth? There are companies and managers specialising in each of these areas.
Next, think about which type of firm you want to work with.
Do you prefer large financial firms with high profiles and international presence or do you prefer doing business with a small, boutique investment house because you need the personal touch?
Once you’ve narrowed down your search, you need to devise a checklist.
1. Cost
Investment company fees differ hugely. Even their methods of charging customers will vary wildly. Some make a profit by charging fees, while others charge a commission on investments. Many do both.
Ask them, explicitly and clearly.
There are alternatives. Discount brokers, for instance, charge less commission but they don’t offer strategies or recommendations.
If you’re unsure, always plump for a firm that will offer advice and recommendations.
2. Check their website
Poor use of English, on a website that claims to represent a UK company, suggests that the company is not based in the UK.
In any case, unsatisfactory use of English suggests that the company’s professional standards are inadequate. Avoid.
Also, check the company’s privacy policy and mission statement. This should outline their ethical stance, and their vision for the future. Make sure they tally with yours.
3. Interview the staff
Interview at least two staff when picking an investment firm. This helps you assess style, tone and personality – you need to trust and ‘click’ with the people who invest your money.
Investing is a highly personal enterprise, so you need to feel comfortable with the firm. And don’t be scared to ask what you regard as dumb or silly questions.
Also, a good investment firm help new clients learn the ropes and offers strategies so you are an active partner in your own financial future. Communication is crucial. Keep a diary of interaction between you and your investment firm.
4. Pick a winner
Appraising a firm’s track record is vital. Use a site such as FE Trustnet, which has separate performance profiles for funds and for fund managers.
Assess how well they’ve done over the past three, five or ten years (cumulative performance) and how they’ve performed in each separate year (discrete annual performance).
This will tell you how their abilities cope with different markets: bull, bear or static.
But past performance is no guide to future returns.
You also need to determine their investment style and how they run their funds.
There are a variety of approaches to investing which will have an impact on how they compare to their peers and sectors.
5. Go small
Perhaps the most important piece of advice we can offer, however, is to shun most of the big names in the market.
Large investment funds tend to be unimaginative and mediocre.
Indeed, most funds from big fund management companies are glorified trackers. The manager adheres to the benchmark and avoids taking any kind of risks.
However, smaller players that manage just a couple of funds are more likely to have a nimble and agile approach.
They have more flexibility to take decisions that can have a positive effect on a fund’s performance. You are also more likely to get expert, personal service from a smaller operator.
You do not have to be a professional to choose a good investment firm.
You just have to think about what you want, do your research, and make sure you choose a firm with a manager you trust and long-term strategy with which you agree.
Thereafter, you must keep in regular contact with the firm. After all, it’s your money – and you must never let them forget that.
Paul Connolly
Paul Connolly has been a journalist for more than 20 years, as a reporter and editor for Argus Media, Reuters, The Times, Associated Newspapers and The Guardian. He has covered Islamic Finance for Reuters in the 1990s. Paul has since helped launch three newspapers, as well as reported from Tokyo, Los Angeles and Stockholm.
