Money Guru, Financial Management Article

Returns

Want to hire one? You'd better answer some questions first.

Think you need a money manager? Think again, says Robert J. Glovsky.

It's not that Glovsky is against the idea. He is, after all, the head of a financial-planning firm, Mintz Levin Financial Advisors, in Boston. He's also director of Boston University's Program for Financial Planners, served as chair of the body that sets standards for Certified Financial Planners (CFPs) worldwide, and has been named by Worth magazine as one of the country's top 50 financial planners. He believes in money managers. It's just that he thinks hiring one -- or more than one -- should not be the initial step in your investing plan.

The advice he's been giving for years to people like you -- entrepreneurs who have made a couple of dollars and tend toward impatience when it comes to handling them -- is: Don't hire me. Yet. "Almost always, the entrepreneurs who come to see me want to start by hiring a professional money manager," Glovsky explains. "It's better to save that for the last step in the financial-planning process."

Here's what that process looks like, according to Glovsky:

Determine a rational approach to your investing. The following questions sound simple, but can you answer them? What do you want your money to do for you -- generate income? Generate growth? Both? And what kind of returns can you realistically expect? It's hard to plan if you don't know where you want to go.

How much risk do you want to take? If you own a business, the answer may well be, Not very much. Says Glovsky, "Many of my clients say, 'I'm a risk taker with my business, but I understand what I'm doing, so I'm comfortable with that risk.' When it comes to stocks and bonds, they may not have the same level of understanding or they figure investing in their business completely fills all the risk they want to take with their money." If either of those scenarios describes you, Glovsky says, you probably want to have "a dumbbell portfolio. The money invested in your business is by definition aggressive, and the rest of your money could be in munis. There would be nothing in between. So if you were graphing your assets, it would look like a dumbbell, and for a lot of entrepreneurs, this kind of portfolio makes perfect sense."

How much money are we talking about? If you are thinking about investing less than $5 million, you simply don't have enough money to attract the attention of the best money managers. You're probably better off going with mutual funds.

How are you going to divvy up what you have? Let's say you do have $5 million, and you and your financial planner decide that a professional money manager is the way to go. What should you do? Hire a bunch of them, says Glovsky. "Let's say you want to divide that $5 million this way: 60% stocks, 40% bonds. I would hire three equity money managers -- one known for investing aggressive, one who is middle-of-the-road, and one who's conservative -- and give them $1 million each. And then I would hire two bond managers, one aggressive, one conservative, and give them each $1 million as well. This way you end up with five money managers, not one." Why go this route? Because you get five different approaches. "If you hire just one manager, you are then locked into his own particular investing style -- aggressive, conservative, middle-of-the road, whatever."

Glovsky's point is straightforward. Even if you have a lot of money to invest, the key principle of investing is diversify. You'll just be doing it on a far larger scale than most people do.

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