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Time To Hunt For An Investment Pro?


Personal Business: PLANNING

TIME TO HUNT FOR AN INVESTMENT PRO?

David Lenkowsky, a manufacturers' sales representative in Montville, N.J., takes pride in being a hands-on guy. But last year, the 49-year-old father of three finally threw up his hands when it came to managing his own money. "I was constantly being deluged by no-name brokers from no-name firms. Once in a while, I bit, usually with disastrous results," he says. The last straw was a penny-stock investment that lost $25,000 in 60 days. "I finally said to myself, `I wouldn't do my own brain surgery. Why am I doing this?"'

Lenkowsky's solution: He turned his mid-six-figure portfolio over to a professional asset manager. Like the majority of Americans with money in the stock market--more than 41% of U.S. families, according to the Federal Reserve--you may be buying too much or too little of a fund, holding on to a stock too long or not long enough, or simply ignoring sensible investments out of ignorance or fear.DIZZYING. If you've amassed a portfolio worth $100,000 or more, and you haven't the time, access to information, or desire to sift through a mind-boggling array of investment choices, you're not alone. Over the next decade, experts predict, more such investors than ever will turn to professional managers. This upsurge is already bringing some financial services companies a raft of new customers. Take Charles Schwab, whose AdvisorSource program (800 979-9004) steers clients with $100,000 or more to 440 independent managers who agree to trade through the discount broker's proprietary software. Only two years old, the program is already bringing in $150 million a month.

Baby boomers are driving the search for professional advice. These forty- and fiftysomethings are coming into their serious wealth-amassing years, thanks to a couple of decades in the workforce, the buildup of 401(k) plans, a generational inheritance that will top $10 trillion, and the long-running bull market. You may well be one of the fortunate 4% of investors, cited in a 1997 survey by the Securities Industry Assn., who feel they know everything they need to know to make good investment decisions. But if you're more like David Lenkowsky than Warren Buffett, this may be a good time to consider whether you, too, should turn your investments over to a pro (table).HOW BIG? One thing a pro can do for you is to develop an asset allocation plan geared to your particular objectives. Some managers may turn their noses up at portfolios under $200,000, maintaining that the expenses of running smaller accounts isn't worth their while. But in truth, $100,000 is big enough to merit professional attention. "At $100,000, mistakes start to matter," says Robert Powell, research editor at Boston-based Dalbar, which does market research for financial services companies. "You may want to manage your money in the way the affluent always have--with personal attention, fiduciary responsibility, and direct contact."

Putting an asset allocation plan together on your own is harder than it looks. For instance, you may not realize that a mutual fund you bought for large-cap growth stocks has 10% of its assets in cash, thus skewing the nice allocation scheme you thought that you had devised. Or you may have fallen in love with your assets, and thus have been unable to take a timely gain or loss and move on. Says Evelyn Somers, senior vice-president of marketing at Fidelity Investments: "The buy decision is so sexy, but the sell decision is so hard." Such love affairs can be especially detrimental if you have to liquidate savings to pay for college, support ailing parents, or finance your retirement.

Then there's the problem of how to handle a portfolio that's bursting at the seams. Let's say you own mutual funds worth upwards of $500,000, plus a large amount of unexercised stock options from your employer. You feel you should diversify your portfolio into individual stocks or bonds. But you're unsure how to evaluate your opportunities, much less figure out whether to hold, exercise, or flip your options. A professional should be able to help.SET A LIMIT. If you're handing less than $1 million over to a pro, many will insist on putting your money into funds, however. "For the typical investor, I am unequivocally on the side of mutual funds," says Timothy Chase, a principal of Wealth Management Services in Towson, Md. That way, he says, you'll get a variety of managers with different styles. He recommends staying strictly with funds until a portfolio reaches the $2 million to $4 million level.

But bear in mind that if a portfolio manager puts you only into funds, you may end up paying a double layer of fees--to the manager and the funds, too. Moreover, "funds are frequently overdiversified, can underperform the market, and have too much turnover, so the aftertax result suffers," says Douglas Bean, director of research at Philippe Investment Management in New York. He insists a money manager can help you diversify adequately with individual securities and time any sales to minimize taxes. But even Bean cautions that individual securities alone are suitable only for portfolios of $500,000 and up.

When manufacturers' rep Lenkowsky sought out a money manager, the first thing he wanted to do was bring order to a portfolio that had been constructed helter-skelter. "A little voice in my head kept saying, `You should pay attention to asset allocation. Everybody talks about it,"' Lenkowsky recalls. "But the response was always: `gotta go."' The problem was he didn't have the time or knowledge to do it himself. So about a year ago, on a suggestion from his father-in-law, he presented his portfolio to Allan Eyre, president of asset-manager JAE Consulting in Berkeley Heights, N.J.

Lenkowsky's holdings comprised more than 20 stocks, 9 equity funds, and a half-dozen municipal bonds. But this portfolio, says Eyre, "was overdiversified to the point of diminishing returns." Further, several funds owned the same stocks.

Eyre, who charges Lenkowsky an annual fee of 1.5% of his assets under management, started his overhaul by having his new client articulate his goals. Lenkowsky wanted his portfolio to generate some cash flow, provide growth at a reasonable risk level, avoid additional taxes, build an education fund for his children, and reduce the potential for catastrophic losses. It quickly became clear his original investments, which included too many speculative small-cap stocks, would have been risky for a hot-dogging Generation Xer, let alone a settled baby boomer.SHORTER LIST. Eyre then set about selecting assets that emphasize value over growth to reflect Lenkowsky's conservative objectives. He trimmed the stock list to about a dozen, including GTE, Home Depot, and Deere. He then picked a diversified group of no-load funds, among them Janus High-Yield Bond, Pioneer Europe, and Fidelity Real Estate Investment. He also kept Lenkowsky's municipal bonds. Over the past four quarters, the new portfolio has grown by about 20%, a result that makes Lenkowsky "ecstatic."

If you want to choose a money manager, there are more objective ways available to you than simply asking a relative for a recommendation. Turning over your life's savings to the care of a professional manager is a big step. But think of the upside: In addition to the potential for bettering your financial future, you get to tell the cold-calling brokers to scram. Says Lenkowsky: "Now, when Joe Blow phones and says, `Hi, Dave, how've you been?,' I refer him to my money manager."EDITED BY AMY DUNKINReturn to top


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