The Sales Process of Proprietary Mutual Fund Management Services

Most proprietary mutual fund management products make sure that they hide the fundamentals of what they are doing with your money in the symbiotic synchronicity (otherwise known as jumbled junk) of their portfolio methodology. The best manner to do this is by making sure that there are at least two sales people at a meeting with you when you are making the investment management decision. Management’s hope is that you just won’t be diligent enough to read the prospectus for each fund that underlies their investment process. Instead, the marketing minions of the firm fill your head with a methodology that seems to be unassailable in its concepts, theories, and philosophy. After all, they manage $50 gazillion dollars this way, why would anyone in your position question a firm of this stature! Instead of having discussions of what the individual funds have done in the past, you are having a conversation centered on how the building of the portfolio incorporates the insights of a host of professionals giving you their best ideas. At this point, thoughts of Fergus Shiel, Harry Lange, or Bob Stansky taking control of your portfolio and deftly maneuvering your money through the storms of recession, fill your head. Get a grip! Those three money managers don’t have a clue who you are or what your needs are. If you are lucky, their funds might be a part of the money management process that you are about to embark on, or more likely, their funds are not even in the proprietary money management program that you are considering. Why? (We’ll get to that another time.)

You go to your fund company’s web site and look up the particulars of your mutual funds. You want to be prepared for the sales process. Specifically, you read the information associated with the “strategy” that is employed with the fund or funds that could be part of your portfolio. Here is where most people start to get that glazed eye look. If you were to look at the equity funds of your firm, you might find that many of the funds have the following “strategy” that delineates the process of managing your assets:

Normally investing at least 80% of assets in equity securities.

No big deal, until you start to understand the implications of this statement. “At least” should start to scare the pants off of you. This phrase could also be stated in a different way, “no less than.” So if you happen to be in a bear market environment, at what level will the funds in your portfolio reduce their invested equity level to? So all of a sudden you start to see that the protection of having your assets managed is somewhat mitigated by the underlying prospectus of each fund, but we decided to forgo the simple process of “reading the prospectus,” in favor of the “methodology.” (The methodology is ethereal and acted out quite nicely by the two representatives usually used in the sales process making sure that you don’t get too inquisitive.)

Anxiety has now overwhelmed your sense of well-being. However, two talking heads are now chirping that you are paying the advisory fee to take care of this very situation. Should there be a market correction or downturn, your asset management advisory fee will be in place to pay the people overseeing your account to take action and correct any flaw in their methodology. Whew! That’s a relief! Just knowing that you’re covered in these events is worth the fee, glad these two guys were here to explain it. But wait! Do I really understand what it is that I have acquiesced to? And that fee that they discussed is that different from the management fee on the fund?

You return home confident in your decision to have your assets managed, a month passes, and you pick up the paper to see that the market is down 300 points. You are concerned and call your new contact; obviously the old contact didn’t have the necessary credentials to handle such a lofty task as managing your assets, so they have assigned you to another loftier individual. Once you have been able to contact that loftier individual, and explained your concern, their answer is that you are not scheduled to be reviewed for at least another fortnight. She is sure that you read the brochure and marketing material that stated that the investment professional on your account periodically reviews your account and adjusts accordingly!  However, we can’t arbitrarily review an account that is in line with our methodology and timetable until a fortnight arrives. Your asset allocation is in line with expectations, and the investment deities would rise up in conflagration should a change be requested at this point. “Do not be concerned,” the loftier individual has said. “We had a meeting earlier today and have taken measures to insure that your account is placed at the top of the next fortnight’s review. It will be at that time that your assets will be reviewed, to insure that they are in line with our expectations of what the market is doing.”

At this point you return to your chair and realize that your money is no longer yours, it is part of the great methodology.

Large asset management firms can not give the individual attention that clients expect. The process that they employ is always one where one size fits all. It is only when the asset level of the client reaches a certain level that even the smallest of accommodations are made to the client. The money management process that is employed above is meant to strengthen shareholder value not client net worth.

The fees you pay to the management firm steering your investments should allow you access, consideration, and feedback. We believe we have a better idea of interacting with clients and managing assets. Please visit our web site, www.charlescarrollusa.com, or contact us about our offerings.