When you invest with a large investment firm that has a respected name, you not only expect them to handle your money wisely, but also to handle it themselves. All of their advertising and marketing materials persuade you to believe that they’re the experts, they’ll take care of you, and they’ll treat your hard earned money as carefully as they would their own.
Thus, you might be surprised when your broker suggests giving your money to outside money managers who are unaffiliated with his or her firm. Here’s the pitch.
Investment and Money Managers
Your broker tells you that his firm has entered into arrangements with many fabulous independent fund managers covering the entire gamut of investments and investment styles in the markets. If you don’t have millions to invest (and sometimes even if you do), you’ll be told that but for this special program, a puny investor like you could never get access to these funds.
The fund managers supposedly have been carefully checked out by your broker’s firm, which also monitors them constantly to ensure that that they stay at the top of their game. If the managers don’t perform well, they’ll be replaced. Your broker tells you how advantageous it is for you to be able to access all of these great funds with one simple program, and promises to recommend the right funds for your needs and to carefully watch your account to make sure that changes are made when necessary. And this tremendous opportunity will only cost you an annual fee of anywhere from 2% to 3% of your assets under management.
What Can Go Wrong with Outside Managers
What the broker doesn’t tell you is that you could invest on your own in any number of no-load funds or inexpensive index funds and avoid paying the exorbitant annual fees for this managed money program – fees made even more exorbitant by the additional fees charged by the money managers themselves. Your broker also doesn’t tell you that once you’re in the managed money program; he might never bother to look at your account again. He might not tell you that the funds he recommended to you initially will not provide you with the safe and diversified portfolio he led you to believe you’d have. And he most assuredly won’t tell that if you lose money because of his failure to make suitable recommendations or monitor your account, you shouldn’t come crying to him because you agreed to let the outside managers handle your money and consequently he’s not responsible for any losses incurred.
But your broker can be liable for your losses, even if you were in a managed money program. If he takes a fee and then abandons you, you may have recourse. Perhaps your broker recommended an unsuitable mix of money managers or failed to recommend replacement of managers due to their under-performance or changes in your personal investment needs.
If you’ve lost a significant amount of your savings because your funds were invested through a broker with outside money managers, please contact us today. We’ve recovered lost savings for clients whose investments were handled by outside money managers selected by their broker.