"In light of the 2008 financial crisis, we felt the need to do our own qualitative and quantitative research and not just rely on traditional research methods, such as Morningstar or Lipper," says Dan Cupkovic, manager of investments at ARGI.
The firm's due diligence committee consists of four financial advisors who report back to the firm's investment committee with recommendations about which funds are best for client portfolios.
ARGI is just one of a growing number of advisors taking their fund research to a higher level.
Bill Connolly, Putnam Investments' head of global distribution, says he's seen more financial advisors like ARGI launching investment committees and requesting meetings with his fund managers.
"The home offices of larger financial advisory firms do extensive due diligence by coming to firms like ours, meeting with our portfolio managers and then making broad recommendations for their advisors to follow," Connolly says. "This practice has been accelerating the last few years because advisory firms want to further bolster their own credibility and to educate their advisors."
Even as exchange-traded funds soar in popularity, many firms still rely heavily on mutual funds as the backbone of their client portfolios. The Center for Financial Planning, a Southfield, Mich.-based advisory firm with $690 million in assets under management, puts 77% of its overall assets in mutual funds.
"We don't want our seven financial advisors choosing their own adventure," says Melissa Joy, a partner and director of investments at the firm. She notes that meeting with fund managers in person or over the phone creates consistency and conviction when it comes to fund selection for the entire firm.
Some fund companies welcome the extra scrutiny from advisors. "The skills a fund manager brings to bear are hard to evaluate by reading performance numbers and fact sheets," says Brian Ahrens, senior vice president of Prudential Investments. "Financial advisors need to do on-site visits to make a judgment about whether a fund manager is skilled to manage clients' assets."
Ahrens has seen more requests for meetings and information by large and midsize financial advisory firms. "The smaller ones may not have the resources to make a visit," he says.