Research managers, charged with deciding which investments look attractive, which ones are overvalued and what mix of assets have the best chance of keeping clients on the right track, play pivotal roles in the investment advisory business. On the due diligence side, they gather information to determine whether investments pass the smell test or instead have an unmistakable whiff of danger. From evaluating complex real estate deals to interviewing top mutual fund managers, research managers make sure vehicles follow prospectus guidelines, don't make outrageous claims and don't carry unacceptable levels of risk.

Regardless of specialty, research managers exert a powerful influence in shaping client portfolios. Yet unlike institutional analysts, these important decision-makers rarely receive national recognition. In a small step toward changing that, Financial Advisor and Private Wealth magazines sought nominations for an all-star research team from readers (we also polled attendees at the Fiduciary Research Manager Summit in September).

Nominations from individuals outside a nominee's firm were weighted far more heavily than those who were nominated by themselves or their partners. Those named most frequently by their peers got the nod for a variety of reasons.

While the top nominees listed here have different investment philosophies and disciplines, they all have a practice or strategy that sets them apart.

RegentAtlantic Capital, Morristown, N.J.
Chris Cordaro, Chief Investment Officer, Andy Kapyrin, Director of Research and Brian Kazanchy, Investment Committee Chair

When Chris Cordaro started in the investment management business in the 1980s, a lot of his conversations involved convincing reluctant clients that stocks were a good investment over the long term. By the late 1990s, he had to remind them that buying stocks at any price was not a good idea. "Now, I'm back to persuading people that stocks are still a good long-term investment," he says. "Things have kind of come full circle."

One thing that has changed is his firm's shift toward a more tactical approach in recent years. "Because valuations are changing more quickly than they did in the past, we need to do a little more maneuvering to buy low and sell high," he says.

For example, real estate investment trusts, which were eliminated from the firm's portfolios in 2007 when they became overvalued, were brought back again in late 2008 after they dropped to bargain-basement price levels. In 2011, after these shares had appreciated, the firm removed them from its portfolios again.

There have also been lots of mainstays, including index mutual funds run by Dimensional Fund Advisors. "When we do our quantitative screens, the DFA funds almost always go to the top of the list over two- to three-year rolling window periods," he says.

On the actively managed side, funds such as the TFS Market Neutral fund (TFSMX), a long/short portfolio, fit the bill. "The guys that run this fund are all Ph.D.'s who came out of a consumer credit scoring background, so they really know quantitative strategies," he says. 

Biggest challenge: "Getting clients to have what we consider an appropriate allocation to stocks."

Break Through Advisers, Macomb, Mich.
Todd Pack, Chief Executive Officer

Fifteen years ago, when he was just getting started in the financial services industry, Todd Pack noticed that sponsors of alternative investments paid outsiders to review and provide due diligence on their products, an arrangement similar to the way credit rating agencies operate. 

"To me, it just didn't make sense to get paid by the company whose product you're reviewing," he says.

Apparently, a lot of the broker-dealers and advisors who hire Pack's firm to review alternative products feel the same way. Since he founded Break Through Advisers in 2009, Pack has been busy conducting due diligence on scores of alternative investment deals, including mortgage pools, non-traded REITs, and oil and gas deals designed to generate tax credits. In today's low-interest-rate climate, many of the investments he looks at aim to generate income above what investors can get from more traditional sources such as CDs or bonds. 

Pack looks at the structure of the offering-including the anticipated distribution rate to make sure it can be achieved. He also ferrets out details on a deal's debt level, expenses, cash flow and capital-raising capabilities.

Biggest challenge: giving the thumbs-down on deals. This is something he does about 80% of the time, which doesn't always play well with clients. "But in the end, they appreciate that the evaluation they're getting is independent and unbiased," he says. 

The Center For Financial Planning, Southfield, Mich.
Melissa Joy, Partner

Melissa Joy doesn't take things at face value, especially when it comes to investing. As a partner at the Center for Financial Planning, an independent RIA and dually licensed firm, she digs beneath the surface of the investments her firm offers to get a look at what's really under the hood.

A major part of her job is drilling down into the guts of mutual funds. "It's not just about looking at the numbers," she says. "It's also about knowing the processes and people behind those numbers and cutting through the marketing hype."

Part of the process means speaking with 50 to 70 mutual fund managers every year, and requiring them to return a due diligence questionnaire a few weeks after the conversation. At times, she likes what she finds out. At other times, it's a disturbing eye-opener.

Joy recently met with one manager whose fund had a great track record. But his entire operation consisted of himself, his receptionist, a researcher and a human resource person. He was also looking at leveraging his track record with the old fund into a new strategy. Both of those issues sent up red flags, and she gave the fund the thumbs-down.

This process not only allows her to find larger, well-managed funds that meet the center's criteria but also allows her to uncover hidden gems that don't hit a vast number of investing radar screens.

"When she's reviewing our funds, she always asks the tough questions and wants to speak with either a portfolio manager or a product team member," says Stephen Kingsley, a mutual fund wholesaler with BlackRock who has worked with Joy for more than seven years. "Her approach is highly disciplined."

Biggest challenge: "Getting  clients not to gravitate toward the 'can't lose' fund flavor of the day they just read about," she says.

Commonwealth Financial Network, Waltham, Mass.
Fred DeBaets, Senior Fixed Income Analyst, Simon Heslop, Director of Asset Management and W. Bradford McMillan, Chief Investment Officer

Joshua Benet of Harvest Wealth Management in Waltham, Mass., says that weekly e-mail reports from senior fixed-income specialist Fred DeBaets of Commonwealth Financial Network provide him with a centralized, key source of information. "He gives me the knowledge I need to do my job," he says.

DeBaets says that the Commonwealth Financial Research team, which supports the efforts of the firm's 1,600 advisors, has been busy helping clients find opportunities in a low-interest-rate, slow-growth environment.

He joined Commonwealth nearly three years ago. Before that, he worked in the fixed-income research departments at Morgan Stanley and Bear Stearns.
DeBaets says questions about interest rates aren't likely to go away anytime soon.

"The Fed has stated its intention to keep interest rates low through mid-2013, but our belief is that rates will remain low for longer than that," he says. "There is definitely potential for a QE3."

Instead of taking more credit risk to get higher yields, he says, advisors might consider extending fixed-income portfolio durations into the seven-to-12-year range. "By the time we land in a rising rate environment, those bonds will have much shorter durations anyway," he says.

DeBaets also looks for mispriced securities, particularly in the municipal market.

He believes emerging-market bond funds and ETFs are an area for both growth opportunities and higher yields, and he recommends that these vehicles make up about 10% to 15% of both moderate and aggressive portfolios. "Fifteen years ago, people pretty much stuck with corporate or government bonds," he says. "Today, we're looking at a more global allocation."

Biggest challenge: helping his firm's advisors get better yields for their clients without taking on too much risk.

Financial & Investment Management Advisors, Covington, La.
Scott Bordelon, Chief Executive Officer

In the 33 years he's been in the investment business, Scott Bordelon has kept clients from jumping ship when bear markets descend by maintaining broad diversification and making gradual shifts in his portfolios rather than radical changes. He's also done some serious hand-holding.

"This is probably the most challenging time for investing I've seen in my career," he says. "There seems to be a doomsday mentality out there that's affecting everyone."

Still, Bordelon remains hopeful that the coming elections will bring changes to the political landscape that might give investors the confidence to think positively. "There seems to be a foregone conclusion that there's going to be a double-dip recession. I think it's more likely we'll just muddle along with sluggish growth."

Regardless of what happens with the economy, Bordelon will continue to rely on actively managed mutual funds rather than ETFs or other index products to implement investment strategy.

"We've found that ETFs typically underperform our portfolios of actively managed mutual funds over long time periods," he says. "With an ETF, you're just going to get average returns because you're following an index. We try to do better by isolating the mutual fund managers who, more often than not, have proven themselves capable of doing better than their benchmarks."

Biggest challenge: "Managing client expectations. People hear so much bad news from the media and their friends that they get really pessimistic. We have to remind them that, historically, there have been similar situations before."

Libertas Wealth Management, Dublin, Ohio
Adam Koos, President

Just a few years ago, financial advisor Adam Koos, who started his career in 2001, believed that a patient buy-and-hold strategy was the key to successful investment in the stock market. But several years later, after a couple of bear market shocks, he began thinking differently.

"Telling clients that the market is going to come back, or that losses aren't losses until you sell, just doesn't work," he says. "Having a well-diversified portfolio is a good way of playing offense. But to play defense you really need to make changes and exit the markets when necessary. Riding the big waves of the market just isn't practical when clients are approaching retirement."

Koos uses technical analysis to determine when the stock market is likely to trend upward over the long term or looks poised to go into a death spiral and bases his asset allocation on his insights. He admits that trying to spot such long-term trends often means missing some of the gains on the way up. But if he does things right, he'll also miss the big losses on the way down. Judging from his recent asset allocation at the end of 2011, when he held just 20% of client assets in stocks, the 33-year-old investment manager appears more concerned about limiting losses at this point than missing out on any gains stemming from a prolonged market turnaround.

Koos insists that his practice of trend-spotting isn't the same as market timing because it follows what's already happening, rather than trying to predict when a market pullback or surge is beginning. And while he attempts to minimize taxes by offsetting gains with losses, he doesn't let tax considerations drive decisions.

"If you keep hanging on to a stock to avoid paying capital gains taxes, the market might take care of the problem for you," he says.

Biggest challenge: "Getting clients to understand that the most important thing is missing the big losses."

Morgan Stanley Smith Barney, Purchase, N.Y.

Peter Kokenos, Director of Mutual Fund Due Diligence

As the head of Morgan Stanley Smith Barney's four-person due diligence team for mutual funds, Peter Kokenos is charged with assessing the risks and transparency of products from over 200 asset managers, including mutual funds, ETFs and 529 plan providers, to vet them for the firm's brokerage clients.

New investment themes and strategies have made the job more challenging in recent years. "With asset managers trying to add alpha, strategies have become increasingly complex," he says. "Some of them are doing things in truly unique ways. Sometimes it works, and sometimes it doesn't."

At times, his department will veto products, such as leveraged ETFs, that it believes are too risky or difficult to understand. His team rules out those mutual funds with less than $25 million in assets and those run by people with less than three years of asset management experience.

When he's looking at ETFs, Kokenos evaluates factors such as how well a fund tracks its stated index, whether the indexing methodology is clearly defined and transparent, and how expensive its fees are. If he's looking at a mutual fund, he'll try to decide whether the manager's strategy falls under the parameters outlined in the prospectus. He'll also look at the structure and soundness of the investment organization and the qualifications and experience of senior management. Often, he or a member of his team will speak with portfolio managers to get a better understanding of their investment strategy.

"We always go in with a skeptical eye," he says. "And there's a lot of stuff to keep an eye on these days."

Biggest challenge: making sure the products his firm sells are in compliance with increasingly complex regulations, including the Dodd-Frank reforms.

Potomac Wealth Advisors, Rockville, Md.
Mark Avallone, President

Mark Avallone likes to give the mutual funds and investment managers he uses discretion to move in and out of various asset classes. "A lot of the people we work with are near-retirees, so they're very sensitive to impairment of capital," he says. "The goal of adding a tactical layer is to protect wealth."

With that in mind, Avallone's firm uses several mutual funds that eschew traditional style boxes and give their managers a lot of latitude in deciding how to allocate assets. "This is something that the hedge fund industry has been doing for years," he says. "It's only recently that mutual funds have begun adding these kinds of tactical strategies."

One of the oldest funds in this genre, Pimco's All Asset All Authority Fund (PAUAX), has been a staple in some of the firm's portfolios for several years. The fund, which invests in a broad swath of asset classes including commodities, stocks, bonds and inflation-protected securities, also has the ability to sell short. Avallone has also used a number of newer funds that employ tactical strategies, such as the MFS Global Multi-Asset Fund (GLMAX).

And he's started investing in non-traded senior debt real estate investment trusts, which are only available to accredited investors. "It's a way for our clients to gain diversification and competitive returns, with far less risk than equity REITs," he says.

Biggest challenge: "Helping clients achieve their financial goals while dealing with an equity market that's been nothing but disappointing over the last 12 years."