In case you haven’t already received a clear answer about this, the most important piece of information you can gather from a potential fund manager is how they approach failure. Even if fund managers avoid major mistakes, occasional failure is an unavoidable part of interacting with the complexities of financial markets. Any fund manager you’re considering has failed at one point in his or her career, and the way in which that struggle is explained will give you key insight into the way client assets will be managed. How are failures framed? Are they impossible to predict, forces of nature? Are they deeply personal sources of shame? Are they taboo topics to be ignored? How did they bounce back? A manager’s answers here could predict the response to the next big financial crisis or the next mistaken investment. Mistakes and failures will happen, and knowing that you’re dealing with a manager who responds well to these investment setbacks with a level head will make the assets of your clients that much safer.
Bonus Question: Do They Have Strong Risk-Management Capabilities?
As the decade-long bull market continues, there’s always the question about when the run-up in the market will end and a recession set in. Many fund managers look to limit downside losses, especially those in actively managed funds, by focusing on how their strategies perform during down market years. For example, a good question to ask is “How long did it take your fund to recover from the bear market of 2007 to 2009?” Missing out on any compounding returns can be a hindrance to overall fund performance, and those fund managers who are able to mitigate risk in very volatile market downturns tend to lead their fund peer groups.
It’s not only fair but necessary to get a complete picture of the person entrusted with valuable assets. These questions can offer some guidelines when interacting with a mutual fund manager. The information you glean from the answers will give you a better understanding of what you can expect from your fund manager. It will help define the terms of your relationship and the likelihood that your client’s assets will be well guarded. As you know, that is information you can’t afford not to have.
Christopher Crawford is the director of advisor relationships for the Buffalo Funds, Mission, Kansas. With over 10 years of experience working with financial advisors supporting their business development efforts, Christopher notes that success for advisors begins with being a good communicator and a better listener.