Invest in Portland

There seems to be a common misconception among many outside the financial sector: your money is safe with the bank. In reality, your money is no safer with the industry giants than it is with any number of smaller players, case and point Merrill Lynch and Lehman Brothers.

It is names like Bernard Madoff and Charles Ponzi that scare people away from boutique investment firms, but the fact is, your money may be safer in these institutions than they are when investing with a large financial institution. Boutique investment firms offer a significant competitive advantage when compared to industry giants, especially the banks.

Though definitions vary, boutique investment firms usually have less than $2 billion in assets under management. They are typically employee-owned with key investment personnel being founders or significant owners. Thus, because these investment managers tend to have significant personal assets tied up in the business, their interests are closely aligned with shareholders.

This article outlines six competitive advantages boutique investment firms have over banks and large financial institutions.

Advantage #1: Continuity and Consistency of Investments:

One large reason boutique firms offer better performance is because they tend to be owner operated, which offers greater continuity. Portfolio managers at large investment firms or banks tend to get promoted, recruited by another firm, or leave, thus leaving your investments to another manager with different ideas and strategies. This is much less likely to happen with an owner-run fund. In fact, 11 of the top 20 performing equity funds in the last 10 years are managed by their founders.

Advantage #2: Agility and Flexibility

Since boutique firms are smaller, they have the agility and flexibility to make quick decisions, that larger investment firms do not because they are encumbered by layers of management and bureaucracy. Smaller firms are able to focus entirely on investment management. They are less focused on personnel and the bureaucratic issues that come up with a larger firm.

Advantage #3: Customized Service

For many retail banks who offer private banking services, private wealth management is only one of their divisions. They often have to share IT legacy systems, company policy, and customer relations, making it difficult for them to handle bespoke requests. Boutique banks are built to serve a few important clients. The company’s IT system, culture and service model are designed to meet the needs of highly demanding clients.

Advantage #4: Relationship Based on Trust

Boutique banks tend to treasure their relationship with clients, as the account means more to them than it does the bank. Many private bankers at boutique firms aim to cultivate strong relationships with their clients, where selling becomes secondary to maintaining long-term relationship. Many private banking clients therefore make decisions together with their bankers, instead of just placing market orders through them. Private bankers usually have a deep understanding of their clients, their family history, risk tolerance and investment philosophy; these types of insights are not commonly provided by the advisors at retail banks.

Advantage #5: No Conflict of Interest

Large retail banks will often put you into their own products, like mutual funds and growth funds, not because it is in your best interest, but because the bank gets management fees from both portfolio management and fund management. With boutique investment firms, the investment choices are based on what is best for you.

Advantage #6: Lower Management Fees

Because boutique investment firms have lower overhead, less administration, and less bureaucracy than commercial banks or large investment firms, they typically can offer a competitive investment management fee. Not only do clients get a higher level of service and competency, it also costs less.

Many see the re-emergence of the boutique investment firm as part of a natural progression. As we exit this recession, the Feds are realizing that mega financial institutions are not sustainable nor are they necessarily in the best interests of society. Nimble, focused, high touch firms are the bedrock of capital formation and not ‘too big to fail’ financial institutions.

Portfolio management involves activities that help investors arrive at desired investment goals. Portfolio management is the process of organizing and managing businesses or other establishments for the purpose of obtaining maximum profit. Portfolio management ensures optimum use of people, money and other resources. In short, it is the art of optimizing assets and raising the worth of a portfolio.

Portfolio management is the business of a senior management team in the company. They are sometimes called a “product committee.” Portfolio management provides managers a better understanding of cost, risk, and capabilities of a business. The portfolio management effort need be aligned with the business organization’s strategy. The outcome is evaluated with the help of performance measures. Enterprise portfolio management and project portfolio management are the main types of portfolio management. Enterprise portfolio management uses selection of investments depending on business needs and value as settled on by the enterprise architecture. Project portfolio management employs a structured approach to arrive at decisions about a set of portfolios.

Asset allocation decision is an important part of any portfolio management program. Asset allocation decides what proportions of a portfolio will be invested in various asset classes. Asset allocation is of two types – active and passive. Active asset allocation is based on market views.

Portfolio management is a handy tool in making planned decisions and determining costs. It also helps investment bankers to group investments into various categories including blue chip stocks, mutual funds, and bonds. An effective portfolio management promotes growth of organizations and other business establishments. It helps organize the necessary resources and produce maximum turnover. Portfolio management binds activities, resources, and policies together.

A lot of professional portfolio management programs are available for both individual and institutional investors. With the aid of extensive customer profiling process, they help the client find out the most suitable asset allocation and investment plan.

Why do people choose a money manager for their investments? There are lots of obvious reasons; chief among them is the belief that choosing a professional brings considered and experienced opinion to your investment portfolio. You believe that it takes the hassle out of investing to get personal money management, and of course, they are supposed to know about all the great investment opportunities out there that you never knew existed. All of these are good reasons; but often, we just let the name of the job and the fancy office do the picking for us. Let’s look at some of the things we need to keep in mind picking personal money management expertise.

Be watchful for a great track record in a money manager. Some people feel that age itself is a great recommending factor in a manager. The older someone is, they tell themselves, the more wisdom they must have. Not all the wisdom in the world can make up for a little bit of track record though. If you don’t find this convincing enough, consider this example: a quarter of all the equity funds that investment houses around the country have, are run by managers who have less than two years on the job. And the funds they run consistently perform worse than the standard. Of course, finding personal money management that has that kind of track record isn’t easy.

Finding that kind of money management is difficult. Harder still though, is finding someone who beats the market in a consistent fashion. When the markets are going up, finding someone who just keeps up with his peers can be good enough. When the markets are heading south though, finding someone who beats the market can be the only way to make any kind of profit on your investments. The best you can hope for at a time like this is negative growth, only not as bad as it could be. If a manager knows how to pull this off, that would be particularly valuable counsel for you to have in an investment environment such as the one we are weathering today. If you are looking for personal money management around now, the track record rule comes with a special rider clause – try to see what the track record they have is like over the last three years alone, ever since the recession began. If they have what it takes for this environment, it’ll show. Try to see how they have performed in relation to other funds over the last three years. That should be your guide.

Hedge funds aren’t the exclusive territory of the rich anymore. And people tend to forget this. While hedge funds have arisen 10% over the last year that happens to be an industry low for these kinds of investments. Prior to the recession, they used to rise about 30% each year. But these happen to be pretty safe; the contract usually states that if the managers don’t generate for you a minimum level of performance, they don’t get paid. And that’s as close to guarantee as you could ever find in this investment environment.