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In the world of money management, added benefits — snob appeal and ego stroking for many — come with having your own private money manager. First of all, you generally need big bucks, often $1 million or more, to gain entrance. A private money management company allows you to sit down and visit with a personal representative and perhaps even the investment manager. The company may lavish you with attention and glossy brochures. You hear how your money not only receives individualized and personalized treatment but also how superb the investment manager's performance has been in prior years.
Even if you have big bucks, you probably don't need a private money manager for two simple reasons:
- The best, average, and worst private money managers earn returns comparable to their counterparts in the mutual fund business. Some mutual fund firms contract out to or are themselves private money managers. Investing in mutual funds gives you the best of both worlds: the SEC oversight of a mutual fund and access to some money managers that you may not otherwise be able to use.
 | - You pay high fees to use these money manager's services. One bank CEO, speaking at a banking conference about future sources of revenue growth, said that private money management for the wealthy, along with the credit card business, are two "high-return, low-risk businesses" in the financial world. Knowing that you're getting soaked with high fees just like the average credit card customer shouldn't make you feel so special about having a private money manager!
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If you're considering investing through private investment firms, make sure that you
- Ask to see independently audited rates of return. Private managers' holdings and performances aren't subject to the same scrutiny and reporting as mutual funds are.
- Check many references.
- Compare the performance and costs of the private money manager with similar mutual funds.
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