Red Flags - when to change your investments

When smart investing, consider it a "red flag" and time to change investments whenever you see:

• A change in investment style
• Portfolios or results that does not reflect the manager's stated strategy
• An exodus of key professionals
• A big increase or reduction in assets under management
• Repeated violations of a "sell discipline"
• A new portfolio manager on your account
• A wide disparity in performance results from accounts with the same objective
• Continued operational or back-office problems
• The loss of a flagship account
• A rash of legal or regulatory problems
• An abrupt drop-off in client communication
• High turnover of marketing personnel
• A flurry of new product offerings
• A big increase in the number of accounts per manager
• Portfolio managers spending more time marketing than making money
• The senior partner buying a personal jet or a third vacation home
• The chief investment officer's golf handicap dropping dramatically
• The name on their door changes
• The rate structure drastically change firm-wide

Firing an investment manager based on performance

Sometimes investment performance is a valid reason for terminating an investment manager. If an investment manager has had 2 or 3 years of mediocre investment returns compared to others following the same style, or has consistently underperformed the stock market for more than 3 years, or has gotten truly terrible results for a year of two, it may be wise to cut your losses.

There may even be times when you decide to fire an investment manager who has done a good job, such as when your investment goals have changed. For example, as time goes by your investment focus may shift from long-term growth toward maximum current income, requiring you to move assets from one manager to another.

Generally, in smart investing, it is not a good idea to change investment managers too frequently or too quickly. It takes time to become comfortable with an investment manager and it can also take time for investment managers to prove their worth. You should hire an investment manager only after careful research and thoughtful deliberation. The decision to fire an investment manager should be made in exactly the same way.