Questions to Ask Portfolio Managers
Questions to ask a portfolio manager before you invest, whether you are picking a money manager for your own savings or vetting an investment manager on behalf of a committee. They open with the handful that belong in any first meeting, then go through how holdings are chosen and sold, risk, the track record, fees and conflicts of interest, and how your own account would be run. Rules on duty of care, custody, fees and tax differ by country, so where a note mentions one, ask how it works where you are.
The questions
Each question, and why to ask it
Start here
What is your investment philosophy, and why should it keep working?
Why ask it
Boiled down to a sentence, most philosophies sound alike: good assets bought at sensible prices. The second half is where managers differ, so listen for who is on the other side of their trades and why that mistake should persist once other people have noticed it.
What is the all-in cost of working with you, including anything I would not see on your invoice?
Why ask it
The management fee is rarely the whole number. Ask separately about the charges inside any funds they buy for you, trading costs, platform or custody fees, performance fees, and anything the firm earns from the products it selects.
Are you legally bound to put my interests first, and will you say so in writing?
Why ask it
Some countries call this a fiduciary duty, and elsewhere it has other names or covers only part of what a firm does, so ask which standard applies to your account where you live. A firm can advise under one standard and sell products under another in the same meeting. A clear yes should survive the follow-up: do you earn a commission on anything you might put me in?
How long have you personally run this strategy, and through which markets?
Why ask it
A record that begins after the last serious fall has been tested in one kind of weather only. Ask what the manager was doing before, and whether the years on the fact sheet were all earned in this seat, with this team, at this firm.
How much of your own money is in this same strategy?
Why ask it
Having their own savings in it does not show skill, though it does mean a bad year costs them too. If their money sits somewhere more cautious, ask why. There can be a fair reason, such as firm rules on personal dealing or a different stage of life, and you want to hear it from them.
Who is your typical client, and where would my account sit in that range?
Why ask it
Smaller accounts are often run on a model portfolio with one call a year, while the largest get the manager's own time. Ask what the minimum is while you are there: if you would sit just above it, find out who looks after accounts that size and how often they hear from anyone.
Which regulator are you registered with, and what qualifications do you hold for this work?
Why ask it
Registration is the permission to manage other people's money, and many regulators keep a public register you can search by name or number. A qualification such as the CFA charter tells you they passed hard exams, which is a different thing from a good record. Registers and designations have different names in each country, so write down the exact ones and look them up.
Is there anything on your regulatory record, or the firm's, that I will find when I look you up?
Why ask it
Ask before you look, then look anyway. An old complaint that is disclosed and explained plainly is far less worrying than one you turn up later for yourself, so compare what you were told in the room with what is on file.
Which custodian will hold my account, and can I log in there myself to see it?
Why ask it
When a separate custodian holds the assets, the manager can trade the account without being your only source for what is in it. Look for statements that reach you directly from the custodian and a login of your own. If every figure you would ever see comes from the manager, ask why it is set up that way and how custody is regulated where you are.
Process
Walk me through how one current holding got into the portfolio, from first idea to final size.
Why ask it
A real position is harder to dress up than a process diagram. Listen for who found the idea, what work was done on it, who had to agree and how long it took, then ask whether that was a typical case or the tidy one.
Where do your ideas come from, and how many do you turn down for each one you buy?
Why ask it
Screens, broker research, company visits and other investors' filings each produce a different kind of portfolio. The rejection rate is the part to press on, because a manager who buys most of what they look at is not filtering much.
How do you decide how much to put in any one position?
Why ask it
If the only answer is conviction, sizing follows mood. Look for a stated rule, such as a cap when a holding is bought and another once it has grown, then ask what the largest position has ever been against that rule.
How many positions do you hold, and how different is the portfolio from the index?
Why ask it
Twenty holdings and two hundred are different products, even under the same label. If the portfolio overlaps heavily with the index, you would be paying an active fee for something a tracker delivers, so ask for the overlap as a figure.
What would make you sell something you own today?
Why ask it
Buying gets most of the attention, so this is where a thin process shows. Listen for two rules: one for a holding that has done its job, and one for a holding whose original reason has stopped being true. If the only trigger is a price target, ask what happens when the price falls instead.
What is your highest-conviction position right now, and what is the best argument against it?
Why ask it
Anyone can pitch a favorite. Making them argue the other side shows whether they have gone looking for what would prove them wrong, and a thin case against the largest holding is a worry in itself.
Do your views on interest rates or the economy change what you own, or do you build up from individual holdings?
Why ask it
The two approaches fail differently: a top-down manager lives or dies on a few big calls, while a bottom-up one can drift into an accidental bet on one sector. Ask for the last time a view on the economy moved the portfolio and how that turned out.
Who else touches this portfolio: analysts, a committee, an outside model provider?
Why ask it
You are finding out whether you would be buying one person's judgment or a firm's process, which marketing tends to blur. Ask who can overrule the manager, who trades when they are away, and whether any part of the portfolio is bought in from a model the firm did not build.
How has your process changed over the past five years, and what prompted each change?
Why ask it
No change at all through very different markets suggests nobody is reviewing the work, and constant change suggests the process bends to whatever hurt last. You are hoping for a short list of amendments, each tied to something specific they learned.
How much money do you run in this strategy, and at what size would you stop taking new clients?
Why ask it
Some strategies get worse as they grow, particularly ones that trade smaller or thinly traded holdings. A firm paid on assets has every reason to keep the door open, so a stated closing size, and any history of actually closing, counts for a lot.
Risk
How do you define risk: volatility, permanent loss, or my falling short of what the money is for?
Why ask it
The definition decides everything downstream, from what gets measured to what gets sold in a panic. For a personal account the third option is usually the one that counts, and a manager who never asks what the money is for cannot be managing toward it.
Which risks are you deliberately taking, and which are you deliberately avoiding?
Why ask it
This makes a manager name concentration, borrowing, hard-to-sell holdings, currency and sector exposure out loud. Someone who answers only with volatility statistics is describing measurement, not judgment.
In a bad year, how far should I expect this portfolio to fall, in money and not percentages?
Why ask it
A percentage is abstract until it is a sum with your name on it. Hearing the figure in your own currency before you invest is the cheapest way to find out whether you would hold on, and a strategy you abandon at the bottom was the wrong one however good it looked.
What limits are written down for position, sector and country exposure, and what happens when you want to go past one?
Why ask it
Limits that live only in the manager's head move when conviction is high, which is exactly when they are needed. Ask who can grant an exception, whether that person reports to the manager, and when a limit was last breached.
Do you use leverage, derivatives, or illiquid holdings, and for what purpose?
Why ask it
An option bought to protect the portfolio and one sold to earn extra income are the same kind of instrument and behave in opposite ways in a crisis, so ask which of the two they do. For anything hard to sell, ask how it is valued between sales and what happens to it if you want your money back in a bad month.
Are you willing to hold cash, and how much have you held at the extreme?
Why ask it
Some mandates forbid it and some managers cannot bring themselves to do it. The historical maximum tells you whether cash is a real tool here or a line in the brochure, and it explains part of the drawdown record.
Which of your holdings tend to fall together, and how do you check for that?
Why ask it
Forty names can still be one bet if they all depend on cheap borrowing or on the same customer. Listen for the portfolio being grouped by what would hurt it, not by the sector labels printed on the report.
How long would it take to sell the whole portfolio in a calm market, and how long in a panic?
Why ask it
The two numbers should differ, and the manager should know both without looking them up. If the second is measured in months, find out which withdrawal terms apply to you and whether other clients could get out ahead of you.
What kind of market is hardest for this strategy, and what did the portfolio do the last time one came along?
Why ask it
Every approach has a season it dislikes: value in a growth run, momentum at a turning point, bonds when rates climb. Naming it calmly marks someone who understands where their returns come from, and it tells you in advance which stretch you will be asked to sit through.
Track record
Which benchmark do you measure this strategy against, and has it ever been changed?
Why ask it
A benchmark can be chosen because it is easy to beat: a cash rate for a portfolio full of stocks, say, or an index quoted without its dividends. If it has been switched, ask why, and ask to see the record against the old one as well.
What are your returns after all fees, year by year, since you started?
Why ask it
Annualized figures hide the order in which things happened, and start dates get chosen with care. A year-by-year table, net of the fee you would actually pay, puts the bad years beside the good ones and lets you check the benchmark comparison yourself.
Is this record from real client accounts, and has anyone outside the firm checked it?
Why ask it
Back-tests, model portfolios and one hand-picked account can all be printed to look like a track record. Ask whether the figures cover every account in the strategy, including closed ones, and whether the firm follows a performance standard such as GIPS with independent verification.
What was your worst twelve-month stretch, and what did clients do during it?
Why ask it
The size of the fall is only half of it. If clients pulled money out at the bottom, the manager was selling to meet withdrawals and not because the holdings deserved it, and in a pooled fund that hurts the people who stayed.
Could I speak to a client who stayed with you through your worst year?
Why ask it
Any reference will be hand-picked, and privacy rules or firm policy may rule it out altogether, so treat a no as neutral. If they agree, skip whether the client is happy and ask what the manager said and did while the account was down.
Tell me about a decision you got badly wrong and what changed afterwards.
Why ask it
The useful answer is specific, names the position, and describes a process change rather than a lesson about patience. Vagueness here, or a mistake that turns out to be about someone else, is the tell.
Where did your outperformance come from: a few big winners, one sector, or many small decisions?
Why ask it
A record resting on two or three positions may be skill, or luck that has not had to repeat. Many modest wins across different years and holdings are harder to fake, so ask to see the results with the top handful of contributors taken out.
What return is reasonable to expect from this strategy, and over how many years should I judge it?
Why ask it
Be wary of a confident number and warier of a high one. The better answers come as a range with the reasoning attached, plus a judging period long enough to include a bad patch, which you can then hold them to.
If I had bought the benchmark in a low-cost fund instead, what would I have given up?
Why ask it
This is the comparison your savings actually care about, and plenty of active managers do not come out ahead of it once fees are counted. One worth paying answers with net figures and with what they did differently in the falls, and does not take offense at being asked.
Fees and conflicts
How is your fee calculated: on what balance, how often, and does the rate fall as the account grows?
Why ask it
Small mechanics add up over years. Find out whether cash is charged at the full rate, whether you are billed in advance or in arrears, and where the breakpoints sit. If family accounts can be counted together to reach a lower rate, ask for that before you sign.
Is there a performance fee, and how do the hurdle and the high-water mark work?
Why ask it
With no hurdle, a performance fee pays the manager for the market going up. With no high-water mark, you can pay twice for the same gain after a fall. Have them work one bad year followed by one good year through the formula in front of you.
How are you personally paid, and what is your bonus tied to?
Why ask it
Pay shapes behavior more reliably than a mission statement does. Someone rewarded for gathering assets leans toward marketing, someone rewarded on one-year returns leans toward risk, and someone whose deferred pay sits in the strategy is at least on your side of the table.
Do you ever put clients into funds or products your own firm runs?
Why ask it
With an in-house fund the firm can be paid twice, and it is grading its own work. Ask what share of a typical account these make up, whether the fee is offset, and when one was last removed for underperforming.
How much of the portfolio do you turn over in a year, and what does that do to my tax bill?
Why ask it
Quoted returns are normally before the investor's own tax. In an account where gains are taxed, heavy trading can hand back part of any outperformance, so ask whether they watch how long a holding has been owned and whether losses are set against gains. How any of it is taxed depends on your country and the type of account.
When you buy the same thing for many accounts, how do you decide who gets it first and at what price?
Why ask it
Trade allocation is dull until a scarce opportunity goes to the firm's own fund or its largest client. There should be a written policy, often an average price across all accounts, and someone other than the manager checking that it is followed.
What would it cost me to leave: exit fees, a notice period, anything that could not be transferred?
Why ask it
All three are easier to negotiate before you sign than after you have decided to go. Terms vary a great deal by firm and by country, so ask to be shown the clause in the agreement, not told the gist of it.
Your account
Will you have discretion over my account, and what would you still need my permission for?
Why ask it
A manager who had to phone before every trade could not run a strategy, so discretion over buying and selling is normal. What you are checking is where it stops. Ask whether money can leave the account, or the strategy can change, without your signature, and read that part of the agreement.
How would you decide my split between stocks, bonds and cash, and what would make you change it?
Why ask it
That split usually does more to decide how rough the ride is than any single holding, so it deserves more than a risk questionnaire. Listen for questions about when you need the money and what you did in the last fall. A mix that is ready before they have asked you anything was built for somebody else.
How much of the portfolio would be tailored to me, and can I rule out particular holdings or sectors?
Why ask it
Many firms run one model and copy it into every account, which is efficient and fine if the fee reflects it. If you already hold a lot of your employer's stock, or there are things you will not own, find out whether restrictions are honored in practice or only above a certain account size.
How would you move me from what I own now into your portfolio, and over what period?
Why ask it
Selling everything on day one is simplest for the manager and can hand you a tax bill before the strategy has earned anything. Listen for a plan that treats accounts where gains are taxed differently from accounts where they are not, with a timetable and a reason for whatever is kept.
Do you rebalance on a schedule, or when the portfolio has drifted a set amount?
Why ask it
A date is simple and a drift threshold reacts to markets, and either can be defended. What you want to hear is that it happens by rule, because rebalancing means buying what has just fallen and that is hard to do on feel. Ask what each round costs in trading and tax.
What will you send me, how often, and will it show my return after fees next to the benchmark?
Why ask it
Ask for a sample report before you sign. It should show your own account's return and not the strategy's, after every cost, and it should not need a glossary. If something you care about is missing, ask whether it can be added.
Who will I talk to once I am a client, and how often will that person be you?
Why ask it
The person who wins the account is often not the one who looks after it. If your day-to-day contact would be a relationship manager, ask to meet them now, try them with a question about a holding, and ask how many clients each one covers.
When markets fall sharply, who hears from you, and how soon?
Why ask it
A bad month with no word from the manager is when clients talk themselves into selling. Ask what went out during the last sharp fall and whether you can read it, because the tone of that letter is how they will speak to you when it is your money.
Who would run my money if you left, retired, or the firm changed hands?
Why ask it
Ask whether a written succession plan exists, who is named in it, and whether you can meet them. A sale can also bring a new fee schedule, custodian or strategy, so find out whether you would be told beforehand and could leave without a penalty.
What would tell me it is time to fire you?
Why ask it
Managers who have thought seriously about their own failure conditions can name them: a style drift, a period of underperformance longer than their process should produce, a departure of key staff. Anyone who says there is no such scenario has just answered a different question.
Evaluating a portfolio manager
Practical guidance for the conversation itself
Before the meeting
- 1Write down what the money is for and when you need it. A sound strategy can still be the wrong one for you if its time horizon is longer than yours.
- 2Look up the firm and the individual on the regulator's public register, if your country has one, and bring anything you find to the meeting instead of saving it.
- 3Ask in advance for the fee schedule, the client agreement, a sample statement, and whatever disclosure of services and conflicts your regulator requires. Reading them beforehand turns the meeting into follow-up questions.
- 4Split the list across meetings instead of working through it in one sitting: the opening group for a first conversation, process, risk and the track record for the second, fees and your own account before you sign anything.
- 5Decide which two or three questions you most need answered and ask them first. Manager meetings run long, and whatever is left for the end is what gets cut.
- 6If a committee is deciding, agree beforehand who asks about fees and who asks about the worst year, so that neither is left for someone else to raise.
If you only have time for three
- Ask for the all-in cost as one figure, in money, on an account your size. It is the one number in the meeting that does not depend on what markets do next, and it comes out every year.
- Ask about the worst twelve-month stretch and what clients did during it. One answer covers risk, candor and how steady the rest of the client base is.
- Ask which custodian would hold the assets and whether you could log in there yourself. A poor answer to anything else can cost you some return; a poor answer here can cost you the account.
- If a fourth fits, ask what would tell you it is time to leave, then write the answer down and keep it with your statements.
Reading the answers
- Specific dates, position names and numbers usually mean the manager is describing what happened, not what they believe about themselves.
- A sell rule that exists only as a price target says nothing about what happens when the price falls instead. Ask.
- If a bad year is always the market's doing and a good year is always skill, you are not being told where the returns really came from.
- Willingness to name the kind of client they are wrong for is a better sign than a claim to suit everyone.
- Notice what happens when a question is off their script. "I don't know, I will find out", followed by an answer the next week, is a good sign.
Warning signs
- No statement from anyone but the manager: no separate custodian that writes to you directly and no login of your own.
- Returns described as steady or uncorrelated, with no year that looks bad.
- Reluctance to give a single all-in cost figure, or fees quoted only in basis points when you asked for an amount in money.
- A benchmark that was changed without an explanation, or a custom blend that nobody outside the firm publishes.
- Pressure tied to a closing date, a capacity limit, or an allocation that will not be available later.
- Anything about the strategy that cannot be explained twice the same way.