1. Is this Service really for me?
An external asset manager (EAM) makes sense if you are looking for a long-term partner who will manage your money for you, assist you through different stages of your life and give you independent advice. In order to keep their independence EAMs usually charge a percentage of the assets they manage and refuse to take any other money from third parties.
If this sounds like something you are looking for, the next question you will have to answer is whether you feel comfortable with another person making investment decisions on your behalf. There are some EAMs that offer "execution only" services, but usually the investment mandate is discretionary, meaning that the asset manager makes the investment decisions after getting to know you and setting up an investment strategy that suits your personal situation.
Lastly, you need to asses whether or not you meet the minimum investment size required to work with such a partner. The specific minimum depends on the EAM, but usually it is somewhere between USD 250k and USD 1m.
2. Onshore vs. Offshore
If you have decided that the service of an EAM is for you, you will have to decide whether you would like to work with a partner in the US or someone offshore. There is also the option of splitting up your wealth and having one asset manager each. The main arguments for working with an offshore EAM are:
- Home Bias: Investors usually have a tendency to invest the majority of their portfolios in domestic investments, ignoring the benefits of diversifying into foreign equities and bonds. By working together with an offshore asset manager you can profit from his/her home bias and local expertise. This can significantly reduce the systematic risk of your overall wealth.
- Diversification: By investing in foreign markets you can reduce your overall volatility since international investments tend to be less-closely correlated to domestic investments. For example, an economic downturn in the US may not negatively affect the Eurozone too dramatically and vice versa.
- Privacy: Your wealth, spending habits and almost every other detail of your financial life is under scrutiny in the US. However, the army of information brokers which advertise their ability to uncover assets will not be able to pry information out of an offshore bank. Also, when someone who wants to sue you discovers that your assets are offshore, they will often pursue an easier target.
- Protection against a sinking USD: Over the years the value of the US dollar has declined. The question therefore has to be: how can you protect yourself from the loss in value of your investments? You might think the only option is to trade high-risk foreign currency options and futures. There is a much easier, safer, and more conservative alternative – purchasing shares and bonds denominated in foreign currencies.
There are various options in regards to offshore jurisdiction. However, Switzerland is one of the most well-known ones. Switzerland has a banking history dating back several hundred years, as well as political stability, safe laws, low indebtedness and an unmatched expertise when it comes to cross-border wealth management. You can read more about Switzerland and its advantages as a potential jurisdiction for wealth management in the following publications:
3. Focus on Core Services and Niche Specializations
As an American you should only look for EAMs that are registered with the Securities and Exchange Commission (SEC) in the US. This registration gives you the confidence that the company you are dealing with knows the US rules and regulations and is specialized in dealing with US citizens. You can find an overview over all SEC regsitered investment advisors here: Investment Advisor Data.
Also, make sure that your investment philosophy fits the philosophy of the company. Are you more risk averse and looking for a stable and conservative portfolio or are you willing to take a lot of risk and would like to be all out in the stock market? For example, we at WHVP consider ourselves conservative investors and focus on capital preservation. Even though our portfolios are tailor made, an investor who is seeking very aggressive portfolio management, chasing high risk IPOs or “flavour of the day” shares that promise astronomic returns of 50%+, is probably not the right client for us.
4. Do your Research and ask Questions
This is a big decision to make and it is important that you feel absolutely confident making it. Look up different companies, talk to different service providers, ask your friends for referals and ask a lot of questions. I would recommend making a list of questions that are important to you and that you would like to have answered. You might find some inspiration on relevant questions here: What to ask when selecting a Registered Investment Advisor. If you feel that the person you are talking to is impatient, unfriendly or not answering your questions at all, make sure to keep looking. This is your hard earned money and you need to feel comfortable with the person you are dealing with.