How to Know if Your Money Manager has a Vested Interest in Your Money?

When you invest into a mutual fund, you are placing your hard-earned money with a money manager, entrusting this person to manage in your best interest. Of course, all money managers have a vested professional interest in the management of your money.

However, does that interest stop there? Is there a “win some and lose some” mentality when it comes to the management of your money?

There is a great litmus test. How much money does your money manager have invested in the mutual fund alongside your money? How much do they have invested? I would think that any money manager that has the utmost confidence in their ability to manage money would have a significant part of their money invested in the mutual fund.

Unfortunately, this is only the case a small percentage of the time. Morningstar, the authority on mutual fund analysis, conducts stewardship ratings on their mutual funds. They rank the funds with an A, B, C, D, or F. One of the components of that grade is based on the amount of personal money that the money manager has invested in his or her own fund.

Out of a little over 1,000 funds that they sampled, less than 30% of those funds actually received an A or a B, indicating that they had a good percentage of money invested. The remaining 70% had minimal to none.

So how do you find out? Back in 2005, the Securities Exchange Committee started requiring mutual fund managers to disclose the amount of money that they have personally invested into their own fund.

Thus you can call the fund company to find out. Now what if your money manager has no money invested? Do you sell it? No, you don’t sell it. You just simply take note. I would think that most investors are covered simply because of the money manager’s professional interest to want to succeed. At the same time, I see the investment of one’s personal money as an added benefit.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.