What to look out for in a mutual fund asset management company

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Introduction

Mutual funds are a popular way to grow your wealth. Mutual funds pool money together from many investors to buy investments into a collective investment vehicle to create a diversified investment portfolio for you and the other investors. This offers you the opportunity to diversify your investments and access professional management but selecting the right asset management company is crucial to achieving success.

In this article, we will provide guidance on what to look out for when evaluating a mutual fund asset management company. By considering a variety of factors, you can make informed decisions and increase your chances of achieving your financial goals.

Regulatory Compliance

Best place to start is regulatory compliance. The investment industry is regulated by the Nigerian Securities and Exchange Commission (SEC). SEC is responsible for issuing and enforcing regulations that ensure the integrity of the financial markets and protect investors from fraud and other unethical practices.

All mutual fund asset management companies must be registered with SEC. All the funds they offer to the public must also be registered with SEC.

Regulatory compliance refers to a company's adherence to laws and regulations that govern the investment industry and protect investors.

When evaluating a mutual fund asset management company, you should ensure the company is registered with SEC and check whether it has a history of compliance with relevant laws and regulations.

A company with a strong track record of regulatory compliance is likely to be more trustworthy and reliable.

Reputation and performance track record

Next, it is important to consider a company's reputation and track record. This includes researching the company's history and reputation within the industry and looking for any regulatory actions or legal issues the company may have faced. A strong reputation can be a good indicator of the company's stability and integrity, while a poor reputation may be cause for concern.

Review and evaluate the company's performance record over the long term. This includes any changes in assets under management and the consistency of the returns on the funds it manages.

Keep in mind that past performance is not necessarily indicative of future results, but it can still provide valuable insight into the company's abilities as an asset manager.

Consider comparing the performance of the funds the firm manages to that of its industry competitors and to relevant market benchmarks to get a sense of how well they and the funds are doing.

A mutual fund asset management company with a strong reputation and a track record of good performance in the funds it manages is likely to be a more reliable and trustworthy choice for investors.

Corporate investment philosophy and investment managers

Assess the company's overall investment philosophy. A company's investment philosophy refers to the underlying principles, beliefs, or past experiences that inform its decisions about buying and selling assets in the market. Understanding this can help you determine if it aligns with your own investment goals and risk tolerance.

You can get a sense of the company's investment strategy by reviewing its marketing materials, such as prospectuses, factsheets, and website content, as well as any commentary provided by the company's investment managers in its newsletters.

The company’s investment managers will manage funds based on the company’s overall investment philosophy. Also review the profile of the investment managers employed by the company. This review should include their experience in managing funds, how long for, their educational background and professional qualifications. A good manager will be supported by a well-educated team, such as assistant portfolio managers and/or research analysts.

Overall, a mutual fund asset management company with a clear and well-defined investment philosophy can be a more attractive choice for investors.

Product Range Available

Asset management companies do not have to offer all types of products, but they should be able to demonstrate focused expertise in the ones they do offer.

The products that an asset management company offers should be available on its website where you can review them. The information should include the types of funds the asset manager manages, their investment strategies, asset allocation, risk profile and investment performance.

You can also seek advice from a regulated investment adviser or investment professional.

It is also a good idea to compare information and returns of the funds to similar funds in the market. This can help you to get a sense of the fund’s competitiveness and whether their fund is likely to meet your needs and goals.

Overall, it is important to choose an asset manager with a product or range of products that meets your needs and goals, and that provides you with the flexibility to make changes as your circumstances change.

Review and evaluate the fees and expenses the company charges on its funds

It is important that you understand and evaluate the fees and expenses associated with investing in any mutual fund. Fees and expenses can have a significant and material impact on the overall returns of the fund. It is therefore important to understand what you are paying for and whether the costs are reasonable and competitive.

There are several types of fees and expenses that you should be aware of when evaluating a mutual fund asset management company and the funds they manage. These may include:

• Management fees: These are fees paid to the asset management company for managing each fund. They are typically expressed as a percentage of the fund's assets and can vary significantly from one fund to another.
• Trustee fees: Trustees act as investors representatives in overseeing the fund and they are paid a fee for carrying out the role. Amounts paid to trustees vary from fund to fund.
• Custodian fee: This is the fee charged by the independent custodian who holds assets in trust on your behalf. It is current regulation that all asset managers must ensure that assets of the funds they manage are held by an independent custodian.
• Regulatory fee: This is the fee that is charged by SEC, the regulator overseeing mutual funds.
• Operating expenses: These are expenses incurred in running the fund, such as auditor’s fees, and legal fees. These expenses are typically paid out of the fund's assets and can also vary significantly from one fund to another.
• Investment fees: These are fees that are charged the asset manager by third parties and passed on to you via the fund for investing in various assets. These fees include charges for buying and selling securities. Whilst you may not see them displayed in any report or disclosed to you, they do impact the fund. Asset managers can minimise some of these investment fees, such as broker commission, bid/offer spreads. As part of your evaluation, it is worth looking out for the expense ratio of a fund and compare to other funds.

By understanding and evaluating the fees and expenses associated with investing in a mutual fund, you can make more informed decisions about whether the costs are reasonable and justified given the potential benefits of the fund. It can also be helpful to compare the fees and expenses of a particular fund to those of similar funds to determine if they are competitive.

Customer service and communication

When evaluating a mutual fund asset management company, it is important to review the company's customer service and communication. This includes considering the accessibility and responsiveness of the company's customer service team, as well as evaluating the company's communication with its investors.

Good customer service is important for investors as it can provide peace of mind and help to address any questions or concerns that may arise. You should consider whether the company has a dedicated customer service team and whether they are easy to reach through various communication channels, such as phone, email, or online chat.

In addition to evaluating the company's customer service, it is also important to review its communication with its investors. This includes the frequency and quality of its reporting and updates, as well as the availability of educational resources and other materials that may be helpful to investors. Companies that provide regular and transparent communication can help investors stay informed about their investments thereby helping you make more informed decisions.

Overall, a mutual fund asset management company with good customer service and effective communication can be a more attractive choice for you, as it can help to build trust and confidence in the company and its investment offerings.

Online Presence and technology

In today's digital age, it is increasingly important for asset management companies to have a strong online presence and to make use of technology in their operations.

Look for an asset management company with a modern and user-friendly website and mobile app that provide easy access to account information, investment performance, and other resources.

An asset management company with advanced technology and a strong online presence is likely to offer a user-friendly and accessible platform for dealing with you and managing your investments. It is also a good idea to consider the security of their online systems, as you want to ensure that your personal and financial information is protected.

Here are some factors to consider when evaluating an asset management company's online presence and technology:

• Website: The company's website should be professional, user-friendly, and provide a wealth of information about the company and its investment offerings. It should also be mobile-friendly, as many investors access information online through their smartphones.
• Online account access: The company should offer online account access for investors, allowing you to view your accounts, update your personal information, and perform other tasks online. This can be particularly convenient for investors who may not have the time or resources to visit a physical location.
• Digital communication: The company should be able to effectively communicate with you through digital channels, such as email and online chat. This can be particularly useful for investors who may have questions or concerns that need to be addressed in a timely manner.
• Use of technology in the investment process: The company should be able to demonstrate how it uses technology or not to enhance its investment process, such as through the use of data analytics or automated investment tools. This can help to increase efficiency and potentially improve investment outcomes.

Overall, an asset management company with a strong online presence and effective use of technology can be more convenient and efficient for you, as it allows you to access information and manage your investments more easily. Look for an asset management company with a user-friendly and accessible online platform and strong security measures to protect your personal and financial information.

Conclusion

In conclusion, selecting a mutual fund asset management company requires careful consideration of a variety of factors. By taking the time to research a company's reputation and track record, assess its investment philosophy and fund managers, evaluate its fees and expenses, review its customer service and communication, and its online presence and technology, you can make informed decisions and increase your chances of achieving your financial goals.

It is important to remember that no single factor is necessarily a deal breaker, and you should weigh all the above considerations in the context of your own investment goals and risk tolerance. By doing thorough research and carefully evaluating all the above factors, you can increase your chances of selecting a mutual fund asset management company and products that are well-suited to your needs and can help you achieve your financial objectives.

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