Why I Hired Morgan Stanley To Manage 10% Of My Portfolio

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Includes: MS
by: Retired Investor
Summary

I imagine many SA readers are like my household – one person does all the investing. What happens if that person dies first or you divorce?

With two degrees in Finance and 40+ years’ experience, I consider myself an informed and successful investor. Am I?

If you start looking for an outside investment adviser, I will list some questions you would want to consider asking that adviser.

I will closeby outlining where Morgan Stanley has invested the funds I gave them and comparetheir results to one of my accounts with a similar asset allocation.

Married but only one manages the investments

I suspect many of the readers on SeekingAlpha are married to someone less to not at all involved in making the investment decisions in their household; other than maybe each spouse managing their own 401(NYSE:K) plan. I do everything and even though my spouse is three years older, there is always the possibility she will outlive me. What then?

There are basically three options people like me have. First, I can trust her to muddle thru and hopefully not fall victim to a low-scruples investment adviser. Second, is to educate her on basic investing and what accounts we have and why. Where we live the state provides many free classes from Investing 101 to almost any financial topic you would need to navigate that world. Third, is to hire someone now that she can learn to trust, “just in case”.

While Fidelity provides services to clients like us with over $1,000,000 invested with them, I wanted to use another firm with a dedicated adviser. After meeting with five firms, we chose a team of two gentlemen much younger than ourselves (doesn’t do any good to pick advisers who might die before you do!) who were attached to the local Morgan Stanley office.

7% over 40 years – Good or bad?

A second reason I decided to pay someone for the first time to manage a small percent of our assets was to see if they could do better than I was doing. If so, I could spend more time on other things life presents. I know I am a conservative investor and usually very bad whenever I try guessing where the markets are going but, except for benchmarks, had no definitive way of knowing, “Could I be doing better?”. My agreement with Morgan Stanley was they would get five years to show me if they could do better. If so, they would get more funds to manage. If they were close to how I performed, they would keep what they had just in case my wife outlives me.

Picking an Adviser should not be a quick event

My wife and I attended several free events over several years before deciding on Morgan Stanley. Here are some basic questions we asked:

  • What’s your educational background and professional training?
  • What were their results for a portfolio that matches how you want our funds invested?
  • How long have you been with the firm? If less than 3 years, prior employment and why they moved?
  • What’s the minimum size portfolio you will handle and what’s your fee structure?
  • If this will be taxable account, how much trading is done if they will be doing the trading for you? You want an idea if they will be generating taxable events.
  • Ask for their FINRA number and use BrokerCheck - Find a broker, investment or financial adviser to see if any complaints or violations are on their record.

One reason we chose Morgan Stanley is they offer five goal-based models (from wealth conservation to opportunistic growth), each with two timelines (1- or 7-year horizons). You then can decide whether the mix should include Alternative Assets and Municipal bonds. Models use a mix of mutual funds and ETFs, weighted according to whether market conditions favor active or passive management. This discretionary-style worked well for me while working as my company requires employees to pre-clear any trades they make. Since Morgan Stanley was making those decisions without my input, trades did not need to be pre-cleared. To truly judge Morgan Stanley’s ability, my non-involvement also made sense.

Comparing results

I only have one account with the asset allocation close to Morgan Stanley and there are two major differences. Mine is an IRA and large percent of my equities are in BDCs, Morgan Stanley doesn’t have any. Morgan Stanley has most of their fixed income holdings in Muni Funds, my IRA has none, naturally. That said, over the past 3+ years, my IRA is up 5.5% and Morgan Stanley 2.7%. In 2017, Morgan Stanley was my best performing account, 2018 they were near the bottom due to overweighting international stocks. So far in 2019, they are again near the top.

Current Allocation at Morgan Stanley

IWD

Ishares RUS 1000 Value

4.4%

JVASX

JPM Value Advantage

3.6%

IWF

Ishares RUS 1000 Growth

3.3%

NINLX

Nueberger Intrinsic Value

3.0%

WFMIX

WF Mid Cap Value

2.0%

EGFIX

Edgewood Growth Instl

1.4%

LSGRX

Loomis Growth

1.3%

HSLIX

Hartford SC

1.0%

HFMIX

Hartford MC

1.0%

HLMIX

Harding Loevner Intl EQ

6.8%

OAKIX

Oakmark Intl

6.3%

IEFA

Ishares Core EAFE ETF

5.0%

GOGIX

John Hancock Intl Growth

4.9%

EWJ

Ishares Japan

1.0%

CEMIX

Causeway EM

4.3%

IEMG

Ishares Core EM ETF

2.3%

PTSPX

PIMCO Short Term

5.0%

EIBIX

EV Income Fund

1.0%

PREMX

TR Price EMD Bond

1.0%

BXMIX

Blackstone Alt Multi-Strategy

8.0%

TORIX

Tortoise MLP

4.9%

JSFDX

J Hancock Seaport

4.8%

AHLYX

Amer Beacon Managed Futures

4.0%

ARGYX

Invesco Global Real Estate

2.0%

MANLX

Blackrock National Muni

12.1%

WSBIX

Wells Fargo Short-term Muni

5.0%

Cash

0.7%

Once I retire (July 2019), we plan on sitting down with our Morgan Stanley Team to discuss strategy going forward since I will then be able to provide some input. One topic is whether using Muni-Bond Funds and some of the Alternative Asset Funds fits with what we want this account to do as part of our overall investment plans in retirement. This account represents about 10% of our net worth.

Conclusion

Even if your results are impressive, having some funds managed by an outside manager can make sense if your spouse is not as investment savvy as you or doesn’t want the worry if they must manage the family’s portfolio. Like reading SA articles, your manager also might present ideas you can use in the accounts they do not manage. Be sure to give them enough time to see how the do in both up and down markets.

Disclosure: I am/we are long IWD, JVASX, IWF, NINLX, WFMIX, EGFIX, LSGRX, HSLIX, HLMIX, OAKIX, IEFA, GOGIX, EWJ, CEMIX, IEMG, PTSPX, EIBIX, PREMX, BXMIX, TORIX, JSFDX, AHLYX, ARGYX, WSBIX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.