Using Hedge Funds in Financial Planning
Financial Planning with Hedge Funds
If you are a financial advisor and would like to begin using hedge funds within your financial planning practice the steps below might help you navigate this process. Note: While this article was written for financial advisors, others might also find some useful tips and resources here.
- Speak with your broker-dealer as applicable about available hedge funds through their organization and what the process would be to invest in a hedge fund through their compliance/reporting requirements. Make sure and get a clear understanding of what licenses the broker-dealer requires you to have as well.
- Become a continual learner of hedge funds, read 50-100 posts on my hedge fund blog (http://richard-wilson.blogspot.com/), subscribe to newsletters by FinTag, Fierce Finance, and the
. This organic education (vs. being spoon fed by consultants) will pay dividends when it comes to evaluating fund managers and negotiating fees. Albourne Village
- Evaluate your current book of business. Who is an accredited investor? Who will soon become one? What amount of assets or % of your total book is of individuals who would be considered accredited investors?
- Conduct some research on hedge fund consultants and hedge fund brokers and explore the various options available to you. You might not need to work with a consultant but it could help to be connected to a few consulting firms that see hundreds of hedge funds a year and would happy to introduce you to who they have selected as “best of breed” in the industry.
- Try to customize your portfolio allocation software or reports so that you can show your clients 3 typical asset allocation strategies. One might suggest a 5% allocation to hedge funds with others allocating say 11% and then 20-25% as more aggressive options. These are not hard and fast numbers but they might help start a conversation around their use of hedge fund sin the near term.
- Have 3 resources on hedge funds available to provide to your client in case they ask more about what they are. One way to provide this information would be to print out 2-3 posts from within this blog that would be serve your clientele. For example it might be helpful to show them posts I have written on the Differences between “Hedge Funds & Mutual Funds,” “What is a Hedge Fund,” and “Why Invest in Hedge Funds?.”
- Establish your own internal due diligence process that can help you weed out managers that are not likely to provide the type of performance or capital preservation you are seeking.
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