The Globe and Mail, Report on Business
Published March 12, 2007

It sounds corny to say that investing is a team sport. Of course it is. But sometimes there is too much focus on the individual player and as a consequence, effective teamwork suffers. I think of my favourite team sport, basketball, in which too often offence revolves around the star player going one-on-one. Indeed, until recently the kind of team-oriented game that Steve Nash and the Phoenix Suns play was considered quite novel. But as the Suns keep chalking up wins, the concept of team play is getting talked about more frequently.

Like the National Basketball Association, the mutual fund world can get too focused on an individual player. A star fund manager or savvy investment adviser is seen as a way to attractive returns. Certainly fund managers and advisers (if the investor has one) are key components of the team, but in my view, the most important player is the individual investor. Ironically, it is the investors that are held up to the least scrutiny. They are rarely told that the team is losing because of their actions or indifference.

The money manager’s role is the most glamorous on the team. As fund manager, this player is responsible for selecting the securities that go in the portfolio. This involves doing lots of due diligence and building a portfolio that will perform well.

The mutual fund company has the responsibility of designing funds that make sense for the investor, and then picking managers to run them. In bringing funds to market, the fund company does the promotion and makes sure that all the regulatory hurdles are cleared. And as a valued member of the team, it has an obligation to find a balance between marketing and keeping the cost of investing down.

The adviser, who acts as the fund distributor in most cases, is the quarterback of the team, and is paid accordingly. The adviser’s main job is to help the client set up a financial plan that has realistic expectations and an asset allocation strategy. If advisers haven’t done that, then they’ve flat out let the side down. Their second most important role is to keep their client on track with the plan. This requires providing some backbone once in a while when they have to say things their clients don’t want to hear.

Advisers also provide their clients with options and recommendations on which investment vehicles to use (individual securities, guaranteed investment certificates, mutual funds, structured products, wraps – accounts offered by investment dealers whereby an investor is charged an annual management fee based on the value of invested assets). And after a few years they should be able to help their clients determine how they’ve done (i.e., an objective assessment of investment performance). Finally, if an adviser is invited to be part of the team, he or she should also be focused on keeping clients’ cost of investing down.

Which brings us to the most important player on the team, the individual investor. Whether or not the investor is skilled, keen and/or has the time, there is a minimum load that he or she has to carry. They must have a financial plan - some kind of road map that says where they want to go and how they plan to get there.

Second, they have to make a decision about who is going to take them there. If they have the expertise and inclination, they may want to do it themselves. If they don’t, they need to invest some time up front to find a professional to take care of it for them.

Third, they need to prepare themselves to be a patient investor. Each route on the map has its fast and slow spots. The investor can’t be changing lanes every few months in hopes of catching the latest momentum.

And finally, like the other team players, the individual investors have to figure out how to keep the costs down. Ultimately, they hold the purse strings and determine what the total cost of investing will be. In the context of today’s 4-per-cent interest rates, any investment team that is costing 2.5 to 3 per cent a year is doomed for failure.

These are things that even the least engaged investor must take the time to do. As you can see, it’s a long list – and the role of the investor, whether he or she likes it or not, is key to the success of the team. Obviously, interested investors can do considerably more and save some money along the way. Whichever camp you’re in, however, I suggest that you ask lots of questions of other team members. Does this plan make sense? How does that investment fit with the plan? What will it do to my overall costs? What are you adding to the team? How am I paying you for your service? And the most important question of all, am I keeping up my end of the bargain?