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Manager Selection and Monitoring

LPL Financial Research offers an asset allocation framework spanning the full range of client investment objectives. To populate the underlying asset classes in the models, a wide array of investment choices gives you the opportunity to customize your client portfolios. With the daily influx of new investment choices, selecting and monitoring all of them can be daunting and time-consuming.

At LPL Financial, our research team has done the heavy lifting for you by providing a "Best in Class" recommended list for each major investment vehicle. Our breadth of coverage includes mutual funds, separately managed accounts, variable annuity subaccounts, fixed income securities, alternative investment strategies*, exchange-traded funds (ETFs) and sophisticated investment solutions.

To create these recommended lists, our research team operates on a shared philosophy that diligent fundamental research and a well-defined analytical process, rigorously adhered to, is the key to identifying, recommending and monitoring investment opportunities that offer the potential for superior long-term, risk-adjusted returns for your clients.

To that effect, our ever-evolving manager selection process is comprised of three primary steps:

  • Initial Screening focuses on minimum required criteria, including manager tenure, minimum assets under management and fees and expenses. This is done using a variety of databases including but not limited to Zephyr, Morning Star, Fact Set and eVestment Alliance. We subject managers who pass this step to considerable quantitative analysis.
  • Quantitative Analysis evaluates past performance and considers volatility and style, among other measures, to determine how a manager achieved past results. In addition to a myriad of modern portfolio theory (MPT) statistics, we review a laundry list of returns- and holdings-based statistics, including style adherence, portfolio diversification and performance attribution. Managers who pass this analysis face an extensive qualitative review.
  • Qualitative Analysis assesses whether strong historical results will likely continue and whether or not the manager has a repeatable process in place and the discipline to adhere to it. Some aspects we review include the evaluation of key personnel through home office visits or conference calls, along with their compensation structure, and a thorough review of the security selection process (philosophy, investment process and portfolio construction methodology).

Once approved by a formal investment committee, this process results in a diverse list of recommendations offering conservative, moderate, aggressive, tax efficient, income oriented and socially responsible choices by asset class.

Monitoring Recommendations

Ongoing monitoring is an essential component of the LPL Financial Research process. Often overlooked, ongoing monitoring of a manager's investment process, personnel changes, and performance results is one of the most important aspects of our value proposition. Our rigorous monitoring process focuses on a number of key factors that can be leading indicators of deviations from historical performance patterns and enhance our ability to make proactive investment decisions before investment performance deteriorates substantially. Some key indicators we focus on include:

  • Shifts in portfolio risk levels
  • Changes in portfolio turnover
  • Style drift
  • Changes in key personnel
  • Unanticipated deviations in expected performance

Manager Selection and Monitoring - Bringing it all together

At LPL Financial, we are proud of our tradition of in-depth money manager research, selection, and independent, unbiased investment recommendations and portfolio construction. By utilizing independent, unbiased research and focusing on the time-tested process of combining quantitative and qualitative factors, we believe we can provide added value to clients using any of the LPL Financial investment platforms.

* Alternative Investment Strategies include hedge fund strategies, private equity, managed futures vehicles, structured products, equipment leasing partnerships, real estate investment trusts (REITs), 1031 real estate exchanges, and oil and gas partnerships.