Need someone to manage your money?

A good investment adviser can hold your hand when you're making tricky decisions. They come in all shapes and sizes with one thing in common: they expect to be paid.

I've used several types over the years: financial planners who sell you investments, a brokerage house that put my money in what appeared to be a customized portfolio but which could have been done in a plain jane mutual fund, and other varieties.

Remember that no one consistently beats the overall market. Unless you take wild risks and get lucky, it's prudent to hope that you'll stay even with the market and get a little extra after taxes and inflation. Where you have some control is your asset allocation, which accounts for north of 90 percent of your success, and keeping expenses and taxes at a minimum.

Here's some advice on choosing a genius manager from SmartMoney magazine. It's adapted from the book 1,001 Things They Won't Tell You: An Insider's Guide to Spending, Saving, and Living Wisely by Jonathan Dahl and the editors of SmartMoney.

Don't let them churn your account
In most cases, when investing for the long run, money managers should trade stocks and other investments infrequently. Instead, they sometimes focus on the short-term outlook, and that results in high turnover.

The average turnover for domestic equity funds is 103% within a year, according to Morningstar. High turnover creates transaction costs, which ultimately increases fund's expenses. With investments that are outside of retirement accounts, high turnover leads to tax inefficiency because each time a turnover occurs, the investors realize gains or losses, Schatsky says. Those gains are often better served being reinvested than cashed out. “There will be numerous helpful capital gains recognized regularly and many might be short term,” he says. “Frequently people will like to have gains deferred and have them grow in fund itself.”

Managed accounts sound cool, but ...

Managed accounts have become increasingly popular investments in recent years. Total assets in these accounts grew from $1.1 trillion during the second quarter of 2006 to $1.77 trillion during the second quarter of 2010, according to MMI. However, it remains unclear whether these accounts offer investors as much value as they offer the managers running them.

Like mutual funds, managed accounts are professionally managed portfolios with specific investing objectives. Unlike with mutual funds, investors actually own the stocks in the portfolio, so they won’t owe capital gains taxes unless they sell those stocks. However, a customized portfolio doesn’t always come with a lot of personal attention from the manager. Denise Farkas, chief investment officer of Sigma Investment Counselors in Michigan, says managed accounts often rely on computers to construct a model portfolio and duplicate a manager’s moves in dozens, even thousands, of accounts.

Compensation to money managers working with managed accounts is in the range of 0.35% to 0.85%, depending on the investment style, with equities strategies at the higher end.

Check up on your genius

Is a personal money manager better to work with than a stockbroker? Brokers earn commissions on everything they sell you, which critics say prompts them to push products. Some money managers charge a fixed percentage of your assets — usually about 1% annually — to manage them. Their goal is to find ways to increase your earnings and theirs.

However, although managers may not be churning their clients account, but they can still harm them with silly investments or fall prey to fraud. Investors should steer clear of investments they don’t understand, says Schatsky. They should also consider setting up a separate custodial account, which gives them more control over their money and an increased level of comfort, he says.

To check up on a money manager, investors can contact their state securities office to see if any claims have been filed against him or her. They should also ask the money manager to provide them with a copy of Form ADV, which breaks down how they’re paid.

Also posted at Income & Outgo