Find a wealth manager to suit your needs

Before starting the process to find a suitable wealth manager, it may be wise to consider the main reasons why you need an investment professional to manage your portfolio.

Potential answers could be:

– You are generally busy or would prefer to spend your time on other pursuits.
– It makes good sense to outsource the responsibility to professionals who have spent their careers gaining skills and experience in the field.
– You can see the benefit of working with a firm that is regulated by the Financial Conduct Authority (FCA).  You then have the support of the Financial Ombudsman Scheme (FOS) and the Financial Services Compensation Scheme (FSCS) if a problem arises in the future.
– You would enjoy building a relationship with a professional and then have the comfort of knowing you can discuss your finances with someone you trust.

Once you’ve decided to find a professional to manage your portfolio, the process can be divided into two:

Firstly, defining what you need, and secondly, the information you should gather from a potential manager.

 

A: Questions to consider prior to your search

 1. Would you prefer a large institution or a smaller boutique?

Boutique firms often specialise in creating bespoke investment portfolios.  Each business will have a particular investment style.  You may have specific demands, and a boutique wealth manager is likely to be more flexible and focused on your needs than a large firm.  In addition to a more personal service, other likely advantages include independence and low staff turnover.  You may be able to deal directly with senior management.  The success of the firm is dependent on the quality of advice given and service provided, so the business is likely to work harder to ensure you are given the service you require.  In terms of drawbacks, some boutiques don’t offer the same range of services that an institution can provide, such as credit cards, and may not have an international presence.

Private banks typically offer traditional banking with enhanced customer service.  Alongside wealth management, many businesses provide additional capabilities such as mortgages and other lending.  The bank might have international expertise and capabilities for clients with complex financial affairs. However, the range of expertise may differ significantly between banks, and fees are often outdated, and generally higher than in smaller firms.  The bank may not be flexible in finding solutions or helping with specific issues, and may promote certain solutions which benefit the bank but may not be optimal for clients. Staff often move around so a client’s point of contact may change frequently.

If you decide on a firm with a lower profile, it is worth quickly checking that the company is authorised and regulated by the Financial Conduct Authority (FCA). This will give you the confidence to choose a boutique over a large institution if you wish, safe in the knowledge that you will have all the associated protections.

2. Would you prefer a discretionary or advisory service?

For a discretionary service, the firm manages a client’s portfolio according to an agreed risk profile. The company will manage the portfolio on an ongoing basis without deferring to you before making adjustments. The manager will still refer back to you if they wish to take action which is outside the scope of the original mandate.

For an advisory service, the firm makes recommendations based on your circumstances and appetite for risk, but you must be consulted and agree before any changes are made to the portfolio.

For each service, the firm must ensure that the portfolio is suitable for your objectives and risk appetite. Ultimately the decision should be about personal preference and the level of involvement that suits you.

An advisory service promotes client engagement and a highly interactive level of service. There is arguably lower risk for both the client and manager, as each adjustment to a portfolio is done with your prior approval. The manager is required to contact you in order to approve any changes, which may cause delays if you are not contactable.

A discretionary service enables the manager to take advantage of market opportunities or adjust risk in the portfolio according to market conditions. You are released from day to day involvement, and the manager can implement changes to portfolios as necessary to ensure they are managed effectively. Revisiting your investment strategy regularly is a core part of this service.

Either way, the firm should adopt a pro-active approach to portfolio management in accordance with your objectives. In addition, the company should undertake regular reviews with you to discuss your financial objectives.

Alternatively, you may wish to combine a discretionary service for the lion’s share of your assets with a smaller portfolio alongside, managed on an execution only basis, which would allow you to invest in your own ideas alongside the safer discretionary service.

3. How would you describe your current financial situation, appetite for risk, and objectives for the future?

It is important to ensure that the manager has a good understanding of your current financial circumstances and your future objectives and ambitions.  Be prepared to provide extensive personal information to the firm.  It may feel intrusive, but the company is obliged to go through the ‘Know Your Client’ (KYC) process with you and will not be in a position to fulfil your needs without sufficient information.  It is a good idea to ask for a copy of the ‘fact find’ and completing it in advance of a meeting.  This will be worthwhile for both you and the manager and make more efficient use of time at your first meeting.  A competent wealth manager will be skilled at assessing a client’s true attitude toward elements like risk and market volatility.  It is a regulatory requirement that managers design investment strategies that are aligned with your profile and requirements, both at the start and evolving as your needs change over the years.

4. How often would you like to have contact with your manager?

Even if you opt for an advisory service, you are unlikely to want to talk to your manager every day.  However, you might want to be in touch fairly regularly, at least early on in the relationship.  It is worth asking how often the firm generally meets with clients and how they prefer to communicate so that expectations are not missed. Everyone is different, some people need regular contact, others want as little as possible.

 

B: Questions for the firm

1. How secure are my assets?

It is worth asking where your assets will be held.  It may actually provide more comfort if your investment manager does not hold the assets in-house. Some banks and institutions will act as investment manager and custodian.  Other investment managers will outsource the function to a specialist administrator and custodian.

Stability and strength of the firm: Wealth management firms in the UK range from the very old and established to the younger more entrepreneurial forms. It is very much a personal choice whether you prefer a traditional institution or a smaller more nimble boutique.  Either way, it is important to understand the character, management and ownership structure of the firm in order to assess whether it will suit your needs.

2. Who are the key people and what are their qualifications and skills?

It is worth understanding the experience and qualifications of the investment professionals you will be dealing with.  The Retail Distribution Review (RDR) legislation, which came into force in 2013, requires that all managers be qualified to the equivalent of undergraduate level.  However, it is good practice to ask the firm for the qualifications of key staff.

3. What is the firm’s investment ethos and style of investing?

It is also useful to know the investment ideology of the firm.  Do the managers tend to be opportunistic and creative with client portfolios, or are they more risk-averse, sticking to a tried and tested strategy?

Some firms will invest the majority of client assets directly into equities and bonds in the client’s home country, whereas other companies will invest globally in a diverse range of assets using the skills of other managers via collective funds.

It is important to make sure the firm’s strategy aligns with your objectives, expectations and general intuition.

4. What is the firm’s track record?

It is useful to understand how a firm’s investments have performed historically for clients with a similar profile to yours.  The business is likely to present its performance compared to an industry benchmark for a balance of assets, over the last one, three and five years.  The business will highlight any ‘outperformance’, which represents how well the manager has performed against the benchmark index.  However, it isn’t very useful to compare a wealth manager’s performance to a pure stock market index (like the FTSE 100 or S&P500), given that it is unlikely that your portfolio will be invested purely in the stock market.  For the vast majority of people, investing purely in equities would be an error, and would suggest poor management, excessive risk and a lack of diversification. Part of the skill of wealth management is to combine different assets in order to reduce overall risk and improve the ‘risk-adjusted’ return for you (the performance adjusted for the amount of risk taken).

Two indices that are well established in the UK and better reflect diversified managed portfolios are published by the Personal Investment Management & Financial Advice Association (PIMFA) and Asset Risk Consultants (ARC).  PIMFA indices are a blend of other market indices, such as the FTSE and S&P equity market indices and bond indices.  ARC indices are perhaps more realistic than PIMFA because they rely on actual performance data achieved by wealth managers in the UK, so you can assess how a manager is positioned relative to its peer group.  This can be preferable because there will be times when indices become distorted by bubbles, and a decent manager should reduce your exposure to bubbles which ultimately pop!  Hence, by definition, good management will underperform at various points in the cycle and according to conditions (such as the internet bubble).  A good manager should perform well in the long term, protecting your assets against market distortions and short term fads.

See the following links for the PIMFA and ARC indices:

https://www.pimfa.co.uk/private-investor-indices/ PIMFA
https://www.assetrisk.com/research/performance-indices/private-client-indices/ ARC

5. What are the general characteristics of the firm’s clients?

Do the firm’s clients have similar characteristics and do they match you?  It is also useful to know if the business has tended to attract clients from a particular generation, industry or risk profile.  It is useful to know whether your profile matches the existing clients of the firm and the professional who would be working for you.  For example, are most of the firm’s clients retired lawyers with no risk appetite, or are they mostly young entrepreneurs with a taste for exciting opportunities?  In addition, you may require a wealth manager with specific experience or expertise if, for example, you are a successful sports professional with irregular cash requirements.

Get a feel for their ideal size of client portfolio.  Ask the wealth manager about the characteristics of their core clients.  The answer may reveal where their focus lies and whether that matches what your requirements.  Some managers may prefer to manage assets for clients who have between £10,000 and £100,000 to invest while others may exclusively target millionaires.

It is worth finding out whether you will receive generic advice that could apply to anyone, or whether the advice will be specifically tailored to you.  In recent years the regulations have encouraged managers to create a limited range of solutions on the basis that two clients of similar risk profile and age, overall financial situation and so on, should receive the same investment outcome over time.  However, there is a balance between satisfying this requirement while recognising that everyone is different and will have various idiosyncracies.  Ultimately you may simply wish to check whether the proposed solution is ‘suitable’ for someone in your position.

6. How important is relationship management?

A wealth management firm might have billions in assets, but that might not be an indication that they serve their clients well.  For instance, can the firm point to client testimonials.  Ask to see testimonials.  A decent manager will be happy to provide comments made by clients, although of course these quotes will be selected carefully.  Finding the right wealth manager is all about forming a relationship with someone who cares about you and your assets.  Choosing the wrong person or company can have real consequences, not only for you but also for the next generation if you are planning to pass wealth to your children.

How many client relationships does each investment professional have?  The ratio of clients to managers at a firm is critical because it will determine the amount of time available to spend on each client.  This ratio varies significantly between companies, often driven by the size of the firm’s clients and the complexity of their affairs.  A business servicing the mass affluent will have a different approach to a company which focuses on ultra-high net worth individuals.

Attention & regularity of contact:  Make sure you feel enough comfort with your manager such that you can forge a long-term relationship. Your financial health and future will be trusted to this person, so they need to be a good fit for you.

7. Problem-solving & complaint handling: What happens if something goes wrong?

You should ask the manager about the procedure for clients who find themselves unhappy about an element of the service.  This should be a straightforward question for an experienced manager so don’t be embarrassed to ask.  A decent manager will be dedicated to a high level of service.  At any time, you should highlight any dissatisfaction promptly to allow the manager to address the issue enabling you both to move on with the relationship intact.

It is important to know where your cash and other assets will be held and what happens if there is a problem.  Deposits are guaranteed by the Financial Services Compensation Scheme (FSCS), up to a limit of £85,000 per person, per institution. However, it is essential to check whether the firm is regulated by the Financial Conduct Authority (FCA) in the UK because only regulated businesses carry this protection.  You will be able to find out by asking the firm for their FCA number and by checking the FCA register.

8. What are the firm’s Fees?

Ask for details on all fees.  What does the firm charge for its services and what other expenses will be incurred? A wealth manager is obliged to present their fees transparently.

Wealth managers get paid primarily via an Annual Management Charge (AMC) which is often charged on a quarterly basis. The AMC is likely to be around 1% per year of the total portfolio value.  Some managers also charge trading fees or performance fees.  You should also ask about the cost of administration which will usually be separate.  The most important thing to consider is the amount of value you expect to get for what you going to pay.  If the charges are relatively high, it is worth considering whether the service and portfolio performance is sufficient to warrant the fees.

Final Note

It is worth asking for all the key information in writing.  This is important in case you need to refer back to it at a later date, specifically if something goes awry. If you don’t understand something, ask the manager.  An investment professional should be more than happy to explain everything to you.