How to get your money's worth from wealth management

January 19, 2016

Wealth management is a much-abused term. In this context I'm talking about the firms who will manage your money - typically with discretionary permissions - and may work in conjunction with in-house or external financial advisers.

Often it's the financial adviser who will introduce you to the wealth manager.

BESPOKE CHARGES, STANDARD SERVICE?

Most wealth managers have two types of offering: a bespoke service, where you are provided with a portfolio tailored to you, or a more commoditised fund or model portfolio service (often taking the form of a series of risk-rated funds), where you pick a portfolio that fits your requirements.

What you lose in personalisation, you gain in lower charges.

A fully bespoke service costs considerably more in fees, and might be appropriate for large portfolios.

However, if you have a portfolio of less than £500,000, there is a danger you might be charged that premium for a package which is little more than the commoditised service. A sign of this might be your wealth manager investing your cash in its own fund solution.

Wealth managers are under pressure to systemise their investment approach. As the investment manager works within strict constraints, typically the same as those used within the lower-cost fund solution, the difference in portfolio make-up between the two can be minimal.

Many wealth managers often justify the difference in costs on the grounds of 'a more personal service' rather than investment results. Are you paying for service or outcomes?

TOO MUCH LEGWORK

If you're paying a wealth manager, you're paying a premium for peace of mind, and for someone else to manage your money.

If you find yourself chasing reports, reformatting information to send to your accountant and so on, you're doing too much of the legwork.

Having access to the person running your money is important if you want to know exactly how your portfolio is being run.

For a genuinely bespoke portfolio, that shouldn't be an issue; don't be fobbed off with the salesperson or a seminar invitation.

PERSONALISATION

Wealth managers are often more comfortable dealing with money than with people. The reports you receive should talk about you, your objectives, and how the wealth manager's investment strategy is helping you achieve your objective.

You might be interested in how your investment portfolio is performing against the MSCI World index, but it might not mean as much to you as whether you're on target to retire at a certain age, generate a specific amount of income or effectively manage a family trust.

Poor reports are academic, impersonal and too technical. Good reports reiterate the objectives and whether you're on target to hit them. Highly personal objectives require highly personal benchmarks for success.

DOUBLING UP COSTS?

You may well have a financial adviser and a wealth manager looking after your financial affairs. They might work for the same firm or independently of one another.

Either way the relationship is often quite cosy. Is it clear who is doing what for their money, or are you paying both to assess your attitude to risk, produce portfolio valuations, issue annual statements, manage your finances?

A good financial adviser will manage the wealth manager, keep their performance under review, delineate responsibilities, and keep costs down. They will sack them when necessary, based on measurable criteria agreed by you. A poor adviser will simply act as a mailbox while charging you a fee.

Also, ask if there are any conflicts of interest before committing to any advice, especially when the adviser and wealth manager work for the same business.

In a recent survey of 157 financial advisers, the biggest area of improvement respondents identified for wealth managers was greater clarity and transparency on fees. If investment professionals themselves are struggling to work this out, then there's some considerable work to do.

WARNING SIGNS

You may not be getting value for money if the wealth manager:

  • Claims to offer a bespoke service without truly providing one
  • Charges for bespoke services even if you have less to invest - it may not be cost-effective if you have less than £500,000
  • Makes you go to them - to ask questions, get reports, give them information
  • Provides reports too technical or impersonal, fails to address your individual goals
  • Has potential conflicts of interest with your adviser if they both work for the same firm

Phil Young is managing director of adviser consultancy Threesixty.

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