Financial markets these days are very fast-moving: share prices, exchange rates and commodities can all fluctuate dramatically on the smallest piece of news. Keeping up with events which can have an effect on your investment portfolio is, therefore, becoming ever more difficult and time-consuming. Using the services of a discretionary manager takes away the headache of constantly monitoring your portfolio, as it means that the manager, rather than the investor, takes the decision on what to buy and sell without seeking instruction from the investor. It does not, however, mean that you give up all control of your portfolio.
Lee Goggin, co-founder of Find a Wealth Manager says: “You should not think of discretionary investment management as something which will require you to be entirely passive. This is not the case at all. Rather, if you enter a discretionary investment management relationship you will be delegating the execution of an agreed overall investment strategy to someone with the right investment skills and experience (along with the backing of a full research team). You will still be well placed to see exactly what is being done with your money and how your wealth manager is performing against a target.
“Your investment strategy will have been carefully worked out through a collaborative process of factors such as your long and mid-term objectives; your true attitude to risk and capacity for loss; how any existing investments might be optimised and so on. Once your wealth manager has a full picture of your financial circumstances and goals, they will then create a portfolio for you.”
Rob Burgeman, investment manager and divisional director at Brewin Dolphin, says the terms of engagement between the client and the fund manager is the most important part of the relationship. “Years ago you might just have been given a piece of paper to sign and then told that the wealth manager would do the rest. Now, it is a far more complex relationship. The manager will do a financial analysis, establish what the client wants to achieve, what risk they want – and can afford – to take, their time horizons and so on.
“When we have agreed the terms of engagement, we know the client’s aims and objectives. We can then establish a benchmark which we will be measured against.” Discretionary management is, however, very different to simply putting your money into an investment fund where investors will have no knowledge of the fund’s activities beyond a simple annual statement of investment performance: it is a service, rather than a product. A bespoke portfolio will be created, reflecting the needs of the client and with input from research analysts and other experts on the team.
“Discretionary management is engaging and dynamic,” says Burgeman. “There is more frequent dialogue and the investment strategy has to be evolutionary. We are looking after people’s investments over a long period, and across multiple generations. Clients will move from the accumulation phase in their 40s and 50s to active retirement in their 60s and 70s and then to passive retirement in their 80s and 90s.
“They will want different strategies along the way and a discretionary manager will be able to achieve that in an evolutionary, rather than a revolutionary, manner. That means a regular review process is an integral part of the service.”
On a day-to-day basis, the discretionary manager will make changes to the portfolio in line with the objectives at what he considers the appropriate time. Clients will also get an annual report detailing the events in the portfolio over the year but this will be more than a simple valuation; it will contain the information clients need to compile their own accounts, to fill in their tax returns or calculate their capital gains tax liability with their accountant.
The value of investments can fall and you may get back less than you invested.
The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.