Choosing Wealth or Discretionary Management Service?

GoGas

Does anybody have any suggestion or links s as to how to go about choosing and assessing a Wealth or Discretionary Management Service? Up to now I have managed my investments online via multiple agencies such as Bestinvest (ISAs and Fund portfolio), Hargreaves Lansdown (SIPPS) and multiple building societies for cash etc. I find the time this takes increasingly problematic to really keep on top and the annual fee for management may be more than outweighed by better growth.

In choosing I know people recommend going with somebody “recommended” – fine in theory but not practical for many of us. How do you assess these services objectively. Individual units trusts funds are easy to track performance over time against competitors of bench marks but can find nothing available easily to do the same for Discretionary Management services.. The APCIMS publish their indices values here . Is there anywhere that compares individual Wealth or Discretionary Management Service against these indices. The nearest I can find to this requirement is the ARC Private Client Indices -(can register for free) to quote their aim :

The ARC Private Client Indices (PCI) provide a unique insight into the actual returns being generated by investment managers for their discretionary private client portfolios. They are based on real performance numbers provided by participating investment managers. There are no pre-set asset allocations, no asset class restrictions, no concentration limits, no index performances used. Only actual performance numbers are included in the composition of the indices

This is detailed information based on real returns from real managers but dos not release the names of Wealth Managers
I am looking at ISA and Fund Management, SIPP Management and Cash Management (spread across various institutions banks and building societies) with online portfolio valuations. A search of APCIMS database gave a list of about 50 and this did not include well know firms such as BestInvest (?as not stockbrokers)

Questions:

1. How do you chose one firm if there is no data and you don’t have any personal recommendations?
2. How much variations is there in costs and service
3. Better with large national firm e.g. Collins Stewart or small local firm (not individual) e.g. one with 10-12 employees?
4. The APCIMS seems solely stockbroker membership. Is this too restrictive to get a list of names from?
5. There are multiple “awards” firms get in this area – which are meaningful?
6. Anybody any experience of performance (and service) with discretionary management with Collins-Stewart, Rathbones. Best Invest etc.
7. Any questions I should ask when I visit?

I know this is a large difficult area and will have to draw up short list and then probably visit but could do with some more help before that time if anybody has any advice or wisdom.

Thanks

Paul

I had links to various sites such as APCIMS included in this post but MSE Forum will not allow me to post links

dunstonh

Discretionary investment mangers can trade on your investments without your permission first. Wealth managers are typically another name for IFAs that do not hold discretionary investment authorisation (which is most IFAs). Typically this means they follow an investment strategy with periodic rebalancing and reviews but get your go-ahead first before any change is made.

DIMs will typically trade a heck of a lot more but some charge a heck of a lot more as well.

How do you chose one firm if there is no data and you don’t have any personal recommendations?

Judgement based on your discussions with them and how you feel.

How much variations is there in costs and service

lots.

Better with large national firm e.g. Collins Stewart or small local firm (not individual) e.g. one with 10-12 employees?

mixed opinion there. Small firm is likely to be more personal. Large firm is likely to be more slick and professional.

There are multiple “awards” firms get in this area – which are meaningful?

disregard all awards. The small firms never get a look in and the big firms vote for each other based on who needs to get a new award on their letterhead for a few years and who they know.

Any questions I should ask when I visit?

First decide if you need a DIM service or a servicing IFA. DIMs are typically more suited to very large investment portfolios (I would say £1 mill plus)

FATHEROFTWO_2

Read somewhere that Cazenove can use Discretionary management services for clients.


Any thoughts on how expensive they are for this service and how well they really perform compared to other similar setups?
also how they compare if you were to use a good IFA found under the unbiased.co.uk website?

GoGas

Charges: BestInvest (used for years for for ISA and Funds) DIM is 1%+VAT per year - any trail commissions are rebated which means for any Fund components (e.g. in ISA or SIPP) will be effectively be 0.5%+VAT . These costs look reasonable if their performance is reasonable but cannot see their DIM performance is published on their website

DIM vs Wealth: From what dunstonh has said if I understand correctly a smaller IFA who acts as advisory service would be less active.

FATHEROFTWO_2

The charges sound quite good but how does Cazenove discretionary management compare performance wise to other similar discretionary funds and how would the performance compare to having your funds run solely by a good IFA? on say a cautious to medium balanced portfolio?

Any thought how the performance of the cazenove funds compare over a 2-3 yr period?

dunstonh

Any thought how the performance of the cazenove funds compare over a 2-3 yr period?

In theory DIM portfolios should be personalised. Whereas funds will be specific to their sector. The problem with banks and fund providers is that often their DIM arms go too heavy in their own products.

Charges: BestInvest (used for years for for ISA and Funds) DIM is 1%+VAT per year - any trail commissions are rebated which means for any Fund components (e.g. in ISA or SIPP) will be effectively be 0.5%+VAT . These costs look reasonable if their performance is reasonable but cannot see their DIM performance is published on their website

Be wary that you may not be comparing like for like. A true DIM service is unlikely to use unit trust funds or be too heavy in unit trust funds (or OEIC). You tend to find they will use more direct assets. Shares, Gilts, ITs etc. If they are using UT funds and charging 1% on top (with natural trail rebated) then this is typically double in advice cost than most IFAs that would use 0.5%. To put that in perspective, portfolios nowadays with IFAs taking 0.5% are having TERs of around 1.2% A DIM charging 1% and using direct investments could easily come in similar to that. A DIM using unit trusts and charging 1% is likely to come in with TERs around 2% to 2.5%. So, if you are going to use a DIM, then you should make sure they are using direct assets if they are charging 1%.

If your portfolio is large, then agreeing a fixed service charge may be more cost effective.

DIM vs Wealth: From what dunstonh has said if I understand correctly a smaller IFA who acts as advisory service would be less active.

Yes. An IFA would typically range from periodic reviews/rebalances, bed&ISA, bed&Pension etc which would be monthly,quarterly, half yearly or yearly (or certain event in between) depending on what you agree. Typically the size of portfolio would dictate that. The IFA would likely use packaged products and retail/institutional funds (expect changes as we move towards 2013 as the FSA is opening up on investments that an IFA can use).

One key difference is that the IFA is not a fund manager. The investment strategies and data are usually supplied/bought by the IFA and put in place by the IFA. The investments used will either be trackers and managed funds (or most commonly a combination). Those funds will have published data and many IFAs can then provide portfolio scans on how each fund and the overall portfolio is doing, how its invested, what its risk level is etc. A DIM will effectively be a fund manager and will issue reports much in the same way. You have to have a little more faith in what they do as their data is not going to appear in the public domain.

GoGas

Thanks again. Your comments on charging are very interesting. On the one hand the any differentail TER has significant compound rate over the years on the other 0.5-1% difference will be a relativley small percenetage of the difference in the overall return between a successful DIM and less successful. Hence my original query about public domain comparisons.

The fixed fee is obviously an option but haven't see this available for the larger DIM who may be more relevant for the upper 6 figure portfolios. IFAs seem to have the fixed fees but then don't have the DIM as such. Part of the problem is IFAs seem to cover such a broad church from individuals to larger mutli-office setups - not easy for the prospective inestor to judge.

dunstonh

Part of the problem is IFAs seem to cover such a broad church from individuals to larger mutli-office setups - not easy for the prospective inestor to judge.

Yes. Currently that is an issue. Will be less of an issue soon as there is a Darwin event coming at the end of 2012 they will kill off a lot of the dinosaurs. Although the FSA keep coming up with proposals almost daily at the moment that are likely to shove up costs. The FSA reasoning being that the banks keep doing wrong so lets hammer the IFAs who hardly get any complaints.

The term IFA indicates a qualification level and that they are whole of market. It does not indicate their area of speciality or their business model. That isnt going to change and only asking around can help with that. It doesnt indicate price/cost either. Some will be value for money. Some will be greedy !!!!!!s.