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At your discretion

Recently I saw a new client who was dissatisfied with her existing discretionary fund managers and felt that her portfolio needed to be refreshed. She left us with details of the portfolio, so we were able to analyse what she had.

It did not take much analysis to see that over half the portfolio was in one particular collective investment. This collective investment was marketed and managed by the same group which ran her discretionary fund management service. Thus, the proposition was at least partly fettered.

To have half a portfolio in one fund clearly is not sensible. Even worse, the fund had been held for over five years and had been underperforming its peer group. I think a client is entitled to expect more of a discretionary fund management proposition than simply to hold one of its in-house funds for a long time without reviewing and updating the recommendations.

I should add that an annual management fee was being paid by the client to the portfolio managers.

Our brief was to give an assessment and make alternative recommendations if appropriate. As any adviser knows, there is a lot of choice in the market in terms of discretionary fund management services, so it was quite interesting conducting a beauty parade for this particular client.

Some services that looked extremely good fell down on service. One, in particular, sent an argumentative representative with no empathy to come and see me and subsequently snatched defeat from the jaws of victory.

What was very clear is that it can be very difficult to nail down exactly what the charges are. Discretionary fund management services seem keen to tell you about parts of the charges but very often omit to tell you about other parts of the charges, typically, the annual management charges of the underlying funds that they are purchasing.

Discretionary fund management services tend to wrap up the annual management charges in one and do not divulge how much goes to them and how much goes to the underlying funds. This lack of transparency surprises me, given that there is so much transparency in other financial services propositions.

In any event, we have been able to choose a fund management service that fits the bill for the client. She will have the reporting that she is used to and valued. She is the type of client who does not want to be involved big time in sorting out various bits of paper for the tax office but she likes the quarterly reporting that she was receiving from the existing fund management service.

We have chosen an unfettered proposition for her, with the ability to invest in a wide range of funds with capable research. She is paying a bit more in terms of annual management charges but I am a believer that you do get what you pay for.

At least she knows that she is not going to be suffering with half of the portfolio being invested in one in-house fund and she can be confident that the portfolio will be managed taking into account her individual tax situation, particularly capital gains tax. This latter consideration is very important for her, as she holds assets outside the portfolio that in a year could trigger a big capital gain. Those services that offer a bog-standard choice of funds in a one-size-fits-all proposition would not have suited this particular client.

There must be many clients’ portfolios languishing because they have not been looked at properly. We can provide a real service to these clients, by reviewing matters not only initially but also by providing an ongoing service. We are also able to identify any planning issues that arise both now and in the future.

With a conscientious adviser involved, this client will never again be left in the position she has been in for the last half-dozen years of having a portfolio that has very quickly got out of date for her requirements.

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