Architect Rchard Rogers, so it goes, had no idea that Lloyd’s underwriters would bring their ancient wooden desks to their new, state-of-the art architectural gem in the City and was unhappy that his high-tech setting was being prejudiced by Victorian furniture.
When Transact chief executive Ian Taylor showed me what his firm could do 12 years ago, it was clear that things had changed. No longer did we need ‘product’ wrapped in marketing spiel with fancy names and charges; now we would buy securities and funds, all held in one place with instant reporting and analysis. No more wooden desks.
Now, if a wealthy client wants a Park Lane discretionary fund manager to run a bespoke portfolio, conduct personal meetings and maybe take them to lunch – fine. Well, as long as you are satisfied with suitability and the client knows they are paying for the meetings and the lunch from the charges.
Right now, there is a debate about DFM exit charges. Some are charging £25 per line of stock to move portfolios to a new home; others will not disclose. I can trade with my bank for £15 a time as a private individual so this clearly represents overcharging. So much for treating customers fairly.
Nonetheless, it is important to appreciate that there is a cost. If the cost is waived, it has to be recovered elsewhere.
The cost, if a fund, will depend on whether it is held under the DFM’s nominee or that of an intermediary, and also whether the receiving DFM happens to use the same intermediary. Typically, the DFM will be charged by any intermediary unit-holder and hence will recover only costs.
A leading adviser tells me the highest charges and worst delays arise with banks. Often the holdings are far removed from those preferred by the receiving firm, so encashment and repurchase makes most sense, keeping CGT in mind.
So what should you do?
- There is nothing you can do about charges levied by a DFM that your client is leaving – you can only consider the options bearing in mind suitability.
- Conduct thorough due diligence on any DFM you employ.
- Hold the assets on a platform (on which you will also have conducted due diligence).
- This makes unhooking the link to one DFM and hooking to another a five-minute job, which does not necessitate disturbing any of the underlying assets or tax wrappers other than for good investment management reasons.
Finally, remember that Morningstar will run discretionary models for 30 bps active or 20 bps passive. Whatever extra your client is spending, it must be justified in your due diligence.
Clive Waller is senior partner at CWC Consulting