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MM changes see advisers carry the can

It’s all change again on the multi-manager side this week as Marcus Brookes announced his departure from Gartmore to take a new role as head of Cazenove’s own range.

Brookes had been deputy to Bambos Hambi at Gartmore for some time, but the news will come as a shock to most advisers as the impression was that like so many multi-manager teams they were there for good. No such luck.

Brookes’s move to Cazenove comes in the wake of the firm losing its own five-strong multi-manager team to Scottish Widows Investment Partnership, as they look to forge a multi-manager offering with two fund of funds set to come to market early next year with Mark Harries and co set to join the firm on December 9.

This is all well and good for the multi-managers, all of whom should be set for hikes in pay for their services at their new employers, but what about the advisers who have to follow these changes in order to ensure that their clients’ funds are still in the best hands?

For example, it has emerged that Brookes will not join Cazenove until March 2008, with current Gartmore analyst Robin McDonald filling the void for some three to four months, once Harries passes over the portfolios.

This is where the double-edged sword of multi-manager kicks in, as on the one hand changes to management should not see an instant downturn in portfolios as they use underlying funds with their own managers, rather than stocks.

This argument does hold water, but with markets as they currently are it is foreseeable that even multi-manager funds could be hit badly off the back of the sub-prime crisis if enough of those underlying funds are rotten eggs.

But even if that were the case advisers would be taking a massive risk by taking money out of multi-manager funds because of the capital gains tax bills it could incur.

Take the departure of Burdett and Potter from Credit Suisse back in February as an example. Investors could have been forgiven for thinking about making a run from the range, but with dilution levies being placed on the £1.2bn, the out-performance of the 17 unit trusts in the past few years almost forces clients to remain invested had they not taken out capital gains on a regular basis.

Say an adviser made £50,000 on CGT over five years. After taper relief and annual allowance have been used, the sum of £33,700 would be hit by CGT at 40 per cent tax ­ £13,480.

Those advisers with money in those changing multi-manager portfolios have to ask that with this penalty and the higher charges on Fofs in the first place, is it really worth the risk to follow the manager and do you have a choice at all?

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