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Pass the portfolio

Over 10 per cent of the population will have significant private wealth by

2005. These wealthy individuals are increasingly seeking the advice of IFAs

and are also turning to private portfolio management.

But relationships between investment management firms and IFAs have often

been marred by a perceived conflict of interest. The two have seen each

other as direct competitors where high-net-worth individuals are concerned.

The investment needs of most IFA clients cannot be met by a single

product. Those with substantial sums of cash to invest or with a

hotch-potchof existing investments withno clear overall strategy can place

big demands on an adviser&#39s time and resources.

Managing clients&#39 investments is a daunting task when there are 1,700 unit

trusts, 300 investment trusts and over 3,000 individual shares in the

marketplace to monitor. Many advisers will appreciate delegating it all to

an expert.

But the fear of losing control of the client&#39s investment affairs can

deter some advisers from delegating responsibility to an investment

manager. The IFA should ensure he selects an investment manager who

recognises the importance of strong relationships between IFA and client.

Fears over loss of commission are generally unfounded. Most private-client

managers offer initial and renewal commission, providing a regular annual

income without making significant demands on the adviser&#39s time.

If an adviser introduced 10 clients with an average portfolio of £200,000,

then he or she would be in line to receive £10,000 in renewal commission

alone in the first year. When you consider the potential compound growth of

stockmarket investments, this figure grows dramatically.

Greater wealth and more investment products such as Sipps mean portfolio

management services are becoming increasingly accessible and attractive to

a broad range of private investors.

But the type of service depends largely on the funds available for

investment. At the lower end of the scale, some managers offer portfolio

management for a minimum investment of about £10,000.

On closer inspection, this normally turns out to be a unit trust fund of

funds or a similar off-the-shelf, packaged product offering nothing in the

way of individual tailoring or genuinely personal service.

Clients with £25,000 or more will have access to a wide variety of pooled

portfolio management services. These offer genuine portfolio management

but invest in a range of collective vehicles such as unit and investment

trusts rather than direct equities and establish an adequate spread of risk

for the size of the portfolio.

The degree to which these services are tailored to individual needs varies

considerably between managers. Some offer standardised portfolios, with

clients grouped together by investment objectives such as capital growth,

income or a balance of the two, while others provide a bespoke service.

At the top end of the scale is the truly segregated, directly invested

portfolio, completely tailored to the client&#39s requirements. This will be

invested directly into an appropriate mix of equities, bonds and cash, with

pooled funds being used for overseas exposure when direct investment may

not be cost-effective. Although thebigger fund management firms may not

offer this kind of service to clients with less than £250,000 to invest,

some smaller specialist firms will provide directly invested portfolios

from £100,000.

An important factor to consider when picking a portfolio manager is a

client&#39s existing investments. Many clients will already hold direct

equities. These can range from a handful of privatisation or windfall

issues to a big portfolio that might have been self-managed or not managed

at all.

For these clients, it is not generally cost-effective or tax-effective to

sell all the existing holdings and invest the proceeds in collective funds.

A better option is to hand the portfolio to a professional manager who will

be better placed to judge which stocks should be kept for the longer term

and which should be replaced.

For new clients with big sums to invest, a fully tailored portfolio

management approach takes into account not only specific income

requirements and attitude to risk but also other factors, such asethical


Despite the effective abolition of bed and breakfasting, portfolio

managers still havea variety of tax planning measures at their disposal,

which a busy IFA might find too time-consuming or complicated to consider

using. A good manager will make use of these throughout the tax year to

minimise the liability.

This level of efficiency is most likely to be accomplished within a

genuinely personal service. If the client is going to be given a

standardised portfolio, there is little benefit and it may be better to

take the pooled route. Where unit trusts are appropriate within a

portfolio, an investment management firm can negotiate substantial

discounts on initial fees.

Portfolio management offers clear benefits to private investors who can

continue to take advantage of the skills of their IFA, who will view their

investments in the context of a complete understanding of their financial

circumstances, providing comprehensive financial planning and tax advice.

The main points are that monitoring a portfolio needs time and skill.

Managers have the advantages of experience, specialist research and direct

access to market developments.

The type of service available to an investor depends largely on the amount

of funds available for investment and range from a unit trust fund of

funds, through collective portfolio management services to truly

segregated, directly invested portfolios. It is also important for IFAs to

pick a portfolio manager who will support them in offering an enhanced


For the adviser, not only are there suddenly more hours in the day but,

providing the choice of investment manager has been a good one, there are

also satisfied clients who appreciate the care being taken over their

investments and the level of service they receive.


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