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It may be best to outsource portfolio management to a multi-manager where an IFA does not have investment expertise

I have received conflicting advice regarding investments. One IFA I have spoken to builds bespoke portfolios for clients but my other contact outsources his investment to a multi-manager because he says IFAs do not have the necessary time or expertise to manage money directly. Which is the best route for me?

As with so many things in life, the answer is – it depends. The use of multi-managers is on the increase and with good reason. Many IFAs do not have the time, inclin- ation or expertise to manage investments and multi-managers provide an ideal solution for both the adviser and client. By outsourcing this function, the adviser can devote more time to the client’s other concerns and provide a better service.

Specialisation is becoming more commonplace in the advisory market. If an IFA’s niche is, say, pension scheme wind-up and transfers, it makes sense for him to concentrate his energies in this area and not on investment.

Despite the obvious attractions of having professional multi-management of your money, it must be borne in mind that the portfolio being managed cannot be bespoke to your individual circumstances. Pure investment performance should not be in doubt but the composition of the portfolio may not exactly match your attitude to risk and changing circumstances over time.

Conversely, if the IFA purports to have investment expertise but uses multi-manager exclusively, then this is a contradiction in terms and you should be wary of the adviser’s motives. If the adviser is genuinely qualified to manage portfolios and has the experience and expertise, there is no reason for him to use multi-manager since he is performing the same function.

The benefit of using an investment-oriented IFA is that your portfolio will be genuinely bespoke and should fit your attitude to risk exactly rather than generally. Also, because there will be regular reviews not only of the portfolio but of your personal circumstances, the investments should meet expectations more precisely over time.

In buoyant markets or when one is younger and accepts more risk, if the portfolio exceeds expec- ations, then the client has no cause for complaint. However, if the client requires only a modest return of, say, cash plus 1 or 2 per cent but the portfolio loses money, they will want to know why.

As with all financial advice, it is as well to do your homework beforehand. If it is bespoke investment advice you are looking for, has the IFA come recommended and does the firm have a good reputation for this type of work? Check the IFA’s experience and qualifications. At the very least, he should have the Advanced Financial Planning Certificate in investment portfolio management and preferably the Investment Management Certificate.

Ask for a sample investment report and also check what systems the IFA has in place for building and monitoring portfolios. Simply picking funds with five-star ratings does not constitute a basis for sound investment management.

Finally, you should get what you pay for and although cheapest is not necessarily best, one must weigh up carefully what services are provided and what charges are paid.

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