How to pick a wealth manager

Advisers must be expert in tax, inheritance, mortgages and pensions

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Since ancient Roman senators hired financial advisers to lend out their money, people with wealth have needed someone else to manage it. These days, the Forum has been replaced by the internet, but finding the right intermediary is not a simple matter.

Behind superficially similar offerings — wood-panelled offices and boasts of sophisticated investment strategies — lie a broad range of approaches that can play a big part in defining customers’ sensitive relationship with money.

“A lot of ‘wealth management’ is merely overpriced and ineffective investment management dressed up as something more comprehensive than it really is,” argues Jason Butler, author of the Financial Times Guide to Wealth Management.

Beyond investment, wealth managers must be able to handle tax, inheritance, mortgages and pensions; they should start from the vantage point of a customer’s goals, says Mr Butler, who is a chartered financial planner at Bloomsbury Wealth.

“Counsel, guidance, a critical friend, someone to help with strategy, project-manage stuff, suggest some solutions if that’s what’s needed — that’s what I call wealth management.”

Individuals searching for wealth managers range from those with £50,000 in assets to those with more than £100m, says Lee Goggin, co-founder of the website Findawealthmanager.com, a site that matches customers with companies.

He says the top priority for users of his service is not investment performance or fees, although both are important, but the long-term relationship with an individual. A wave of consolidation in the industry has led to upheaval for many clients, further highlighting the issue.

“Someone’s adviser or relationship manager moving is one of the biggest problems for them,” says Mr Goggin.

“They need to know that someone’s going to be there for the long haul and they can have faith in them through those years.”

In dealing with a potential wealth manager, Mr Goggin suggests asking about the history of the individual who will be handling your affairs — how long they have worked there, what they did before, and what happens if they do leave.

You can also ask how much experience they have of dealing with clients similar to you, what advanced-level professional qualifications they have passed, and how they access specialist expertise — from outside firms if necessary — in areas such as tax.

While assessing what Mr Goggin calls your “chemistry” with the potential wealth manager, it is also vital to look at the numbers.

Wealth managers’ fees and investment performance are notoriously hard to compare with one another, but they should hand you a “rate-card” upfront with details of charges.

Mr Butler says you should establish what minimum commitment they expect from you in terms of time and fees; he advises favouring firms whose charging structure is not linked to the arrangement of products or investments.

Reforms introduced in 2013 under the Retail Distribution Review banned payments of commissions from product providers, but most wealth managers do charge a percentage-based fee on assets invested, leading to a risk of “product push”. A planning service offered separately from product sales is a positive sign, says Mr Butler, who suggests looking for wealth managers who are also members of the Institute of Financial Planning.

Don’t be afraid to ask for more information on fees and even haggle, says Mr Goggin: while bargaining is comparatively rare in British culture, he knows of several cases when it has been successful with wealth managers.

Then there is the question of investment strategy. Model portfolios are now widely available directly to consumers online, so wealth managers must justify the extra fees they generally charge compared with these ready-made services, says Holly Mackay, an independent investment expert.

“I went to see a wealth manager and they outlined a portfolio that looked just the same as a lot of the standard ones out there — it had the 10 most popular funds in there and a lot of investment trusts,” she said.

“I think there are a lot of companies resting on their laurels, residing on historical brand names, and not actually fighting for the privilege of managing people’s money.”

Ms Mackay opted instead to see a financial planner who advises her on specific questions like tax and insurance, while she handles her own investments, she said.

“If you focus on the right outcomes, you might not need a comprehensive service,” says Mr Butler.

Not all firms are lazy when it comes to investment strategy; Ms Mackay cites St James’s Place, which manages more than £55bn, as one company that makes an effort to seek out the best fund managers off the beaten track to manage its funds, which are structured as mandates run by third-party managers.

Wealth managers must be flexible, adapting their strategies to fit customers’ goals for different segments of their money and the type of tax-efficient wrappers they are using, says Andy Steel, chief executive of James Hambro & Partners.

“For instance, the inheritance tax benefits of holding assets within a pension are now so considerable that many investors are seeing their pension assets more as ‘family assets’and their investment horizon consequently extends beyond the duration of their life,” he says.

The nature of a customer’s ongoing relationship with their wealth manager will depend on the size of their assets, their level of interest in finance, the complexity of their needs and life events such as divorce, says Mr Butler.

But a good wealth manager can also act as a bulwark against bad decisions, whether it be falling for a scam or panicking in times of market stress.

“They should ask you the right questions, hold you to account, help you pull together a strategy you can understand, and help you keep with it,” he says.

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