When choosing a wealth manager, the personal touch is best

Where should you start when looking for a financial adviser
It is hard to know which way to turn when searching for a wealth manager © Jan Stromme/Getty Images

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When Google’s European chief Matt Brittin was being grilled by politicians in London last month over the search engine giant’s tax arrangements, he caused uproar by admitting he did not know how much he was paid.

Accused by one member of parliament of “living in a different world”, the complications of bonuses, profit shares and share options means you can (begrudgingly) forgive the most successful for not being able to quote an annual salary figure. But there is one question that it is unforgivable not to know the answer to. How much are you paying your wealth manager?

The first time I ever met a wealth manager was at a black tie awards dinner in London nearly a decade ago. “What exactly does a wealth manager do?” I asked. “Manage the money of insanely rich people who don’t have time to do it themselves,” came the reply from my impeccably dressed and clearly well-fed companion. I thought about this as I chewed on my Martini olive, and asked: “Doesn’t it make you sick with jealousy to be around people who are so unbelievably rich, when you will never achieve their level of swank?”

He laughed uproariously and said it paid very handsomely — thank you very much — then spent the next five minutes name-dropping and boasting of his growing portfolio of London properties until I quietly snuck away.

So, how much are you paying the person who is managing your money?

If you don’t know the amount, you should at least know the percentage — typically 1-2 per cent levied on assets under management, depending on the size of your portfolio and what other “services” are thrown in.

In an environment where your manager is able to deliver returns of 4 or 5 per cent, you may not resent (or notice) that you’re giving them such a generous slice. But as world markets are stalked by extreme volatility, the well-fed wealth managers are looking quite green around the gills.

Increasingly, their clients want to move away from ad valorem — or based on the value of the assets under management — to fixed fees, or even hourly rates. And fearing that low returns are the “new normal”, there is evidence of a clearing out of less-profitable clients with portfolios of less than £1m.

So if your wealth manager calls offering dinner on them, you are almost certainly paying them too much. This is your cue to negotiate or shop around.

I read a survey once that famously claimed the British were more likely to get divorced than change their bank. Wherever you are in the world, your bank is the first place to notice if you’re earning big bucks. Your grateful bank will upgrade you to a premier account, offer you a black card and then eventually decant you into their private banking operation. This is very clever. For when you achieve the level of wealth necessary to enter the world of private banking, at no point do you ever “shop around”.

So where to start? It is notoriously difficult to compare fees and charges between firms, though most wealth managers will have a “rate card” outlining various services. Beware, most are quoted before tax (in Britain, for example, management fees will attract 20 per cent value added tax).

Then there’s the service level — are you paying for items you don’t need? A percentage fee levied on assets can often result in “product push”, so it can be a good sign if services such as financial planning are offered separately from product sales.

And beware the “model portfolio”. Many wealth managers are lazy and uninspired in the investment products they pick, charging a fat percentage fee for portfolios that are available online.

According to Findawealthmanager.com, common “hidden charges” include fees for holding cash (of additional significance in today’s volatile times) and foreign exchange costs on trading overseas assets. Plus, what are the exit charges if you leave?

Finally, a personal relationship with a manager, who gets to know you and your financial priorities over many years and can anticipate your needs, is something that’s hard to put a price on. My own financial adviser is based a train ride away from the provincial town in which I grew up. The biannual pilgrimage to see him is often rounded off with the pleasure of having tea with the person who taught me the importance of striking a good deal in the first place — my mother.

Claer Barrett is the FT’s personal finance editor

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