PAM Guide to Wealth Management

Discretionary asset managers

A core part of your wealth management will be investment management. Typically, the wealthier you are, the more likely you will be to appoint a number of private asset managers to oversee your investible assets. This is because no one private asset manager is usually the best performer across one asset class let alone all asset classes. Discretionary investment managers come in all shapes and sizes. Diversification is key across both asset classes and asset managers. For smaller accounts, this diversification may be achieved via the use of pooled funds, or collective investments. It is likely that you will choose private asset managers to manage your portfolio in conjunction with your wealth manager, or investment consultant.

Discretionary services give your investment manager complete authority to buy and sell investments for you without obtaining your prior approval. This should follow the drawing up of a mandate that creates a clear framework for your portfolio manager to use when executing transactions on your behalf.

The advantage of this service is that the private asset manager can act instantly on changes in the market, rather than spending time trying to contact you. It is also often cheaper as deals can be done in bulk. Every time a transaction is made, you should receive a contract note and detailed reports should be sent to you regularly. Most discretionary private asset managers will use both collective investments and individual shares in your portfolio.

While a discretionary private asset manager can remove the burden of day-to-day decision making, you need to place a lot of trust in their capabilities.

Discretionary investment management can only be offered by individuals who have extensive experience in the investment industry and advanced professional credentials. You should make sure that your investment managers possess either the Chartered Financial Analyst (CFA) designation, or Chartered Investment & Securities Institute (CISI) qualifications. Discretionary investment management is generally only offered to high net worth clients who have a significant level of investable assets.

There are a number of questions you should ask before appointing a discretionary investment manager. An important consideration is how a new manager will complement your existing managers in terms of investment style, target returns and level of risk. The questions to ask include:

  • Does the firm have one distinctive investment style? Is a style or investment view imposed on fund managers at the firm? Do managers have the freedom to operate individual investment styles?
  • What is the risk profile of the firm's investment approach? How concentrated are the firm's portfolios?
  • What regulations is the firm subject to?
  • What is the performance track record of the firm?
  • Agree an acceptable performance benchmark. What out-performance target has the firm set and over what time period?
  • What research does the firm use? How many managers and analysts work at the firm?
  • What is the turnover of the firm's typical portfolio? Does the typical asset allocation complement other asset managers in your portfolio?
  • Are there client relationship managers? How often do they review client portfolios and whether you still have the same investment objectives and risk profile?
  • How often will you meet the relationship managers? How often will you receive portfolio reports? Ask to see a sample report.
  • How are the portfolio managers paid? Will they earn performance fees and on what level of out-performance?
  • Does the asset manager have systems to ensure that any investment restrictions you place on the portfolio are observed?
  • Is your portfolio overseen by the firm's senior management to ensure it is being run diligently?
  • How do the firm's portfolio managers ensure that risk is effectively managed?
  • What asset allocation approach do they use and why?

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The PAM Directory is a comprehensive guide on comparative data focusing on asset managers, investment managers, private banks, stockbrokers, wealth managers and multi-family offices, who provide discretionary and/or advisory portfolio management services for private clients.

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