Earned wealth is growing faster than inherited wealth and investors are technologically and financia...
Earned wealth is growing faster than inherited wealth and investors are technologically and financially informed with a keen appreciation of issues such as performance and risk. They consequently seek to define their own investment objectives and parameters.
As a result, investment advisory services have been shaped to cater for the evolving needs of high net worth individuals and offer more flexibility than traditional discretionary services.
A 'one size fits all' option is not enough for today's investors. They expect their objectives to be taken into account, their investment needs to be understood and for relevant information to be filtered and appropriate advice given, be it on equities, options, derivatives, fixed income securities or foreign exchange.
The starting point is always a detailed discussion with the client and an analysis of their needs and goals. Tailored advice is achieved by refining objectives, determining the expected return, identifying the proportion of wealth to be invested over the short, medium and long-term, assessing risk tolerance and agreeing on a reference currency.
The refinement process will take into account factors such as political risk, economic outlook, market conditions, company analysis and thematic investing.
One philosophy is to use international themes to identify long-term secular trends in the global economy and profile leadership companies. This reduces the volatility of the business cycle and market dynamics, offering investors the opportunity to participate in important themes over three to five years.
The foundation of superior investment performance is an effective asset allocation strategy, systematically allocating assets between stocks, bonds and cash, while also considering international diversification, which reduces volatility and risk and enhances returns.
The first meeting with the client will include a review of their total assets and what proportion of that total will form the investment portfolio. For example, a number of clients have asked recently whether they are overweight property. Increasingly, cash is also tied up in pension and insurance products, as well as more innovative investments such as public offerings and structured products.
A personalised approach will review the bigger picture before identifying the client's aspirations, which may range from purchasing a mutual fund right through to a full ongoing advisory service.
In determining asset allocation and international diversification, one has to assess how interactive the client wishes to be in the process. Some prefer to only be involved up-front while others are more proactive, looking for returns in the future.
When discussing risk profile and currency strategy a common initial response from the client is the need for 'balanced risk'. In many cases the true position can be far more conservative, particularly with 'old wealth' clients, whereas entrepreneurial clients tend to be quite risk-driven - neither truely 'balanced'.
There was a time when 'balanced' meant 60% bonds and 40% equities. However, this textbook definition is no longer so clear cut.
It is important to identify what the client considers to be their main currency of operation and whether they have income flows in any currency other than this base currency. If it is someone who lives and dies in sterling with all their transactions in sterling, this may not be an issue. However, many investors are not single currency-based or single country-based.
For example, we have a client living in Ireland, inheriting in sterling and with property in the US. The client will always need dollar expenditure so there are short-term cash needs in whatever currency they have.
A key investment factor is the length of time the investor can afford to be without the capital invested. Different strategies may be applied depending on whether wealth creation or wealth preservation are the main objectives.
Discretionary portfolio management is a suitable alternative for many clients, but in particular for those that do not have the time or expertise to be continually involved in investment decision making. All clients will be interested in the general progress of their investment portfolio but as the stock markets and share prices can be very volatile, it is important for us to act immediately on an investment decision. This is particularly important for clients who are not readily available due to location. There is no minimum portfolio size but as a guideline, it can be impractical to start with less than £100,000.
Discretionary investment management services are a simpler approach offering investors access to 'best of breed' fund management houses through an independent selection of collective investment schemes. This service provides a selection of offshore and onshore portfolios.
Portfolios can invest across a range of third party investment funds or collective investment schemes comprising unit trusts, investment trusts, open-ended investment companies and offshore funds ensuring that clients receive a diversified portfolio and prudent spreading of risk. Each of these collective investment schemes is carefully selected as part of an ongoing process for inclusion into a portfolio.
A key attraction of such services is the fee structure. The minimum entry level tends to be around £50,000 per portfolio.
Gearing is increasingly within the range of investment services offered in private banking. This is in the form of lending against the value of the client's investment portfolio. Maximum loan to values are set depending on the composition of the portfolio and such a structure is only for a client who accepts the risk that gearing can magnify both gains and losses.
Gearing against with-profit bonds is also becoming increasingly popular and is considered to be relatively safe. These bonds generate an annual bonus which often cancels o
Joint life second death option added to relieve tax burden on couples gifting assets
Backed by Schroders, LGIM and the IA
New system for funds without without three-year track record
Clients to be compensated by end of 2018
Rolled out to 25 schemes next month