Choice, not chance

Working with a professional who provides discretionary investment management services is one of the best ways to ensure your clients' money is working as hard as possible, and their portfolios reflect their individual circumstances. However, before committing to working with a wealth manager, there are certain questions that need to be asked to ensure the best person for the job is being engaged.

How many clients do you look after?

The fewer the number of clients they're looking after, the better. An investment manager who is personally looking after a very large number of clients is unlikely to be able to provide the level of service required. An investment manager with a relatively select number of clients will be able to give you and your clients' portfolios the time and attention they deserve.

How do you get paid?

This is an important question. Ideally, the investment manager should be paid by their employer in a way that is related to the performance of the investments they oversee. Thereby, interests are aligned and they have a stake in the success of their decisions.

What is your investment philosophy?

The answer to this question will offer insight as to whether they are in it for the long term. Taking into account the objectives for your clients' money and their future goals, a good investment manager's aim should be to preserve and protect capital over many years. Consequently, be aware of promises of mouth-watering returns in the near future, as this may suggest their priorities are skewed towards the short term.

What value of client means something to you?

Some investment managers will have a very high minimum threshold for the investments they are willing to manage. Be wary of this - you want to be a big fish in their pond. Different investment managers will deal with different levels of investment; for instance, Rathbones serves clients with anywhere upwards of £100,000 to invest, but in many firms this level can be much higher.

How many holdings do you hold in a typical portfolio and how often do you change positions?

If presented with a portfolio, irrespective of size, in which the number of holdings is greater than 60, you should seek to understand the reasons why they would not opt for a more concentrated allocation. For preference, you want to hear that an investment manager only changes their positions every three to five years, barring any extraordinary events. As a general rule, beware of high portfolio turnover as, again, this points to a lack of long-term thinking.

What level of reporting can you offer?

It is vital that your wealth manager can provide detailed information about their activity and performance. Transparency is the key to a strong and long-lasting relationship and ensures that your communication with clients can be fully informed.

If the answers to these questions satisfy you, then there is a good chance you are on the way towards finding the right person to work with you in managing your clients' investments.

However, there are, of course, a host of other qualities about an investment manager that may be particularly important to you. This may include anything from the way they should communicate with you or their approach to responsible investment (and you will undoubtedly want to know more about their fee structure).

It is, therefore, very important to meet any potential investment manager in person. These questions can be asked by email or over the phone, but you can only really ascertain whether the relationship is going to work during a meeting, so be sure to insist on this.

First and foremost, however, complete trust in the investment manager must be the bedrock of the relationship. After all, your association should last for many years. 

James Maltin is an investment director at Rathbones