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The robo advisers are comingBut what effect will they have on the £1.1tn UKwealth management market?PAGE 4
How to find your wealth managerAn adviser should offer more than justinvestments, experts sayPAGE 7
No way back for bonds?Yields are so low that many industry watchersbelieve the only way is upPAGE 11
Private Client Wealth ManagementAn FTMoney Guide
FINANCIALTIMES |SaturdayJune20 /SundayJune212015
2 | FTMoney FINANCIAL TIMES Saturday 20 June 2015 FINANCIAL TIMES Saturday 20 June 2015 FTMoney | 3
PRIVATE CLIENT WEALTH MANAGEMENT
Performance
Average % performance of balanced portfolios invested on behalf of UK private clients (cumulative, not annualised) to end 2014
Average % performance of capital growth portfolios invested on behalf of UK private clients (cumulative, not annualised) to end 2014
Wealth manager Over 1 year Over 3 years (cum) Over 5 years (cum) ARC verified Over 1 year Over 3 years (cum) Over 5 years (cum) ARC verified
Adam & Company 4.6 28.4 47.1 X 4.4 33.6 54.3 X
Arbuthnot Latham 7.2 32.1 42 7.2 38.5 N/A
Barclays Wealth and Investment Management 3.5 21.4 N/A X 4.4 28.2 N/A X
Brewin Dolphin 7.16 30.67 N/A 6.25 37.03 N/A
Brooks Macdonald Asset Management 5.12 26.77 36.9 X 4.87 29.51 39.33 X
Canaccord Genuity Wealth Management 5.48 33.52 47.52 6.85 39.6 54.73
Cazenove Capital Management 3.1 25 36.3 X 3.5 30.5 43 X
Charles Stanley Group PLC 3.37 26.37 32.39 3.93 35.44 41.47
Citi Private Bank 3.11 27.46 42.4 3.79 42.2 55.01
Close Brothers Asset Management 4.41 22.16 35.79 3.81 25.79 38.13
Duncan Lawrie Private Bank 4.69 27.43 38.65 X 4.02 28.68 39.58 X
Equilibrium Asset Management LLP 5.51 33.15 40.55 X 5.12 34.95 41 X
GAM 3.33 30.33 34.56 X 2.72 38.98 44.46 X
GHC Capital Markets Ltd 6.98 21.6 25.64 5.16 24.71 32.65
Heartwood 2.8 26.6 35.6 X 2.8 36.7 44.2 X
Ingenious Asset Management 5.7 20.7 33.1 X 6.8 25 38.4 X
Investec Wealth and Investment 4.6 28.2 39.9 X 4 32.6 45 X
Investment Quorum Ltd 4.51 25.54 35.53 5.52 35.19 43.61
James Hambro & Partners 6.06 30.26 N/A X 6.04 33.75 N/A X
JM Finn 3.6 30.9 47.8 X 2.9 29.9 44.2 X
London & Capital 6.7 27 N/A 7.1 44.3 N/A
McInroy & Wood Ltd N/A N/A N/A 7.3 33.1 57.3
PSigma Investment Management 2.87 25.05 30.63 X 3.33 30.94 38.33 X
Quilter Cheviot 4.75 27.98 42.24 5.66 37.11 49.51
Rathbones Investment Management 5.68 29.15 41.56 X 4.06 32.14 46.58 X
RBC Wealth Management 3.31 24.23 35.62 X 3.64 29.9 42 X
Redmayne-Bentley -2.52 27.99 45.13 X N/A X
Rothschild Wealth Management 7.52 30.05 40.94 X 8.13 35.45 47.07 X
Ruff er LLP 4.2 21 41.1 X N/A N/A N/A X
Sarasin & Partners 7.45 30.51 37.52 X 7.15 33.56 40.93 X
Saunderson House Limited 5.5 32.7 43 X 5.7 36.7 47.8 X
Seven Investment Management 5.96 29.74 35.94 X 6.44 37.56 42.94 X
St. James’s Place 6.54 28.93 N/A 6.19 44.94 N/A
Smith & Williamson 6.03 24.72 41.58 X 5.06 32.21 48.89 X
Stanhope Capital 3.3 19.7 30.6 4.2 24.2 34.4
Thesis Asset Management 5.55 28.88 40.63 X 5.82 33.34 43.84 X
Tilney Bestinvest 5.8 31.9 39.8 X 5.1 37.4 48.1 X
Waverton Investment Management Limited 5.02 24.88 34.62 X 6 30.73 43.34 X
Average 4.82 27.38 38.52 5.14 33.73 42.91
Max 7.5 33.5 47.8 8.1 44.9 57.3
Min -2.52 19.70 25.64 2.72 24.20 32.65
Notes: ACPI Investments, Killik & Co, Lombard Odier and UBS Wealth Management did not disclose figures
JUDITH EVANS
The past three years have notbeen straightforward forinvesting. Less than 20 percent of wealth managers’portfolios have added positivealpha, according to figuresfrom Asset Risk Consultants,against 50 per cent that gener-ated negative alpha in thethreeyears totheendof2014.
This was not down to anyrisk aversion: portfolios havebeen steadily squeezed up therisk spectrum, according toARC, with cautious portfolioscontaining high equity alloca-tions.
The unusual climate has
resulted from years of quanti-tative easing, in which theworld’s central banks have col-lectively injected billions intomarkets across the globe. TheFTSE All World, for example,has been on a rising trajectorysince late 2011, gaining almost60 per cent. The volatility ofequities has fallen, while thatof bonds has risen, even asbond yields became tightlycompressed.
“Mixed asset portfolios areconverging in terms of risk,and differentiation of invest-ment styles from a pure vola-tility point of view is becomingextremely hard,” says GrahamHarrison, group managingdirectoratARC.
“Skill hasn’t really beento the fore since the financialcrisis took place and theliquiditytapswereturnedon.”
End investors have madereturns, but they could alsohave made those in simpleportfolios of tracker funds. Isthat set to change? “I’mvery much a believer that thepast is not a prologue to the
future. We think marketsare going to become muchmore investment specific,regional and sector specific,”says Tom Becket, chief invest-ment officer at PSigma Invest-mentManagement.
“This is a situation whereactivemanagersandmanagerswho take a specific approachto investmentshouldshine.”
Until that shift occurs, port-folio construction presentsparticular challenges, espe-cially at the cautious end. “Theonly real cautious portfoliothese days is cash — or a port-folio that is very highly diversi-fied,”arguesMrBecket.
Among balanced portfolios,Canaccord Genuity WealthManagement has the largestallocation to UK and interna-tional shares, according to thisyear’s Financial Times wealthmanagement survey, with69 per cent in the asset class.This compares with an averageof 49 per cent and a low of20 per cent, held by GHC Capi-talMarkets.
“There’s nothing on the
horizon to indicate that theequity bull market is over,although we may have a sum-merdipaswehave inthepast,”says Canaccord’s chief invest-mentofficer,NigelCuming.
PSigma, by contrast, rejectsthe increased equity alloca-tions adopted by some rivals,instead seeking yield throughquality fixed income and spe-cialist credit, while protectingagainst inflation throughindex-linked bonds and com-modityholdings.
Across the board, corporatebond allocations have fallen:among wealth managers sur-veyed, the mean allocation inbalanced portfolios has fallento 17 per cent from 19 per centa year ago. In growth portfo-lios, it is down slightly from 11percent to10percent.
Charles Stanley, Rothschild
and Ruffer are all among thefirms with zero holdings ofcorporate bonds in their bal-anced portfolios, as the assetclass is challenged by lowyields, liquidity worries andvolatility.
James Maltin, chief invest-ment officer at Rathbones,says: “We have reduced ourposition in conventionalbonds with a preference forshort-dated index-linked gov-ernment bonds . . . Coupledwith an improving labourmarket and increasing pres-sure on wages, we considerinflation-linked bonds to be anattractive alternative to cash,especially for higher-rate tax-payers.”
Meanwhile, some 30 percent of wealth managers sur-veyed have no allocation togovernment bonds at all intheir balanced portfolios. Thisis hardly surprising in a worldof such low yields that credi-tors will even pay govern-ments to borrow; in April,
large chunks of short-termnorthern European govern-ment debt traded at unprece-dented negative yields,although that trend has sincegone intoreverse.
One firm taking a differentapproach is Investec Wealth,which holds 28.5 per cent ingovernment bonds thanks to a“bar-belling” approach whichaims to exploit negative corre-lations between bonds andequities.
This served the companyespecially well in 2008, 2011and more recently last year,when UK bond markets faroutperformed equities, saysDarren Ruane, head of fixedinterestat Investec.
“However, we may begin tosee some of these asset classesbecome positively correlated,particularly as interest ratesstart torise,”headds. Inprepa-ration for this, the companyhas begun switching someassets from equities into cash.In its corporate bond holdings,
Investec is limiting maturityand credit risk, and holdingmany bonds to maturity,avoiding the effects of any sell-off.
So-called “alternative” assetclasses have benefited fromthe hunt for yield. Allocationsto hedge funds are up slightlyon last year, as are privateequityholdings.
Rathbones has increased itspositions in asset classesbeyond equities and bonds.But having been exposed to
both property and infrastruc-ture in recent years, “yieldcompression in primeproperty investments is acause for concern, as are thepremiums to net asset value atwhich the share prices of infra-structure funds trade”, MrMaltinsays.
Income seekers have alsolooked to newer asset classes,such as peer-to-peer debt, nowaccessible through a series ofinvestment trusts. Killik hasinvested in P2P Global, the
first such trust to come to themarket, although Mick Gilli-gan, head of fund research,cautions: “It is very early daysin this area, and it will taketime and probably a recessiontoprovideaproperstress test.”
In the meantime, manywealthmanagersbelieveanewinvestment environment isapproaching, potentially tobe sparked by the long-awaited rise in US interestrates. Mr Harrison is confidentthat this will present new
opportunities for alpha gener-ation.
“We are coming up to somesort of crunch point, thoughwe don’t know what form thatwill take,”hesays.
“In the future, we’re notgoing to get a situation whereequities are less volatile thanbonds for any period, andwe’re not going to get a situa-tion where skilful managersselecting the best companiesto invest in are not addinganyvalue.”
Theelusive search for alpha continuesOVERVIEW
Wealth managersmove higher upthe risk curve
Having emerged from thepolitical cauldron of thegeneral election, UK investorswelcomed the shift from thecoalition to a slim majority forthe Conservatives. Proposalsby Labour and the LiberalDemocrats to hit the wealthywith mansion taxes, rentcontrols and the abolition ofthe non-dom regime wererejected at the ballot box, tothe relief of wealth managersand investors.
But while some threatsreceded, others loomed intoview, notably the EUreferendum and a potentialraid on pensions relief.
Chris Kenny, partner atSmith & Williamson, saidinvestors needed to focus onthe referendum as a source ofvolatility, even though primeminister David Cameron wasnow operating from a
position of greater strengthin terms of his electoralsuccess and the performanceof the UK economy. “We’dexpect the UK to remain andwould prefer a referendumsooner than later.”
Some wealth managersflagged concerns around theConservatives’ commitmentto fiscal austerity, afterGeorge Osborne, thechancellor, pledged toeliminate the deficit by 2018.
Balancing the books is alaudable aim, but only ifdoing so does not drag downGDP growth by cuttinginvestment and consumerspending. Frederique Carrier,director of European equitiesat RBC Wealth Management,said Mr Osborne could easethe pain in the Budget. “Wethink he’ll announce plans tosmooth this transition.”
However, Mr Kenny arguedthe Conservatives were likelyto press ahead while they hadthe momentum of victory.James Pickford
Post-electionEU referendum andausterity loom large
Average balanced portfolios
Sources: FT; WealthX
Per cent
Equities
Corporate bonds
Government bonds
Cash 6.04
Hedge funds 5.80Other 5.78
Property 5.46 Commodities0.79
Private equity0.30
49.04
17.22
9.57
PRIVATE CLIENT WEALTH MANAGEMENT
Growth — a chance for fundmanagers to shine— iStock
4 | FTMoney FINANCIAL TIMES Saturday 20 June 2015 FINANCIAL TIMES Saturday 20 June 2015 FTMoney | 5
PRIVATE CLIENT WEALTH MANAGEMENT
Nice idea, shameabout the saleswithmajorgapswhentryingtobuildadiversifiedportfolio.”
Wealth managers such asCoutts, UBS and RathboneGreenbank Investments try tocircumvent this by focusingheavily on individual stockpicking, screening out so-called sin stocks and findingcompanies with good environ-mental, social and governancecredentials.
Despite slow uptake cur-rently, wealth managersexpect sustainable investing togrow in popularity. Productsthey rate include the KamesEthical Equity, Standard LifeUK Ethical, Alliance Trust UKEthical and the Alliance TrustSustainable Future GlobalGrowthfunds.
Ethical bond products fromKames and Standard Life arerecommended by wealth man-agers, as is the Royal LondonEthical Bond. On the passiveside, they give the nod to F&C’sResponsible Global Equity andVanguard’s SRI Global StockGBP exchange traded fund, orUBSethical indexfunds.
However, while the numberof ethical funds available is onthe rise, it appears investorsare reluctant to embrace theconceptuntil there ismoreevi-dence of strong returns and abroader range of productsavailable.
good return and did not harmpeople’s future.
The young and very wealthyare particularly taken with theconcept, says Leslie Gent,managing director at Coutts.“The next generation of clientsare a lot more interested in[environmental, social andgovernance] investing.”
But dig a little deeper andthe numbers for sustainableinvesting look less impressive.Assets managed in ethicalfunds as a percentage of theoverall UK funds industry hasremained fairly stable sincethefinancialcrisisat justover1per cent, IA figures show. Ethi-cal funds currently make upjust 2.07 per cent of the totalnumber of mutual funds regis-tered for sale in the UK, downfrom about 2.35 per cent in2009,accordingtoLipper.
Jason Hollands of TilneyBestinvest says: “[Socialresponsible investment] fundsopen to retail investors arelargely clustered in UK equi-ties, global equities and invest-ment grade corporate bondspace. Investors are presented
ATTRACTA MOONEY
Theopinionpolls point inonedirection— investors increas-ingly say they want sustaina-ble investments. But wealthmanagers report that actualgrowth is slow, raising ques-tions about how muchdemand there is for sustaina-bleproducts.
Headline figures for sustain-able investing, which take intoconsideration both financialreturns and social impact,seem strong. UK ethical fundshad their strongest sales since2007 last year, with £460mflowing into the products,more than double 2013’sinflows, according to theInvestment Association. Thenumber of ethical funds regis-tered for sale in the UK, mean-while, has also soared, jump-ing by almost 60 per cent since2009,Lipper figuresshow.
Bill O’Neill, head of the UKinvestment office at UBSWealth Management, says:“We are increasingly gettingquestions about [sustainableinvesting] and how we couldincorporate it into clients’investmentstrategies.”
A recent poll by crowdfund-ing platform Abundance Gen-eration found that seven out of10 Britons said they wanted toinvest in things that gave a
‘Investors are presentedwithmajor gapswhentrying to build adiversified portfolio’
JUDITH EVANS
The robots are marchingtowards the wealth manage-ment industry, but perhapsmore slowly than originallybilled.
Online “discretionarydirect” investment services,also known as “robo advisers”,began launching in 2012,promising to disrupt tradi-tional models throughtechnology.
Threeyears later, thebiggestcompanies such as Nutmegand Money on Toast will stillnot reveal what level of assetsthey manage, but do notappear to have dented thebusiness models of establishedwealth managers and fundsupermarkets.
On the other hand, a host ofwell-known brands — includ-
ing Investec Wealth, BrewinDolphin and Barclays Stock-brokers — plan to launch simi-lar robo services this year,while Hargreaves Lansdown,the biggest direct-to-con-sumer fund shop, this monthlaunched its own Portfolio+service.
“It’s going to be a slow burn,and I don’t think the bigbrands are going to allow thelittle guys to run away with it.But a lot of people in the mar-ket are now taking this moreseriously,” says JeremyFawcett, head of direct at Plat-forum,aconsultancy.
Traditional models main-tained a distinction betweenadvice, delivered by a humanbeing, or discretionary man-agement, in which the humanmanages investments on cus-tomers’ behalf, and direct-to-consumer product sales,where customers make theirowndecisions.
But these newer servicestread a middle path, generallyby offering portfolios aimed at
different risk appetites, com-binedwithsimplifiedadviceor“guidance”.
By doing this, they cansometimes cut costs. Moneyon Toast, for example, boastsof cutting out layers of per-centage charges associatedwith advice, investment plat-forms and discretionary man-agement.
A slick but simple onlineinterface is also key, although
most operators in thisspacedislikethe“robo” label.
In the US, online serviceslike Betterment and Wealth-Front have converged arounda similar model: algorithm-driven, low-cost, with passiveportfolios of exchange tradedfunds. But in the UK, the pic-ture ismorecomplicated.
“You’ve got HargreavesLansdown, which has beenvery successful with the
investment supermarketapproach; you’ve got Nutmegwith a direct discretionaryoffering; you’ve got Money onToast and Wealth Horizonoffering advice or simplifiedadvice. There is also thegrowth of investment ‘solu-tion’ type products,” said MrFawcett. “There are quite a lotof different ways you canaddress thisneed.”
Mark Polson, founder of TheLang Cat, a consultancy,argues that online portfolioservices may not have fullyestablished what need theyseektoaddress.
People with under £30,000to invest may struggle to payfor advice under regulationsintroduced in 2013 banningpayment through commis-sions, yet there has not so farbeen a mass movement ofthese people to “robo” serv-ices.
“The fact that someone can’tafford an independent finan-cial adviser doesn’t necessarilymean that what they want is
roboadvice,”saysMrPolson.“Also, going down the robo
route isnotalwaysparticularlycheap for the investor. Thetotal cost of ownership is oftenwelloveronepercent.”
Then there is the question ofreputation, in which estab-lished companies may have anadvantage.
A report by Numis Securi-ties in May said robo-adviserswere unlikely to substantiallyaffect the £1.1tn UK wealthmanagement market in thenext five years. But Numispointed out that HargreavesLansdown, once an upstartchallenger, has risen overthree decades to commandsignificant market share in itssector.
Nick Hungerford, chiefexecutive of Nutmeg, arguesthat as soon as one of the “old-world brands” launches a dig-ital offering, the rest will fol-low.
“They couldn’t risk missingout. This will be fantastic forcustomers,”hesays.
Slowmarchof the roboadvisersTECHNOLOGY
Well-known brandsplan to launchautomated services
Big names plan to roll out ‘robo’ services— Shutterstock
Investment allocationCurrent asset allocation of average balanced portfolio invested on behalf of UK private clients (%) Current asset allocation of average capital growth portfolio invested on behalf of UK private clients (%)
Wealth manager Cash Equities Bonds: corporate
Bonds: government Property
Private equity
Hedge funds Commodities Other Cash Equities
Bonds: corporate
Bonds: government Property
Private equity
Hedge funds Commodities Other
ACPI Investments 7 35 45 0 0 0 13 0 2.3 40.2 47.4 0 0 0 10.1 0
Adam & Company 2 53 18 24 3 0 0 0 2 78 5 12 3 0 0 0
Arbuthnot Latham 0 55 20 5 5 0 15 0 0 0 67.5 12.5 0 5 0 15 0 0
Barclays Wealth and Investment Management 13 54 5 4 4 0 13 2 5 5 73 1 0 6 0 8 3 4
Brewin Dolphin 3 56 16 12 4.5 0 0 0 8.5 3.5 72.5 9 5.5 4 0 0 0 5.5
Brooks Macdonald Asset Management 5 42 22 0 10 0 9 0 12 3 62 13 0 6 0 6 0 10
Canaccord Genuity Wealth Management 2.2 68.6 9.7 10.7 0 0 0 0 8.8 1.6 76 0 8.3 0 0 0 0 14.1
Cazenove Capital Management 7 43 13.1 9.5 5.9 0 12.6 1.8 7.1 3.4 61.9 6.9 5.6 5.8 0 9.6 1.8 5
Charles Stanley Group PLC 10 45 0 0 20 0 25 0 5 68 0 0 15 0 12 0
Citi Private Bank 0 40 30 30 0 0 0 0 0 72 20 0 8 0 0 0
Close Brothers Asset Management 9 60 15 1 2 0 3 1 9 8 78 4 0 1 0 3 1 5
Duncan Lawrie Private Bank 4.5 53 17 9.5 5 0 0 0 11 4 68 6 12 3 0 0 0 7
Equilibrium Asset Management LLP 8 35 10 0 28 0 0 0 19 8 65 0 0 13 0 0 0 14
GAM 5.15 52.74 21.41 0 0 0 13.26 0 7.44 2.01 73.55 21.57 0 0 0 2.87 0
GHC Capital Markets Ltd 0 20 30 30 20 0 0 0 0 45 25 0 30 0 0 0
Heartwood 5.6 51.5 11.2 10.2 8.1 1.4 8 4 2.3 78.3 5.8 0 8.1 1.2 1.3 3
Ingenious Asset Management 1 51.2 7.8 0 9.9 0 0 0 30.1 1 72.1 4.8 0 4.9 0 0 0 17.2
Investec Wealth and Investment 7 40 7 28.5 7.5 2 8 0 3 67 5 11.5 5.5 2 6 0
Investment Quorum Ltd 13 28 40 10 5 0 4 0 2 72 16 5 5 0 0 0
James Hambro & Partners 5 57.5 10 10 5 0 0 0 12.5 5 72.5 2.5 7.5 5 0 0 0 7.5
JM Finn 8.2 74.5 2.5 7.7 0.9 0 0 0.3 5.9 9.5 76 1.6 4.8 0.6 0 0 0.4 7.1
Killik & Co 3 72 15 0 5 0 5 0 2.5 85 0 0 0 2.5 7 3
London & Capital 10 50 40 0 0 0 0 0 10 70 20 0 0 0 0 0
McInroy & Wood Ltd N/A N/A N/A N/A N/A N/A N/A N/A N/A 1 70 0 29 0 0 0 0
PSigma Investment Management 5 43.75 22.5 11.5 0 0 0 5 12.25 3 54 21 4.5 0 0 0 6 11.5
Quilter Cheviot 4.5 31 20.7 25.3 6 0 10.5 2 2 78.5 3.2 2.8 5 0 6.5 2
Rathbones Investment Management 9 35 13 21 3 0 0 3 16 4 63 8 10 2 0 0 1 12
RBC Wealth Management 2.2 39.6 26.7 3.5 3.2 0 12.4 2.4 10 2 49 15.3 3 4.1 0 14 5.1 7.5
Redmayne-Bentley 4 82 10 0 0 0 0 0 4
Rothschild Wealth Management 3.3 59 0 14.7 0 0 22.5 0 0.5 6.3 68.5 0 0 0 0 24.7 0 0.5
Ruff er LLP 14 40 0 28 0 0 0 5 13
Sarasin & Partners 5 45 16 22 2 3 7 0 8 63 8 12 2 3 4 0
Saunderson House Limited 6 55 17 8 14 0 0 0 3 66 11 6 14 0 0 0
Seven Investment Management 10.9 50 28.9 3.8 1.9 3.5 0.1 0 0.9 11.6 65.6 14.2 0 2.9 5.7 0 0
St. James’s Place 7.5 50 28.3 0 8.3 0 0 0 5.9 9.8 72.5 11.7 0 0 0 0 0 6
Smith & Williamson 6 63 12 5 5 0 4 0 5 4 76 5 4 4 0 4 0 3
Stanhope Capital 13 48 14 0 0 0 15 3 7 3 62 9 0 0 8 12 2 4
Thesis Asset Management 5.5 32.97 30 0 12 2.03 11.5 0 6 7.46 60.54 14 0 5 3.25 6.75 0 3
Tilney Bestinvest 5 50 9 9 9 0 12 0 6 4 73 3 2 6 0 10 0 2
UBS Wealth Management 5.78 52.22 18.3 23.7 0 0 0 0 5.19 71.47 10.17 13.17 0 0 0 0
Waverton Investment Management Limited 6.2 48 16.8 5.2 5.2 0 8.3 2.1 8.2 3.5 67 10.8 3.2 3.5 0 5.5 1.4 5.1
Average (mean) 6.04 49.04 17.22 9.57 5.46 0.30 5.80 0.79 5.78 4.13 68.04 9.52 4.15 4.55 0.66 4.32 0.76 3.87
Max 14 82 45 30 28 4 25 5 30 12 85 47 29 30 8 25 6 17
Min 0 20 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Notes: Lombard Odier did not disclose asset allocations
PRIVATE CLIENT WEALTH MANAGEMENT
6 | FTMoney FINANCIAL TIMES Saturday 20 June 2015 FINANCIAL TIMES Saturday 20 June 2015 FTMoney | 7
PRIVATE CLIENT WEALTH MANAGEMENT
Clients, assets and feesAnnual fee tariff (%)
Wea
lth m
anag
er
% o
f dis
cret
iona
ry fu
nds
inve
sted
in
in-h
ouse
fund
s
Min
imum
por
tfol
io s
ize
for a
dvis
o-ry
man
agem
ent (
£k)
Min
imum
por
tfol
io s
ize
for d
iscr
e-tio
nary
man
agem
ent (
£k)
£100
,000
£250
,000
£500
,000
£1m
£3m
£5m
Min
imum
fee
(£)
Clea
n sh
are
clas
ses?
Reb
ate
trai
l com
mis
sion
s?
Dea
ling
cost
s (w
here
dis
clos
ed)
Sepa
rate
‘pla
tfor
m’ o
r cus
tody
ch
arge
?
Any
alte
rnat
ive
fee
stru
ctur
es?
Not
es
ACPI Investments 5000 0.5-1.0
Adam & Company 1 500 1.25 1.13 0.88 0.73 2000 Y N Passed through at cost N N Fee tariff includes custody, administration and reporting
Arbuthnot Latham 0 50 400 1.25 1.25 1.25 1.25 0.96 0.88 5000 N/A Y Nil except for execution only N Y No transaction commissions on discretionary trail rebated since 2005
Barclays Wealth and Investment Management
3 250 1.25 1.25 1.25 1.08 0.5-0.95 Y N/A Nil N N
Brewin Dolphin 0 5000 150 0.75 0.75 0.75 0.6 0.38 On request £250 per quarter Y N/A £20 per trade N Y Commission: 1.25% on 1st 15,000; 1.00% on next 15,000; 0.5% thereafter
Brooks Macdonald Asset Man-agement
3 200 200 N/A N 1% on the first £10,000 (minimum £15 per trade); 0.15% from £10,001-£250,000; 0.11% thereafter
N/A N/A Fees available on application, starting at 0.75%+VAT. Dealing charges may apply
Canaccord Genuity Wealth Man-agement
0.1 0 50 1.5 1.5 1.5 1.5 1 By negotiation 1500 N/A N/A £30 per transaction N Y Full rate card available. Charges may diff er for off shore clients
Cazenove Capital Management 8 1000 1000 0.75 0.75 0.50 - 0.75 Transaction charge: £50 per trans-action including in-house funds
Y N Bonds: 0.75% on first £30,000, 0.25% thereafter. Equities: 1.00% on first £30,000, 0.50% thereafter
N Y Tiered; 0.75% on first £3m, 0.65% on next £2m, 0.50% thereafter
Charles Stanley Group PLC 1 80 150 1 1 1 1 0.58 0.45-0.30 600 Y N Service dependent N Y Fee-only
Citi Private Bank 0 75 Y N 2 to 3.5% Y N
Close Brothers Asset Management 0 100 1 1 1 1 1 1% N/A Y 0.05% N N
Duncan Lawrie Private Bank 0 1000 1000 1 1 1 1 0.66 1% first £1m, 0.5% thereafter 0 Y N Sliding scale based on asset class N Y
Equilibrium Asset Management LLP 0 100 100 1.5 1.5 1.5 1 1 0.8 2500 N/A Y Y N Fees tiered above £5m
GAM 37.4 2000 2000 0.5 0.5 0.5 Y Y na N Minimum discretionary portfolio £2m
GHC Capital Markets Ltd 6 100 20 0.75 0.75 0.75 0.75 0.5 0.45 200 Y N/A 0.75% N Y
Heartwood 67.9 500 1.25 1.25 1.25 1.25% first £1m, 1% on next £2m, 0.75% thereafter
Y Y AMC includes dealing charges and custody. Extra charge of 0.20% on sterling equivalent
N Y
Ingenious Asset Management 2 250 Y N £25 per deal N N Fees vary with type of mandate
Investec Wealth and Investment 1.1 100 100 1.25 1.25 1.25 1.25 1.04 0.93% 1500 Y N/A Nil N Y
Investment Quorum Ltd 0 100 100 0.75 0.75 0.75 0.75 0.5 0.3 - 0.5 N/A N/A AMC includes dealing charges Y Y
James Hambro & Partners 1 500 500 1 1 1 0.8 N/A Y N/A None (clean fee) N Y
JM Finn 0.3 0 0 0.75 0.75 0.75 0.58 0.46 0.75 - 0.4 250 na N Commission includes dealing charges N N £20 compliance charge per transaction. Also off er fee-only tariff
Killik & Co 0 0 100 1 1 0.75 0.6 0.6 negotiable £125 per quarter Y Y 1% on first £15k, 0.5% thereafter N Y Fees for discretionary: 1% up to first £500k, 0.75% on next £500k, 0.6% over £1m
Lombard Odier 70 3000 3000 Y
London & Capital 1000 1.25 1 0.85 Y N Nil N N
McInroy & Wood Ltd 75 0 1 1 1 1 Concessionary fees may apply above £2m
Y N/A Passed through at cost N N
PSigma Investment Management 0 250 1.25 Y N Nil (clean share classes) N N 1.25% on first £2m, 1% on next £3m, 0.75% on next £5m, 0.5% on next £10m
Quilter Cheviot 0 250 250 1 1 1 1 0.5 0.3 Y N May be applicable in certain fee structures N Y
Rathbones Investment Management 2.2 100 100 1.2 1.2 1.1 0.99 0.7 0.62 Y Y N N/A
RBC Wealth Management 58 2000 2000 1.25 1.08 0.97-0.50 5000 Y N None as standard N Y
Redmayne-Bentley 0 50 50 0.85 0.85 0.85 0.85 0.85 0.85 £425.00 Y N 1.75% on transactions £1,428 to £10,000, 0.5% thereafter
N Y
Rothschild Wealth Management 11 5000 5000 From 1% N/A Y N/A Discretionary fee includes management charges N Y
Ruff er LLP 41 250 1 1 1 1 1 1 Y Y Passed through at cost N N
Sarasin & Partners 51 500 1 1 1 1 0.96 0.87 N/A Y N/A Nil N N In-house funds excluded from fee structure
Saunderson House Limited 750 Y Y Depends on platform employed N N/A Hourly rate charged for advisory services
Seven Investment Management 90 200 0.25 0.25 0.25 0.17 0.06 0 40 + VAT Y N Nil N N
St. James’s Place 0 5 0 N/A N/A Nil N N/A
Smith & Williamson 4.6 0 0 0.8 0.8 0.8 0.8 0.65 0.53 0 Y N/A Fixed interest 0.4%, other investments 0.6%, minimum £40. Overseas holdings £50 per transaction
Y Y Custody charges: up to £2m 0.2%, thereafter 0.15%. Total charges for less than 2m are 1%, thereafter 0.5%, no minimum fee
Stanhope Capital 0 50000 10000 0.35% - 1.0% N/A Y External custodian Y Y Tiered fee scale
Thesis Asset Management 0 150 1.2 1.2 1.2 1 0.6 0.52 2000 Y Y Nil N Y 1.2% up to £750,000, 0.4% thereafter. Reduced where other professionals advising the client
Tilney Bestinvest 11 100 50 1.25 1.25 1 1 0.5 N/A Y Y AMC includes dealing charges N/A N/A AMC charged at tiered rates plus VAT: £0-£500k 1.25%; £500k-£1.25 m 1.00%; £1.25m to £2m 0.75%; above £2m 0.50%
UBS Wealth Management 10 1000 500 Y Y Y Y
Waverton Investment Management Limited
7.3 500 1.2 1.2 0.93 0.88 N/A N 0.15% per equity transaction N N 1.2% on the first £1m, 0.8% thereafter
PRIVATE CLIENT WEALTH MANAGEMENT
JUDITH EVANS
Since ancient Roman senatorshired financial advisers to lendout their money, people withwealth have needed someoneelse to manage it. These days,the Forum has been replacedby the internet, but finding theright intermediary is not asimplematter.
Behind superficially similarofferings — wood-panelledoffices and boasts of sophisti-cated investment strategies —lie a broad range of approachesthat can play a big part indefining customers’ sensitiverelationshipwithmoney.
“A lot of ‘wealth manage-ment’ is merely overpricedand ineffective investmentmanagement dressed up assomething more comprehen-sive,” argues Jason Butler,author of the Financial TimesGuide to Wealth Management.
Beyond investment, wealthmanagers must be able to han-dle tax, inheritance, mort-gages and pensions; theyshould start from the vantagepoint of a customer’s goals,says Mr Butler, a charteredf inancia l planner atBloomsburyWealth.
“Counsel, guidance, a criti-cal friend, someone to helpwith strategy, project-managestuff, suggest some solutions ifthat’s what’s needed — that’swhat I call wealth manage-ment.”
Individuals searching forwealth managers range fromthose with £50,000 in assets tothose with more than £100m,says Lee Goggin, co-founder ofthe website Findawealthman-ager.com, a site that matchescustomerswithcompanies.
He says the top priority forusers of his service is notinvestment performance orfees, although both are impor-tant, but the long-term rela-tionship with an individual. Awave of consolidation in theindustry has led to upheavalfor many clients, further high-lightingthe issue.
“Someone’s adviser or rela-tionship manager moving isone of the biggest problems forthem,” says Mr Goggin. “Theyneed to know that someone’sgoing to be there for the longhaul and they can have faith inthemthroughthoseyears.”
In dealing with a potentialwealth manager, Mr Gogginsuggests asking about the his-
tory of the individual who willbe handling your affairs — howlong they have worked there,what they did before, and whathappens if theydoleave.
You can also ask how muchexperience they have of deal-ing with clients similar to you,what advanced-level profes-sional qualifications they havepassed, and how they accessspecialist expertise — fromoutside firms if necessary — inareassuchastax.
While assessing what MrGoggin calls your “chemistry”with the potential wealth man-ager, it is also vital to look atthenumbers.
Wealth managers’ fees andinvestment performance arenotoriously hard to comparewith one another, but theyshould hand you a “rate-card”upfrontwithdetailsofcharges.
Mr Butler says you shouldestablish what minimum com-mitment they expect from youin terms of time and fees; headvises favouring firms whosecharging structure is notlinked to the arrangement ofproductsor investments.
Reforms introduced in 2013under the Retail Distribution
Review banned payments ofcommissions from productproviders, but most wealthmanagers charge a percent-age-based fee on assetsinvested, leading to a risk of“productpush”.
Don’t be afraid to ask formore information on fees andeven haggle, says Mr Goggin:while bargaining is rare in Brit-ish culture, he knows of caseswhen it has been successfulwithwealthmanagers.
Then there is the question ofinvestment strategy. Modelportfolios are widely availabledirectly to consumers online,so wealth managers must jus-tify the extra fees they gener-ally charge compared withthese ready-made services,says Holly Mackay, an inde-pendent investmentexpert.
“I went to see a wealth man-ager and they outlined a port-folio that looked just the sameas a lot of the standard onesout there — it had the 10 mostpopular funds in there and alot of investment trusts,”she said. “I think there are alot of companies resting ontheir laurels, residing on his-torical brand names, and not
actually fighting for the privi-lege of managing people’smoney.”
Ms Mackay opted to see afinancial planner who advisesher on tax and insurance,while she handles her owninvestments, shesays.
“If you focus on the rightoutcomes, you might not need
a comprehensive service,” saysMrButler.
Not all firms are lazy when itcomes to investment strategy;Ms Mackay cites St James’sPlace, which manages morethan £55bn, as one companythat makes an effort to seekout the best fund managers tomanage its funds, which are
structured as mandates run bythird-partymanagers.
Wealth managers must beflexible, adapting strategies tofit customers’ goals for differ-ent segments of their moneyand the type of tax-efficientwrappers they are using, saysAndy Steel, chief executive ofJamesHambro&Partners.
“For instance, the inherit-ance tax benefits of holdingassets within a pension arenowsoconsiderablethatmanyinvestors are seeing their pen-sion assets more as ‘familyassets’and their investmenthorizon consequently extendsbeyond the duration of theirlife,”hesays.
Howto find theperfectmoneymanagerGUIDANCE
Your adviser needsto have all-roundindustry knowledge
‘I think there are alot of companies restingon their laurels, residingon historic brand names’
8 | FTMoney FINANCIAL TIMES Saturday 20 June 2015 FINANCIAL TIMES Saturday 20 June 2015 FTMoney | 9
PRIVATE CLIENT WEALTH MANAGEMENT
DAVID BARKS
This year’s FT Private ClientWealth Management Surveyreveals a startling change: to
access some wealth manage-ment services you need to bealmost 50 per cent wealthierthanlastyear.
TheUKwealthmanagementindustry continues to adapt tothe new regulatory environ-ment, in which higher compli-ance costs appear to beprompting firms to shun less
well-heeled — and thus lessprofitable—clientele.
In 2015, the survey showedthat the average minimumamount an individual needs toinvest to access advisory serv-ices is £806,000, a 48 per centincrease on last year’s mini-mum figure of £542,000. Theresearch also shows that many
wealth managers are alsorestricting access to their dis-cretionary services. An indi-vidual now needs to invest anaverage £650,000 in a discre-tionary portfolio service, a 27per cent increase on 2014’s fig-ureof£517,000.
One-third of wealth manag-ers offering advisory services
now require a client to place atleast £1m with them to obtaintheir advice, while 22 per centrequire more than £1m for dis-cretionary services. This sug-gests that many wealth man-agers are adopting a tieredservice approach. If a clientwants an advisory service butcannot — or will not — investthe required amount, they areoffered a more cost-effectivediscretionary option. Andmany of these utilise a collec-tive managed portfolioarrangement rather thanbespokedesign.
Unsurprisingly, this relega-tion in service delivery hasupset a number of clients. Ourwealth management bench-mark data shows that clientsatisfaction fell from 62 to 54percentduring2014.
So will wealthier clientsreceiveabetterservice?
Two findings suggest theymight. Firstly, there are moreclient facing advisers per clientthan in 2014. Over the past 12months the ratio has fallenfrom175:1clients toadvisers to161:1, notionally suggestingthat advisers will have moretimetoattendtoclientneeds.
Secondly, annual fee tariffson discretionary portfoliosover £1m have fallen by anaverage 5 basis points. Thismay reflect increased compe-tition in the market for clientsthat providers really want toattract and retain. It also sug-gests recent market consolida-tion has limited cost increases
andmakes largerclientportfo-liosmorecost-effective.
If there is positive news at allfor those who want theirwealth to be managed but can-notget theservice theywant, itis the rise of online platforms.Over three-quarters of wealthmanagers surveyed saw cli-ents’ increased use of theseplatforms as a positive devel-opment. More than a quarterstated that it was an area offocus inthecomingyear.
The spate of new entrants inthe online discretionary spacealso suggests that this is anarea of real innovation. Andwhile this may not provide theface-to-face contact that manyclients desire, it could provideaccess to the investmentexpertise theycrave.
However, wealth managersshould beware; if they cannotservice them appropriatelythere is always likely to beanother provider willing totake the business of theshunned affluent. We estimatethat 1.1m affluent individuals(with £250,000–£1m investa-ble assets) in the UK have£700bn in total assets betweenthem; a valuable market forthose willing to invest the timeandmoneytoservethem.
David Barks is an associatedirector at Wealth-X CustomResearch ( formerly LedburyResearch), the global provider ofwealth intelligence and research partner of the FT Private ClientWealth Management survey forthe past six years
Yourwealthmanagerwon’t be seeingyounowCLIENTS
£800,000-plusinvestment needed toaccess advice services
Wealth managers may havestruggled to generate alphain 2014, but rising marketsand low inflation meant theywere able to generatepositive returns for clients.
The average balancedportfolio returned 5.02 percent during the year, and theaverage growth portfolio6 per cent, according to thelatest survey by WealthX andthe Financial Times. Bothtypes of portfolio were aheadof the FTSE All World index,which gained 3.35 per cent.
Rothschild WealthManagement offered thestrongest-performingbalanced portfolio of thosethat disclosed figures: itreturned 7.52 per cent toinvestors during the year,closely followed by Sarasin &
Partners, with 7.45 per cent.In the longer term, though,
Canaccord Genuity showedan edge over its rivals,returning 33.52 per cent overthe three years to the end of2014 and 47.52 per cent overfive, making it the topperformer over both periods.
Among growth portfolios,McInroy & Wood andArbuthnot Latham ledthe pack in 2014, returning7.3 and 7.2 per centrespectively. McInroy, aScottish discretionary firm,was the strongest five-yearperformer, returning 57.3 percent.
For some wealth managers,2014 was less than plainsailing. Redmayne & Bentleywas the only firm to producea negative return in itsbalanced portfolio, whichshed 2.52 per cent, though itsfive-year performance wasamong the strongest at45.13 per cent. Judith Evans
Top performersRothschild andCanaccord lead pack
PRIVATE CLIENT WEALTH MANAGEMENT
MOIRA O’NEILL
Following radical changes tothe pension rules on April 6,investors may need to do someserious tax planning or re-arrangement of their finances,warranting a serious discus-sionwithawealthmanager.
Angela Murfitt, a charteredfinancial planner at FairstoneFinancial Management, says:“People should be asking theirwealth manager to explain thewhole position from the ‘hereand now’ to the question of‘whathappens intheend?’”
In addition to the option ofbuying an annuity, anyoneaged 55 or over can take theirpensioninthreeways:3One lump sum, with 25 percent tax-free and the balancetaxed at your highest marginalincometaxrate;3Adhoc lumpsums;3 Tax-free cash and/or anincome under the new flexiaccessdrawdownrules.
Here are four key questionstoask:
What is thebestwaytotakeanincome?
Before April 6, many peoplewere advised to draw anincome from their pensionbefore touching other assets.However, Ms Murfitt says: “Inthe past it seemed sensible tospend ‘restricted assets’ suchas pensions first in favour ofpreservingIsapots togainflex-ibility,keepcontrolandreducetheriskof losingout ifyoudiedtoo soon. This argument hasturnedonitshead.”
Charles Calkin, head offinancial planning at JamesHambro & Co, says: “For manypeople it is now better to drawnon-pensionassets first.”
What risks do I face in takingincome?
Mr Calkin says: “You can domuch more with pensionsnow, but with that freedomcomes risks. You need a wealthmanager capable of deliveringstrong performance — with arecord of preserving andenhancingwealth.”
Steve Wood, a wealthadviser at Canaccord GenuityWealth Management, says:
Four toughpensionquestionsfor your adviser
“Taking a lump sum or incomefrom your pension fund willreduce the amount you con-tribute to pensions in thefuture to a maximum of£10,000 a year. If you are con-tinuing in work and wish tomake future contributions,discuss whether this is themost tax effective way of tak-inganincome.”
Howwillmypensionbeadministered?
Mr Calkin says: “Most advis-ers will use a specialist exter-nal self-invested personal pen-sion (Sipp) provider. It’simportant to check whetherthey are equipped to cope withthenewfreedoms.
“You should also seek reas-surance that the Sipp providerhas the scale and administra-tiveexpertisetoensureyouarepaid properly. The flexibility isencouraging people to think oftheir pension like a bankaccount, but if you are takingyour income gradually overtime rather than as a lumpsum, then it creates someadministrative complexity.The Sipp provider will have toearmark different pots, takingtaxatsourcewherenecessary.”
How can I pass pension assetstomyfamily?
Any policyholder who hasnominated a beneficiary anddies before the age of 75 nowhas the option of passing ontheir pension as a tax-freelump sum, or to their nomi-nee’spensionfund.
After 75, the fund can bepaid as a lump sum subject to a45 per cent tax charge or themonies can be passed to anominee’s pension with theincomethentaxedat therecip-ient’s marginal tax rate fromApril 2016, but at 45 per centthispresent taxyear.
Dion Lindskog, head ofwealth structuring at RBCWealth Management says:“The death benefit changesnow mean that pensions areone of the best investments forlong-term family wealth trans-fer. With tax relief on the con-tributions and the tax-efficientgrowth, even small contribu-tions can turn into significantamounts that can be passed tofuturegenerations.”
Moria O’Neill is personal financeeditor of Investors Chronicle
RETIREMENT PLANNING
Buying an annuityis no longer the onlyoption for investors
The outlookfor pensionshas changeddramaticallysince newfreedomswereintroduced inApril— Bloomberg
10 | FTMoney FINANCIAL TIMES Saturday 20 June 2015 FINANCIAL TIMES Saturday 20 June 2015 FTMoney | 11
PRIVATE CLIENT WEALTH MANAGEMENT
Services
Wea
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ACPI Investments 2 8 2 193 1000 1500 X X X X X
Adam & Company 4 20 4 1400 1250 X X X X X X X X
Arbuthnot Latham 3 40 4 4900 200 668 X X X X X X X X X X X X X X X X X
Barclays Wealth and Investment Management 24 400 40000 14000 X X X X X X X X X X X X X X X X X X
Brewin Dolphin 28 441 6 70000 4800 24800 X X X X X X X X X X
Brooks Macdonald Asset Management 10 144 23 15198 6228 X X X X X
Canaccord Genuity Wealth Management 5 107 15 12000 4200 7100 X X X X X X X X X X X
Cazenove Capital Management 6 83 1 5212 743 20422 X X X X X X X X X X X X X X X X
Charles Stanley Group PLC 27 286 63 50000 4700 8500 X X X X X X X X X X X X
Citi Private Bank 5 82 37 17700 2565 X X X X X X X X X
Close Brothers Asset Management 8 131 1 65000 9700 X X X X X X X X
Duncan Lawrie Private Bank 4 23 8 4200 33 702 X X X X X X X X X
Equilibrium Asset Management LLP 3 6 0 675 65 365 X X X X X X X X
GAM 1 11 0 407 160 1770 X X X X X X
GHC Capital Markets Ltd 3 7 0 3700 53 346 X X X
Heartwood 2 29 9 2233 60 2004 X X X X X X X
Ingenious Asset Management 1 12 3 1700 1748 X X X X
Investec Wealth and Investment 15 393 24 60000 5864 20115 X X X X X X X X X
Investment Quorum Ltd 1 5 2 412 58 126 X X X X X X X X
James Hambro & Partners 1 16 1 1478 419 1080 X X X X X X X X X
JM Finn 6 90 0 15000 1903 5195 X X X w X
Killik & Co 9 82 9 22000 2915 803 X X X X X X X X X X X X
Lombard Odier 1 20 0 X X X X X X X X X
London & Capital 1 30 5 700 2600 X X X X X X X
McInroy & Wood Ltd 2 8 0 700 1073 X X
PSigma Investment Management 3 20 1 3274 2296 X X
Quilter Cheviot 11 165 10 37500 10823 720 X X X
Rathbones Investment Management 15 262 41 34122 2000 22700 X X X X X X X X X X X
RBC Wealth Management 6 120 10 1713 2737 1974 X X X X X X X X X X X X
Redmayne-Bentley 37 88 4 58096 575 786 X X X X X
Rothschild Wealth Management 3 41 5 1409 421 5600 X X X X X X X X X X X X X X
Ruff er LLP 3 33 2 4049 5820 X X X
Sarasin & Partners 2 19 1 850 2400 X X X
Saunderson House Limited 1 45 0 1600 3696 X X X X X X X
Seven Investment Management 2 40 6 15600 5577 2144 X X X X X X
St. James’s Place 22 2835 264 239000 55800 X X X X X X X X X X X X X
Smith & Williamson 6 167 9 16000 2783 10441 X X X X X X X X X X X X X X
Stanhope Capital 2 20 2 150 3000 3200 X X X X X
Thesis Asset Management 4 14 2 3500 9800 X X
Tilney Bestinvest 40 150 10 70000 1612 5738 X X X X X X X X X X X X X X X
UBS Wealth Management 7 240 20 X X X X X X X X X X X X X X X X X
Waverton Investment Management Limited 1 22 3 2500 3843 X X
Totals 337 39 31 11 10 14 11 19 23 23 14 5 13 8 12 27 27 4 17
% off ering services 93% 74% 26% 24% 33% 26% 45% 55% 55% 33% 12% 31% 19% 29% 64% 64% 10% 40%
PRIVATE CLIENT WEALTH MANAGEMENT
JOHN KENCHINGTON
Once seen as a rather unevent-ful corner of the investmentworld, fixed income is now thesubject of high-drama head-lines, declaring “taper tan-trums” and “bond blood-baths”.
The cause of the volatilityhas been the extraordinaryresponse of the world’s centralbankstothe2008financialcri-sis. By slashing interest ratesand pumping billions intobond markets, central bankerscreatedaonce-in-a-generationbullmarket in fixedincome.
Yields are so low in somemarkets that some now fearthe only way is up — and whenyieldsrise,prices fall.
In early May, analysts atMorgan Stanley bearishly pre-dicted that the US FederalReserve, the European CentralBank and the Bank of Japanwould all tighten their mone-tary policies in 2016 if growthcontinuedtopickup.
When markets suspect cen-tral banks will raise rates ortaper asset purchasing pro-grammes this drives up bondyields. In other words, theythrowatapertantrum.
Morgan Stanley went so faras to warn that 2016 could bethe year of the “triple tapertantrum” in bond markets, asinterest rates rise and today’shistoric low yields become athingof thepast.
In fact, by the time thereport came out the Germangovernment bond market wasalready throwing its own tan-trum. The supposed safestassets in Europe saw theiryields surge from lows of 0.05per cent in April to above the 1percentmarkbyearly June.
This translated to roughly a7 per cent price fall suffered by
investors in just over a monthand a half, with knock-oneffects inglobalmarkets.
To make matters worse,liquidity is scarce in manybondmarkets.
Stewart Richardson, chiefinvestment officer at RMGWealth Management, sayscentral banks have artificiallyinflated price “bubbles innearly all major assets andsome minor and alternativeonesaswell”.
“This combination ofextremely overvalued assetswith poor liquidity becomes amajor problem when enoughinvestors want to cash in theirchips and find there are simplynot enough buyers at marketprices,”saysMrRichardson.
“At the same time, regula-tors have changed the struc-ture of markets, which hascaused liquidity to becomemuchmorescarce.”
While central bankers werepumping in cash, regulatorsresponded to the 2008 crisisby imposing stringent capitalrequirements on banks, forc-ing them to hold cash insteadof“riskassets”suchasbonds.
In doing this, the regulatorsplanned to turn the banks intosafe and sturdy institutions,but the bond markets havebeen left with a dearth of avail-able buyers at times of stress,leadingto losses for investors.
Wealth managers are beingforced to rewrite their invest-ment rules books in responseto these dual pressures in bondmarkets.
Private client giant Rath-bones has introduced a newmodel, known as LED, underwhich portfolios are split intothree distinct portions —liquidity assets, equity-typeassetsanddiversifiers.
Bryn Jones, fixed incomefund manager at Rathbones,says the new approach ensuresall client bond portfolios havea significant portion investedin liquid assets. This ensuresthat reasonable prices can beachieved, in the event thatassetsmustbesoldoff.
Mr Jones says the model alsodiscourages investment man-agers from assuming bondswith currently low yield levelsare therefore the safest andmost liquid assets around, apotential pitfall with tradi-tionalbondriskmodels.
The presence of “diversifi-ers” reduces the risk of suffer-ing painful losses in a marketshock.
Diversified assets are thosethat tend not to fall in price inline with other assets at times
ofstress,althoughequally theymay not rise to the samedegree inbullmarkets.
Lee Morris, senior fixedinterest investment managerat Canaccord Genuity Wealth,is another manager focusingon diversifiers to tackle thetantrums.
He says the firm is adding
assets such as Qatari govern-ment bonds and so-called“dim sum bonds”, fixedincome securities issued out-side of mainland China, butissuedinChineserenminbi.
By buying up bonds that donot feature on major invest-ment indices some of the worstvolatility can be avoided, says
Mr Morris, because the bondsavoid the “hot money” effectof major investors pouringintoandoutof theassets.
Buying short-dated bondsand holding them to maturityis another way to cut out thevolatility, he says, as you arenot exposed to the volatility ofsecondarymarkets.
While the wealth manage-ment industry evolves in theface of volatility and illiquidityin fixed income markets, thesetacticsremainuntested.
For some investors, the nextbond market downturn mayprovetobeatantrumtoofar.
John Kenchington is the editorof Investment Adviser magazine
Bondsbullmarket charge runsout of steamFIXED INCOME
Yields are so low thatmany suspect thatthe only way is up
Bondmarkets have been hitby huge volatility
12 | FTMoney FINANCIAL TIMES Saturday 20 June 2015
PRIVATE CLIENT WEALTH MANAGEMENT
JUDITH EVANS
What price tag should beattached to wealth manage-ment, and do its customers getwhat they pay for? These arenot simple questions toanswer, but thanks to a seriesof regulatory changes, they arebeingaskedmorefrequently.
Charging structures weretransformed two years agowhen the Retail DistributionReview forced wealth manag-ers to charge clients directly,rather than through commis-sions from product providers.While some already used a fee-based model, RDR forced therest to jointhem.
“In terms of removing con-flicts of interest betweenadvisers and the funds theyrecommend, that has withoutdoubt been a positive,” saysPaul McGinnis, analyst atShoreCapital.
“The regulator may haveexpected the industry to moveto charging for time spent, likelawyers and accountants, but alarge portion of the market hascontinued with percentage-basedcharging.
“It’s not clear to me thatcosts have fallen much, but it’sa lotmoretransparentnow.”
Wealth managers now handprospective clients a “ratecard” detailing their fees, butthe Financial Conduct Author-ity, the City regulator, found in
December that 36 per cent ofwealth managers were not giv-ing clear examples of initialcharges and half were unclearaboutongoingcosts.
John Barrass, deputy chiefexecutive of the Wealth Man-agement Association (WMA),says there is“moretobedone”.“The rate cards are all differ-ent according to the business model . . . Comparability isveryhardtoachieve,”hesays.
One problem is the range ofdifferent costs that come intoplay, including upfront fees,exit fees, transaction chargesand third-party costs. Butcampaigners such as the Trueand Fair campaign argue thatthis is simplyobfuscation,withcompanies unwilling to puttheircosts inblackandwhite.
They may face pressurefrom prospective clients.Research by the website Find-awealthmanager.com foundits customers expressed astrong desire for a figure thatgenuinely represented totalcosts and for “a simple way tocompare the fees of severalwealthmanagers”.
Analysis by Numis Securi-ties indicates fees vary widely,but that the services of amajority of wealth managerssurveyed cost more than 2.5per cent a year of customers’assets; total fees stretched ashigh as 7.5 per cent for shortperiods of investment. Amongcheaper firms are Nutmeg, theonline wealth manager, andSCM Private, which bothchargecloser toonepercent.
Whilecustomerswant infor-
mation, thisdoesnotnecessar-ily translate into a desire topick the cheapest. Find-awealthmanager.com foundpeople were specifically con-cerned with value for money,while Mr McGinnis sees littledownward pressure on fees inthe market catering for inves-torswith£250,000ormore.
On disclosure, more changeis looming. New Europeanrules under the second instal-ment of the Markets in Finan-cial Instruments Directive(Mifid II) will force wealthmanagers and private banks toreveal all costs — includingtransaction costs and third-party payments like fund fees
— in a single aggregated figure.Thiswill takeeffect in2017.
The WMA argues this will behard to achieve, both in termsof sourcing the informationand developing systems toprocess it. Of particular con-cern is a requirement to pre-dict the impact of costs on thefuture value of investments.
There are also potential con-flicts between different Euro-peanrulesoncostdisclosure.
However, Mr Barrassbelieves negotiations over thenew rules will “come out inthe wash” to the benefit ofconsumers, offering “somedegree of comparability”betweenfirms.
Areyougetting fair value formoney?FEES
Clients are stillfinding it hard tocompare costs
Pension tax reliefThis will only affect those
earning above £150,000 ayear as the government cutsthe amount the highestearners can save into theirpension tax-free each yearfrom £40,000 to £10,000.
“B” sharesShareholders no longer
enjoy a tax advantagethrough special purposeshare schemes. Previously,UK-listed companies couldissue “B” shares to investors,subsequently repurchasingthem, offering a more tax-efficient return on capitalthan dividends. Any suchreturns are now taxable asdividend income.
IsasThe government is
committed to allow peer-to-peer investments and listedbonds issued by co-operativeand community benefitsocieties in the tax-efficientsavings products.
Capital gains taxCapital gains tax is seen as
vulnerable to tax raisingchanges. While higher ratetaxpayers pay CGT —payable on profits arisingfrom the sale of assets — at28 per cent, before 2008 thetax was payable at a marginalincome tax rates.
Entrepreneurs’ reliefThis tax break, allowing
those disposing of a businessto pay CGT on profits at 10per cent, is under scrutiny forcosting billions more thanforecast. Adam Palin
Tax pipelineinvestors facekey changes
