Stockbrokers versus fund managers
"My wife recently inherited a £60,000 portfolio of shares, managed by a stockbroker on an advisory basis. She and I also have a variety of unit trust funds totalling around £90,000.
"Looking forward, I’d like to understand the pros and cons of using a stockbroker versus a fund manager, but I haven’t been able to find a lucid explanation of these so far. Can you help?"
Ask the Professionals: Matt Pitcher, a wealth adviser at Towry Law, says:
Two big considerations when choosing between a stockbroker and a fund manager should be how much involvement you want and the level of your investing expertise.
The stockbroker managing the portfolio provides advice, which means it will make suggestions but you will have to make investment decisions and then ask it to take action. With collective funds, you will more than likely have managers in place who will make decisions and take action on your behalf.
An advisory stockbroking service may be cheaper than a collective fund, depending on the dealing commission and stock turnover. You are, however, taking a bigger risk with the stockbroker option, as investment decisions are likely to be delayed and possibly less informed.
If you choose the collective funds approach, you should still have a professional oversee the balance and spread of funds. An IFA could do this for you. They should also be able to offer you guidance on tax and the use of ISAs and capital gains tax allowances.
I would always recommend investing in as broad a range of asset classes as possible and having them properly managed for you.
A collective investment vehicle (known in the US as a “mutual” or “pooled” fund) and similar to an Oeic and investment trust in that it manages financial securities on behalf of small investors who, by investing, pool their resources giving combined benefits of diversification and economies of scale. Investors buy “units” in the fund that have a proportional exposure to all the assets in the fund, and are bought and sold from the fund manager. The price of units is determined by the value of the assets in the fund and will rise or fall in line with the value of those assets. Like Oeics (but unlike investment trusts) unit trusts and are “open ended” funds, meaning that the size of each fund can vary according to supply and demand of the units form investors. Unit trusts have two prices; the higher “offer” price you pay to invest and the “bid” price, which is the lower price you receive when you sell. The difference between the two prices is commonly known as the bid/offer spread.
A financial adviser who is not tied to any financial services company (such as a bank or insurance company) and is authorised by the Financial Services Authority (FSA). They can advise on financial products to suit your circumstances. All IFAs have to give consumers the choice of paying by fees or commission and have to explain which would best suit the customer in that particular instance. Also, if commission is paid either by the client or the financial service provider recommended by the IFA, the IFA must disclose what that commission is.
An individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.
Capital gains tax
If you buy an asset – shares, a second home, arts and antiques – and then sell it at a later date and make a profit, that profit could be subject to CGT. You don’t pay CGT on selling your main home (which is why MPs “flipped” theirs so regularly) or any securities sheltered in an ISA. Individuals get an annual CGT allowance (£10,600 in 2010/2011) but if you have substantial assets it’s worth paying an accountant to sort it for you.