Hit your lifestyle goals with a wealth manager

If you have £10 million to invest, a more modest £50,000 investment portfolio or are simply looking for a new home for your self-invested personal pension, it's highly likely that a wealth manager will have offered you their services.

But while all wealth management services strive to grow or preserve your money, the way they set about doing this can vary greatly. "Wealth management used to be primarily focused on the safekeeping of personal assets, with the service typically consisting of deposit-taking and ultra-conservative money management," says Sebastian Dovey, managing partner at wealth management industry advisers Scorpio Partnership.

"But over the past decade the focus of more firms has progressively shifted towards aggressive asset accumulation strategies, not always with positive results for the client."

This shift has attracted new players into the market, especially from sectors where advice has been central to the service such as independent financial advisers and stockbrokers. The increase in the number of firms offering some form of wealth management service has also seen clients becoming more demanding about the service they receive.

Where to find a wealth manager?

Private banks are the traditional providers of wealth management services, from banking and investment management to lending and financial services.

It's possible to access wealth management services from an overseas private bank, and this can have tax benefits. Phil Cutts, head of advisory for the British Isles at RBC Wealth Management, explains: "Expatriates may be able to take advantage of one of our offshore deposit accounts. As long as you remain an expat your money can grow tax-free."

Stockbrokers have developed their share dealing and portfolio management services in the wealth management sphere. A similar shift has been seen in the independent financial advice sector. Traditionally, independent financial advisers (IFAs) have offered advice geared around product sales, but some are rebranding to reflect their broader range of services..

Some high street banks are adopting another model. HSBC's Premier service offers clients with £50,000 to invest free access to a relationship manager as well as the bank's network of IFAs - HSBC's income is generated through commission on the products its IFAs sell.

Some services are being spread between providers. This is often the case with legal and accountancy firms. Ronnie Ludwig, a partner in the private wealth group at accountancy firm Saffery Champness, explains: "We can recommend a tax-efficient wealth management structure to a client, but when it comes to advising on investments, we refer them to their IFA or an investment adviser."

How much wealth do you need?

When it comes to picking a wealth management service, the size of your assets will determine your options. Unsurprisingly, private banks set the qualification bar high: Kleinwort Benson looks for assets of £1 million and HSBC Private Bank requires assets of £2 million. Coutts & Co is even more stringent - it requires customers to have at least £5 million of assets, or an annual income of £500,000.

While the high entry requirement makes such services rather exclusive, plenty of other wealth management services are available with lower minimum asset requirements. Barclays Wealth looks for clients with assets of around £500,000 and above to invest.

Services are also available for smaller portfolios from some newer market entrants. For example, Towry Law provides wealth advice to clients with at least £100,000 of investable assets, and Close Wealth Management will consider clients with as little as £50,000.

Many wealth managers say they will consider people with asset levels below their minimum, especially if there is potential for them to reach or exceed it. Private bank Kleinwort Benson looks for a minimum of £1 million of investable assets, but, Mark Hussein, head of private wealth management, says it will often accept clients with asset levels below its official minimum.

"We work with a lot of entrepreneurs," he says. "They'll reach the £1 million qualification mark at some point, but we like to help them structure their affairs before this to ensure they get the most from their money."

Some wealth managers say they'll consider anyone. Charlotte Black, corporate affairs director at Brewin Dolphin, says: "Even if you only have a small amount to invest, it's worth getting started. It will mean a different approach to your investments, but you're never too young or too small to start."

When it comes to investment limits, you should also look out for any restrictions on using other services as some wealth managers will want to manage all your money. Jeremy Jensen, private banking and wealth management leader (Europe, Middle East and Africa) at PricewaterhouseCoopers, says this can work well but it does require trust as the 'added value' of this model is not always evident.

You should also beware that some wealth management firms only offer their services to existing customers.

The price of wealth management

Wealth managers like to use the word "transparent' to describe their fee structures but, with a variety of structures in place, it's not always easy to make comparisons.

Many managers have charging structures based on a percentage of the assets they are managing, typically between 0.5% and 1.5% of the value of your portfolio, with the percentage falling as the value increases. Rensburg Sheppards, for example, charges 1% on the first £500,000, 0.75% on the next £500,000 and 0.5% thereafter.

Some will charge an initial fee to carry out the financial planning work, followed by an annual fee to cover the investment management and any additional advice. This is the case at HFM Columbus, where clients pay between 1% and 3% initially, followed by an annual retainer fee of between 0.5% and 1% of their portfolio.

Fees are common, especially for advice-driven services that have emerged from independent financial adviser and stockbroking firms, while some managers charge commission. With HSBC's Premier service, for example, IFAs take commission on the products they sell, rather than charge fees.

It's common for wealth managers to offer a range of charging structures. For example, Brewin Dolphin has five different charging structures, which range from 1% of the portfolio value each year plus a £30 charge for each transaction to a tiered charge starting at 1.95% for the first £12,500 of the portfolio and falling to 0.5% on portfolio value above £25,000 plus a flat administration fee of £500 a year. 

Brewin Dolphin offers a range of charging options for its financial planning service, including hourly fees and a fixed charge for the project.

Make sure you understand what's included in the fee. Transaction charges for buying and selling shares and other investments can be included, but most will bill for these separately. Be aware that although you can be quoted a headline fee for the core wealth management service, one-off services - such as financial planning or setting up a trust arrangement - can incur additional fees.

Investment management and additional services

A core part of every wealth management service is investment management, although this can come in many guises.

Most wealth managers offer advisory and discretionary services so you can decide whether or not to take part in your investment decisions. If you plump for a discretionary service, you could be placed in a model portfolio or have your investments tailored to your individual requirements, depending on your needs.

Jeremy Jensen, private banking and wealth management leader at PricewaterhouseCoopers, explains: "If you've come into an inheritance and want your money managed in a balanced way, a model portfolio could be ideal. But if you have more complex needs you might prefer a designed portfolio."

It's good to be able to pick the style of investment, but many wealth managers don't offer this option unless you have a certain size of portfolio. Fortunately, more managers are now looking at bespoke options at the smaller end of the scale.

Some bespoking is sensible, especially if you are transferring an existing portfolio into a wealth management service. This can generate a significant capital gains tax liability, and rebalancing must be timed to avoid this.

It's worth finding out how investments are selected for your portfolio. Larger wealth managers analyse available investments to determine those likely to perform well. This can improve the quality of their recommendations, but you need to be sure you don't end up with virtually the same portfolio as every other client.

Wealth management isn't only about investments. You need to be happy with the investment style of your wealth manager, but it's also important that wealth managers are able to offer you all the associated services you want.

This could include access to tax wrappers, such as self-invested personal pensions, venture capital trusts and individual savings accounts, and to more complex financial planning tools such as trusts and tax planning.

Some firms will offer a separate service to cover this. Others make it a more central part of the service, determining financial planning requirements at the outset and structuring investments accordingly.

Investment range

Another consideration when selecting a wealth manager is the range of investments offered. Some wealth managers offer access to all investments, from individual equities to collectives - a model commonly referred to as open architecture - but this isn't always the case.

For example, HFM Columbus tends to use collectives when constructing a client portfolio and refers clients to stockbrokers if they want to invest directly in equities.

Others prefer to mix and match. "We offer direct equities and funds, depending on the value offered," says Ian Tait, director of private clients at London & Capital.

The size of your portfolio can determine the type of asset that's best for you. Chris Sandford, business development director at Rensburg Sheppards Investment Management, says collectives are usually the best route for a portfolio worth less than £150,000.

"You can achieve greater diversification and take advantage of economies of scale with funds if you have less than £150,000 to invest," he says. "They give you more protection, as your money is spread across more investments." 

Questions to ask your wealth manager

These questions can help you find out whether a wealth management service is suitable for you

Q: What types of investment will I have access to?

If there is a particular type of investment you want to access, for instance ETFs, direct equities or hedge funds, make sure the wealth manager offers it. 

Q: How are investments selected?

Some firms have research departments that provide investment recommendations; others give the wealth manager more freedom over investment selection.

Q: What's the risk appetite of the firm? 

Although wealth managers will tailor portfolios to your investment objectives and appetite for risk, house style can influence their selection. 

Q: What other services do they offer?

Think about the services you might require, but consider whether you want to place all your financial planning with one firm.

Q: Do wealth managers work with other professionals?

This can give an indication of the breadth of advice on offer. Many wealth managers prefer to outsource specialist advice and focus on their areas of expertise.

Q: What qualifications do wealth managers have?

The Financial Services Skills Council has details of the qualifications your wealth manager might hold. 

Q: What customer complaints have been made about the firm?

It's worth answering this question by carrying out your own research. PricewaterhouseCoopers' Jensen recommends checking the Financial Services Authority website for details of complaints. It is also worth checking the media and internet for customer complaint coverage.

What can you expect as a client?

Wealth management services vary, but whichever type of service you choose, you can expect your first meeting to include a fact-finding exercise to enable the wealth manager to establish your requirements.

This process will involve assessing your appetite for risk, your investment objectives and your financial planning requirements, to enable the wealth manager to make product and planning recommendations that suit you.

Some wealth managers take this further. For example, Barclays Wealth will explore your financial personality.

Once this groundwork has been completed, your wealth manager will recommend the structures and strategies that suit you and enable you to achieve your goals. Management may be shared by two different parties - one providing the financial advice, the other investment advice - but you will have one dedicated wealth manager looking after your relationship with the company.

You can expect to have regular meetings with the wealth manager to review your situation. Although the level of contact is driven by the client, wealth managers like to have at least one face-to-face meeting a year. Some wealth managers will visit you at home, especially those dealing with larger portfolios.

As well as this face-to-face contact, you can expect regular updates on the value of your portfolio. These may be sent to you or be made available online.

Details of any financial planning and investment changes that might be relevant to your circumstances will also be made available.

This article was originally published in Money Observer - Moneywise's sister publication - in December 2009