Seek out expert financial advice to keep portfolio in good shape
SINCE FINANCIAL education rarely forms part of any school or even college curriculum, most people learn about money in an ad-hoc way and both their borrowings and savings can reveal a scattergun approach.
Unlike some nations, the British abhor from discussing money. It is far better to seek a professional financial adviser who can give structure to your portfolio, review current holdings and liabilities and check that you are on target.
Last year the main regulator, the Financial Conduct Authority (FCA), revealed that 15 million are not saving enough for retirement.
Its research gave another startling fact that half of all consumers (25.6 million) are at risk of becoming financially vulnerable, meaning debt, no savings, are poor at managing their money or face problems through bereavement, divorce or ill health.
Start by seeking an adviser or broker – many of whom now call themselves ‘wealth managers’ – who is independent of the products to be discussed. It could be one firm with several specialists or, rather like visiting a GP who can call on consultants, a general one backed up by those with in-depth knowledge in a limited field.
Do not be worried by an adviser who indicates they are only regulated in certain sectors. It would be unlikely that any one person has passed all the relevant examinations from insurances and mortgages to pensions and venture capital trusts.
It is vital though to check with the FCA and the relevant awarding body that those who claim to be regulated are listed. The campaigning body Which? revealed last year that a staggering two-thirds of financial advisers misled the public by not holding the qualifications claimed.
It checked on 43 firms listed by the website unbiased.co.uk to discover that accreditation by the Chartered Institute of Securities and Investments was fictitious. Several companies even claimed staff had the highest accolade of chartered financial planner despite not employing a single such person.
Ask an experienced adviser/ broker to give an overall initial appraisal and be frank about your risk rating. If volatility is going to keep you awake at night, emerging markets may not be a preferred choice. Consider before the meeting what provision needs to be for any dependents which may mean critical and income protection cover needs to be purchased.
Take as much documentation as possible to the meeting, notably any mortgage terms and pension holdings. Those with one or more work pensions would be sensible to show the adviser where the assets are held so that there is no subsequent duplication.
Above all, the person handling your money needs to be someone who you can trust like a solicitor. “You really want to be comfortable in the person you decide to use but also to ensure your wealth manager does not become complacent,” says Jonathan Baker, investment director at Charles Stanley, whose Leeds office opened 10 years ago.
Local access is important to some. Myddleton Croft Investment Managers, based in Leeds, has a good regional reputation.
Retention through the generations indicates an honest two-way relationship and means some managers can offer a bespoke service.
Decide if you wish to opt for a discretionary approach where the guidelines are set, the professional handles your finances within those limits, and reports regularly on progress. This system means there is one agreed fee, usually based on asset value, with no additional charges for transactions and commissions.An advisory route means the investments are managed but the individual plays a more active role in the process of decision making.
Execution-only is a third avenue and apt for those who have good financial knowledge. They will use a broker to buy and sell and retain holdings within appropriate vehicles like the tax-efficient ISA and SIPP (selfinvested personal pension).
For both discretionary and advisory, each portfolio will be uniquely constructed to the client’s requirements. Ask what is the minimum sum. Where the broker is handling the principal family members, an exception on a low starting sum will usually be made for children. If your money does not meet the minimum, most brokers offer a lower cost solution with a series of models managed by its in-house investment professionals.
In June, the FCA said 2.8m people pay for ongoing financial advice. This is low for such an enormous money commitment. Those without advice may find, for instance, that they have invested beyond their risk comfort zone.
An example is the level of borrowing that some investment trusts are exposed to: Premier Global Infrastructure for utilities can borrow to 118 per cent, MedicX for property to 103 per cent and the UK equity income British & American can reach 81 per cent.
If there was a sudden fall in the market, many might query how they would fare.
Chelsea Financial Services suggests looking for a firm with high staff retention rates so that the same name is looking after your account.
“Many of our competitors cannot offer the same personalised service because they are too big and have faceless call centres,” warns Darius McDermott from Chelsea. Ask the broker: fund range including if investment trusts and overseas assets can be bought
which products are discounted through its overall trading volume
provision of consolidated tax voucher
which platform offered and its limits (Cofunds, acquired by Aegon, refuses to list investment trusts)
information (such as newsletters) and contact.
New regulations mean valuations are to be issued quarterly instead of twice a year.
This is a good way to keep a track on performance. Unlike a major provider like Fidelity International, Hargreaves Lansdown issues a most informative report with a geographical background and portfolio analysis by sector.
Some brokers lead the way in their research.
Tilney, which includes Bestinvest, produces its ‘Spot the Dog’, a guide which managers would love to ban. It reveals both the stars but critically the lacklustre. Obtain a copy on 020 7189 2400.
It typically offers dual expertise with a financial planner working with an investment manager for optimum results. It has been entrusted with over £24bn and has offices throughout the UK.
Founded in 1762, Brewin Dolphin looks after £41.5bn for private clients, charities and small institutions. Independently owned, it has no in-house funds or conflicts of interest. J.M. Finn has five offices, including Leeds, and prides itself on its personal client service. Redmayne Bentley, established in 1875, accepts for discretionary and advisory from £50,000.
Some discount brokers are not just execution-only. The Share Centre will give clients advice for no extra charge. For a leading bank with execution-only online dealing, look at Barclays Smart Investor.
Finally, if something should go wrong, ask the Financial Ombudsman but remember that the maximum the Financial Services Compensation Scheme can award is £50,000 which could leave you out of pocket if the savings have not been ringfenced.