Over the last 30 years that I have been advising wealthy people on their investments, and more recently with the set-up of the Family Office in 2017, many of our conversations start and end with a discussion about their investment manager.Download PDF Version
Over the last 30 years that I have been advising wealthy people on their investments, and more recently with the set-up of the Family Office in 2017, many of our conversations start and end with a discussion about their investment manager.
In the investment management industry, it is often said that investment performance is the predominant factor by which clients judge them. While there is certainly some truth in this statement, clients take an approach to judging investment managers that is both broader and more nuanced. In many surveys over the years on this topic, trust, or the lack of it, has been a key factor in why clients switch manager.
Building trust takes a long time and could be a factor of a lack of communication, a lack of clear expectations, a disconnect of values, or an unpleasant surprise. To ensure that we build trust and maintain good communication we have a constant dialogue with our clients and their respective investment managers.
This article seeks to address some of the key issues our clients discuss with us and in conversations the following observations almost always come up:
This is where we can help. We have created a service for our clients where we answer all these questions, and more, whilst providing it very cost effectively. The genesis of this service is now nearly 30 years in the making.
Lots of businesses have their own special “lingo”, those words or expressions that sound technical and impressive and are intended to give the speaker a little bit of mystery or stardust…..it’s not just investment managers who go in for this but doctors, lawyers and even plumbers do too.
What we do is demystify the whole investment process. We are not saying that some investment strategies are quite complicated, but they should always be able to be explained in simple, jargon free terms. We therefore help clarify the whole process.
We hold regular meetings with the managers so that our clients don’t have to and then report back to suit our individual client requirements.
Has the manager been doing a good job?
What we do here is looking at what they were mandated to do. Have they been following the mandate? If not? Why not?
These are questions we constantly ask, there is no point carefully selecting managers if they then do something different.
There are a lot of other managers out there probably doing something very similar.
We look at what the competition has done which is important, but we are also very aware that you can often end up comparing apples to oranges and we ensure that any comparisons we make are accurate and relevant.
Ultimately, when there are many managers out there providing a similar service, the choice often comes down to chemistry and their service levels as well. This is back to the point earlier about a more nuanced relationship.
Fees are quite rightly extremely important, and we ensure that they are transparent and clear. Our clients want to pay a fair price for the service they are receiving.
The headline number may seem quite low but are there any fees that may be hidden away or a little opaque? Knowing which questions to ask and being “poacher turned game keeper” allows us insights well beyond the knowledge of our clients, so a real benefit of our involvement in the process.
One of the things we have had great success is getting fees down for our clients to ensure they never overpay for the service.
How does my manager work out my asset allocation? How do they decide what asset classes I should be invested in?
This is a very fundamental question, and many studies suggest that asset allocation is more important than stock or fund selection, possibly as high as 90% of the decision-making process.
So, we constantly ask whether our clients mandate is being fulfilled in the appropriate assets and when and how the portfolio gets rebalanced. If it does (and it should) who decides what to do and what comfort do our clients have that the right decision is being taken on their behalf.
We really understand the asset allocation process and with decades of experience across the team we can really get to the heart of this.
Managers often talk about this, but why?
Relative performance is often discussed when a manager wants to compare his or her performance to that of their peers or an index. Sometimes it’s to highlight how well they have done. Sometimes it’s used to make excuses for below par performance.
But sometimes it may be justified.
In a period of very difficult performance a manager might not have done particularly well but by comparison has done well. It is often a question of context. We understand these issues and can guide our clients to see the bigger picture.
We have clients from all walks of life and professions, but over the years we have found that the following clients require our services more heavily than others:
These examples are not conclusive but give a good guide.
Cavendish Family Office is an independent and virtual Multi-Family Office with our “heart” in Mayfair, but with our people spread all over the UK and Europe.
We are independent in thought and deed. As a result, we do not offer any “products,” so we remain impartial in everything we do.
We are not regulated, either by the FCA, or any other regulatory body, so we help, aid, abet and counsel our clients to receive optimal results. The advice from an investment management perspective is always given by a regulated investment manager.
If you would like to learn more then please do get in touch, we would happily review any portfolio, initially at our cost and expense.
As Valentine's Day approaches, and the quest for perfect pairings, we turn to Jonathan Riley of Fladgate LLP for insights into the equally nuanced search for the right Private Wealth lawyer.
Soft or hard? We’re not talking eggs, but whether the US will enter a recession or not.