Value added services

25 July 2016

Fraser Donaldson – Insight Analyst (Investments)

Traditionally, discretionary management was almost as much about the service received as it was about increasing the value of assets under management. For the very wealthy, lunches in oak panelled rooms, occasional tips and probably invitations to the odd premium event would be expected.

While that level of service still exists, it is generally for the very wealthy. The majority of retail advised investors will be looking at a slightly different scale of service. There are really three types of discretionary service marketed to the retail investor. That is Bespoke, Managed Portfolio Service accessed direct with the discretionary managers and there is also Managed Portfolio Services accessed through an adviser platform.

It is fair to say that the scope for value added service diminishes the more distant the client is from the investment managers. With bespoke services, the client (and adviser) sits down with the investment manager and following discussion a portfolio is constructed with the client needs and suitability at the heart of the process. In theory, not only is the portfolio bespoke to the client, the service should be also.

It is at this point that the service to be provided should be agreed and written in to any agreements. It is important that any added services do contribute to the value of the relationship rather than going through a list of what the discretionary manager can offer and ticking all the boxes. It is important that what is being asked for or offered does add value because somewhere along the line the client will be paying for it. Discretionary Managers do need to stay in business in order to provide the service they do, so any additional flexibility or ‘add-ons’ agreed to are likely to depend on the amount of assets under management and hence fees earned. Focus on client needs rather than client wants.

That being said, the investment manager and the discretionary firm is there to provide a bespoke service, so if required, ask for it. Just bear in mind that fees charged are often negotiable and if too many add-ons are requested scope for negotiations may diminish or disappear!

So, any client that has a bespoke service, the sort of things that could be asked for, and reasonably provided may include:

  • Additional meetings with the investment manager over and above the usual standard one or two a year, and yes, potentially over a lunch in an oak panelled room
  • Access to the named investment manager by phone as and when required
  • Payments of income at a frequency and rate that is most convenient to the client
  • Portfolio valuations on demand (potentially charged for). Most DFM’s now allow access current online valuations to advisers and sometimes clients
  • Holdings, not under management, of treasured assets
  • Capital Gains Tax Management and reports on demand

The list can be as long as the client wants, but just bear in mind potential cost and whether or not the client actually needs it.

Managed Portfolio services are, in the main, designed for the retail client. They are standard portfolios, designed to a specific mandate, which the clients chose. In other words the clients have no influence or input in to how the portfolios are run, as long as the managers stick to their mandate.

As the portfolios are standardised, they are aimed at clients with less complex affairs and hence tend to be a couple of notches down the scale in terms of wealth when comparing against clients who require a bespoke service.

That being said, if the contractual arrangements are direct with the discretionary firm, all of the above potential wants of the bespoke client may well be available to the Managed Portfolio Service client, but only if their wealth was significant enough, and of those items above, it is now reasonable to expect access to current online valuations.

The third type of service, MPS accessed through a platform is a different proposition altogether. Almost all service elements of the arrangement are provided by the platform. In most cases, the discretionary manager will not even know the name of the client, much less have a personal relationship with them. Their job is simply to manage the money to a set mandate, and fees charged by the DFM should reflect this.

So, in terms of value add services, this will depend on which platform is chosen to host the investment portfolio and value add services will depend either on which platform is chosen or what the adviser can provide.

Advisers need to be careful here. Platform charges are not bespoke to individual clients, so care needs to be taken in choosing a platform that is suitable for the client. Platforms are likely to charge a set fee whether or not all flexibility and value add services are taken up by the client. The regulators, quite rightly, take a dim view of clients being charged for services they do not need or want.

However, even with MPS on a platform, money may talk. If the DFM is made aware by the adviser of a particularly wealthy client on a platform, they may well roll out the red carpet for them and offer a few value adds that most clients would not qualify for (pay enough in fees).

All that being said, the reality is that the majority of MPS investors have little relationship with their DFM, and do not expect one either. Chances are as well that most bespoke DFM clients also have a pretty standard relationship with their DFM. Always worth asking though if there is something that the client needs that would not normally be provided.

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