Advertorial: What is Discretionary Investment Management?

Date published: 20 June 2019

Financial advice from Philip Howe from Raymond James in Ashton

Discretionary investment management is where you agree with the Investment Manager an appropriate level of risk, a set of objectives; which the level of risk may vary dependent on what you wish to achieve, and parameters within which they are allowed to operate and then the manager has the discretion to buy and sell as they see fit. You receive regular updates, usually quarterly valuations and an annual meeting, but you have no input in the day to day management.

Whilst the basics are what has been laid out above, there are a multitude of styles that can be adopted.

There is a model based approach which involves your portfolio being assigned to a particular model and changes taking place uniformly across all portfolios assigned to that model. This is suitable for many clients, particular those who do not have capital gains tax issues or bespoke requirements. It is often used for clients with smaller amounts to invest, although can still be applicable for larger sums.

Bespoke investment management is where, having carried out the assessment of risk and identified the objective(s), the manager then constructs a portfolio unique to you. This can be done by investing directly into shares of different companies or by investing in collective investments. I adopt the latter approach as you can get exposure to a greater number of companies through collectives. This leads to a greater level of diversification which, although not guaranteed, should lead to less risk.

What has changed in the industry?

Having been doing this job for over 20 years I have seen many changes and also many different market conditions. The “Tech bubble” and subsequent bust, the credit boom, followed by the “Great Financial Crises”, and more recently an environment of low growth, low inflation and low interest rates fuelled by Quantitative Easing, or QE.

There are many in my industry who have only faced the last ten years and perhaps I am just getting older but I believe my clients are much more comfortable knowing that I have seen different economic and market environments than the one we have faced most recently.

The other key change over the years has been that more and more investment managers are forced to make a decision to either be involved in the investment process, whether it be through stock or fund research or deciding asset allocation, or choose to be involved in the management of clients. As the big players get bigger, this is becoming the norm and most investment managers outside of London are now fulfilling one of these two roles. I have always been involved in both parts of the job, I have always made investment decisions, done the research, decided whether to be underweight or overweight on a particular asset class or region. But I have also always looked after my clients, managing their portfolios in line with their own personal aims and objectives and meeting with them to not only report back what I am doing for them but also for me to gain a greater insight into what it is they are looking for.

How well does your Investment Manager know you?

That brings me to the most important question, how well does your investment manager know you? By that I mean not only how much do they know you as an individual, in terms of your attitude to risk, your objectives with the portfolio, your plans for the future. But also how well do they know your portfolio? Why they are investing in the way that they are, choosing the particular investments, investing in particular asset classes?

A massive part of the job is trust, do you as a client trust who is looking after your portfolio. For me this is linked to the question, is the individual looking after your portfolio the person you meet or someone else? When I sit down with a client to discuss their portfolio, and how it relates to their specific requirements, my clients know that it is me who actually makes the decisions on their portfolio, what to buy, what to sell and why I have done so. I understand why one part of the portfolio has done better than another, I can explain anything that is underperforming and why I am holding onto it. I can also relate it back to what they are trying to achieve, the level of income they want, the capital withdrawals they are likely to want to make over the coming years, the plans they have over the long term.

I know my clients very well, how well does your investment manager know you?

With investment, your capital is at risk.

Articles are general information and not a recommendation to act. Please seek independent investment advice before entering into any financial transaction.