According to the Financial Conduct Authority, a wealth manager (sometimes also referred to as an investment manager) is a firm or individual that manages a client’s money or investments on either a discretionary or advisory basis. However, many people are not clear on the difference between discretionary and advisory investment management, and are not sure which option is best for them.
Discretionary Investment Management
A Discretionary service is where the firm manages a client’s portfolio of investments in line with a risk profile agreed with them beforehand. This means the firm are able to manage the portfolio without checking with the client before making routine alterations. However, they will still be required to check beforehand if they wish to make a change that is outside the scope of the agreed mandate.
Advisory Investment Management
An Advisory service is where the firm will make recommendations based on the client’s circumstances and attitude to risk; however, they have to contact the client and obtain agreement before any changes are made to the portfolio. The firm is unable to make changes to a client’s portfolio without prior agreement.
Under each option, the firm is responsible for ensuring the investment portfolio is suitable for the client’s objectives and appetite for risk.
Should I go Discretionary or Advisory?
There are many points both for and against each option, but ultimately your decision rests on your personal preferences and the level of involvement you wish to have in the day-to-day administration of your investments.
Under the Advisory service, the key drivers on the positive sides are that it supports a highly client-engaging and interactive level of service and supports relationships. It arguably can be viewed as a lower risk for both the client and adviser, as each adjustment to a portfolio is done with the client’s approval beforehand. This does mean that the adviser is required to establish contact with the client in order to approve any changes recommended, which may present delays if the client is not contactable or possibly too busy with day-to-day life at that time.
Under the Discretionary service the obvious benefits are that the adviser is able to take advantage of market opportunities or de-risk the portfolio in more turbulent markets, in a more efficient manner. This option frees clients from involvement in day-to-day investment management decisions and allows the adviser to implement changes to portfolios as necessary to ensure the funds within long-term investments like Pensions, Individual Savings Accounts (ISAs) and Trusts are managed effectively. Revising clients’ investment strategy regularly as their needs evolve is a core part of this service.
Clients often find that a Discretionary service incurs an extra cost as many financial adviser firms outsource the investment management to other companies. It is worth pointing out that at Gibbs Denley the cost of these services are exactly the same as it is all done in-house.
Under both services Gibbs Denley continue to adopt a pro-active approach in the management of clients’ portfolios and make recommendations in accordance with the clients’ objectives as and when we feel are appropriate. In addition, we continue to undertake regular reviews with our clients at which time we will discuss a client’s aims and financial objectives, considering all aspects of financial planning including Estate planning, Cash Flow modelling, ISAs, Capital Gains Tax, and Pension planning.
This article is for information only and does not constitute specific advice. We recommend that you contact a qualified professional before making or changing any investments.
Please note that investments can fall as well as rise, and you may not get back the full amount invested.
By Siobhan Cordery DipPFS
Client Manager (Advisory)