Choose the Person, Not the Brand

“The first thing is character, before money or anything else.  Money cannot buy it.  A man I do not trust could not get money from me on all the bonds in Christendom.”  J.P. Morgan

A discretionary investment manager does much of their work out of sight: a typical client may receive a quarterly report and meet their manager between one and four times a year.  What happens between those meetings depends heavily on the judgement and character of the person responsible for the portfolio.  That is why I think J.P. Morgan’s observation remains relevant when selecting an investment manager.

Individual Qualities I Would Look For

The qualities I value are not always the ones which present well in a pitch.  In my experience the managers I would trust most tend to be:

• Thoughtful: they are more interested in understanding the client’s circumstances than in describing their own views on markets.  They often ask more questions than they answer.

• Competent: they can explain, in plain language, why a portfolio holds what it holds and what would cause them to change their mind.

• Independent-minded: they can weigh the merits of an investment against the expectations already reflected in its price and are prepared to differ from the market when their reasoning supports it.

• Accountable: they can make and take responsibility for investment decisions.  Where decisions are made centrally, they can advocate effectively for the client’s individual circumstances.

• Settled: a manager who has remained at the same firm for many years has usually made a deliberate choice to be there. A long-term portfolio can benefit from a long-term relationship, as the manager develops a better understanding of the client’s needs, circumstances and attitude to investment.  Frequent moves are not necessarily a warning sign, but they are worth understanding.

• Available: capacity matters.  A capable manager responsible for several hundred relationships may not know each client as well as one responsible for a few dozen, particularly where the client’s affairs are complex or regular contact is required.  That said, if the client’s needs are not that complex, a manager with more relationships may charge less and still deliver the investment objectives.

Spotting Client Life Events Early

A good investment manager may become aware of changes in a client’s circumstances at an early stage through the regular conversations involved in managing the portfolio.  A retirement date mentioned in passing, a parent moving into care, a grandchild on the way, or a business approached by a buyer are not investment questions in themselves but may affect what the portfolio is intended to achieve and may also be a moment when the client would benefit from talking to other specialist advisors. 

A prospective manager should be proactive when such events emerge and able to identify an appropriate independent specialist. A well-developed network of accountants, solicitors and financial planners can therefore be valuable.

Assessing the Firm

The fair comparison is therefore not simply between passive and active returns. It is between a passive portfolio, together with the decisions the client and their professional advisers must make, and a managed portfolio in which some of those decisions form part of the service.  For a client with straightforward needs, the former may be the better answer.  For a client with several accounts, changing tax circumstances, important constraints or a family which wants to be involved, the latter may justify its additional cost.

Thinking About Cost

Costs and charges are important and can provide a useful comparison between providers offering a similar service.  That said, I believe it’s more important to consider what value is being provided for the fees quoted.  Having a trusted professional investor on call who can foresee and resolve issues early will likely cost more but may carry considerable value to a client and therefore still be ‘good value’.  It’s also worth noting that paying a high fee to meet a challenging investment objective is likely to be better value than paying a low fee for a portfolio which fails to meet the required objectives.  A manager who returns 10% net of a 1% fee, is better value than a comparable manager who returned 8% but only charged a fee of 0.5%.

An estimate of the likely annual costs and charges should be disclosed to the client before they sign an investment agreement, but it can be worth asking for a verbal explanation of the fee mechanism from a manager in advance as small nuances in fee structure can lead to big differences in the ultimate cost paid by the client.

The Test I Would Apply

The test I would apply is simple: if I could not contact the portfolio manager, would I trust them to act in my interests in the meantime? If the answer is yes, most other considerations are secondary. If it is uncertain, I would keep looking.

Questions Worth Asking

• Who will make the decisions on the portfolio, and who takes responsibility when that person is unavailable?

• How long has the manager been at the firm, and why did they join?

• How many clients does the manager personally look after?

• Which external professionals can the manager introduce when specialist advice is required?

• Does the firm have the capability to build the portfolio, and does it allow the manager to have the flexibility and accountability to build the portfolio the client needs or wants?

• Is the manager remunerated by winning new clients or looking after existing ones?

• Can the manager describe a decision they got wrong and what they did about it?

CDAJ

Risk Warning & Disclaimer

This article is provided for general information purposes only and is not intended to constitute investment advice, investment research, or a personal recommendation. It does not take into account the investment objectives, financial situation, or particular needs of any individual or entity.

The views expressed are those of the author as at the date of publication and are subject to change without notice. The material is the original work of the author. It may not be copied, reproduced, distributed or presented as the work of another person without his prior written consent.

References to investment concepts, asset classes, or portfolio construction approaches are included for illustrative purposes only and should not be construed as a recommendation or a solicitation to buy or sell any security or financial instrument.

Drafting tools, including artificial intelligence and automated systems, may be used as part of our content production process, however all materials are subject to human review and approval.

The value of investments and any income derived from them may fall as well as rise, and investors may receive back less than they originally invested. Past performance is not a reliable indicator of future results. Where investments involve overseas assets, returns may be affected by movements in exchange rates.

Ptarmigan Capital Limited is an employee-owned investment management firm providing discretionary investment management services to private clients, trusts, charities, and family offices. This article is intended to explain the firm’s perspective on bespoke investment management and the factors some clients consider when choosing such an approach. It does not relate to any specific investment product or strategy.

Ptarmigan Capital Limited is authorised and regulated by the Financial Conduct Authority (FRN 940407). Registered in England and Wales (Company No. 12715470). Registered office: 17 Cavendish Square, London W1G 0PH.