In our role as Discretionary Fund Managers, we can sometimes be seen as ‘problem solvers’. For clients with very straightforward investment requirements, advisers tend to prefer model-based investment solutions. Where clients’ requirements are more complex we can often add a lot of value through our bespoke discretionary service.
Some years ago we were approached by a high net worth family to discuss whether we may be able to help with their investment requirements. It is cases such as this where we can demonstrably add a significant amount to the client’s financial wellbeing, as well as adding value to the service offered by financial advisers. This is beyond straightforward investing as we may traditionally view it and more towards multi-generational investment planning.
The parents had a significant portfolio, and due to its size they were wary of both capital gains tax and the model approach that was offered by some investment firms. In their view, the changes to the portfolio often suited the investment firm, but incurred capital gains tax without a demonstrable return. In addition, they viewed their portfolio as something to last multiple generations, so they were happy to take a very long term view. They considered changes to the portfolio on a multi-year, even decade basis.
We therefore transferred the portfolio in-specie from the previous investment firm and began looking into the holdings. The clients were looking for long term growth potential, a reasonable income yield, and were quite happy to have a bias towards equities. We were and are very happy to work with this mandate.
The parents also wished to gift substantial sums to their children, but they had concerns about their children’s ability to handle the money. To ease the clients’ concerns, we hosted a private dinner for the children. At the dinner, we explained how investment markets work, the concept of long term compounding, and the potential cumulative effects of eroding capital when young. This informal session worked very well and along with some guidance from the parents, we set up investment portfolios for the children. Since inception, the parents have made further significant gifts to the children’s investment portfolios.
This type of relationship is one that we are delighted to be a part of. We have not just added value in terms of investment selection but also in facilitating the client’s wishes (i.e. transfer of wealth from one generation to the next) and educating the next generation on the prudent use of funds.
More recently, we are working with a couple of the children who expressed a wish to use their wealth to invest in companies with ESG criteria, such as looking for solutions to the levels of carbon pollution. We are also discussing with them how to facilitate their wishes to support some charitable causes close to their hearts.
Experience tells us that often the most important part of managing a family’s investment funds is to listen and fully understand the family’s objectives and the family dynamic. Some are looking for capital preservation and have a strong hierarchical structure whilst others are looking for significant levels of growth with each family member being rather autonomous. It is vital to understand how this works and to deliver accordingly.
Louis previously worked in the Charles Stanley London office and began his career in our Valuations department before moving on to Equity trading, then Investment Management. He passed the CISI Masters in Wealth Management qualification in 2010. Louis was named by CityWire as one of the Top 30 Investment Managers under 30. Find him on LinkedIn.