Firing Line: Thomas Salter

Netwealth is not your traditional discretionary wealth management service, according to its co-founder and former JP Morgan director, Thomas Salter.

Not many DFMs can boast of the financial backing of some of the industry’s most influential figures, including Jupiter Asset Management’s Edward Bonham-Carter and Sir Harvey McGrath, former chairman of Man Group and Prudential.

Merryn Somerset Webb, editor of MoneyWeek who also writes for the personal finance section of Financial Adviser’s sister publication the Financial Times, is also among the line-up of 29 angel investors who have injected just over £6.5m into the business.

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Mr Salter said: “For us, it is very good to have this sort of backing, not just from a financial point of view, but from the perspective that these are very seasoned financial grandees. Our investors are backing a business that is trying to change wealth management.”

The change Mr Salter speaks of alludes to the firm’s adoption of technology, which, he claims, will bring the critical elements of traditional wealth management offerings into the 21st century and streamline the investment process.

The brave new world of financial services which has benefited from the evolution of the digital platform has seen DFMs come under mounting pressure for greater transparency over fees, and to reduce the cost of investing.

Discretionary portfolios are nigh on impossible to compare for anyone who is not an analyst, and should have the same transparency requirements as mutual funds, according to financial services consultancy firm the Lang Cat’s 2015 research into the suitability and due diligence of outsourcing investment solutions.

Transaction charges, for example, vary widely. Some managers, such as Netwealth, include the levy in the overall cost, while others charge a flat fee or a percentage fee.

Mr Salter said: “If managers are charging a hefty trading fee for a discretionary portfolio, there is an inherent problem there. If managers are making a lot of money with these charges, then surely there is an encouragement to trade?”

Netwealth operates an ad valorem charging structure – levying a percentage charge based on the value of assets under management.

The firm’s all-in annual fees start at 0.65 per cent for investments of £50,000, falling to 0.50 per cent for £250,000 and 0.35 per cent for £500,000 and above.

The levy covers investment management, all trading charges, custodial, administrative and all reporting costs, as well as VAT. The cost of advice is charged separately.

Mr Salter said the fees come to about a third of what its pricier rivals levy, adding: “Technology can offer you the scalability and the efficiency to run on this charging model and free up any human reaction for what it is really important for.”

Investors can go to the DFM directly and have the option of hiring the services of one of the firm’s qualified advisers at the cost of £125 per hour.