Most financial milestones leave an asset base open for allocation to longer-term investments, typically in the form of equities, bonds and funds from specialist managers.
For most new to investing, the paradox of choice and the financial jargon are more than daunting. Most turn to their lawyer or accountant, which often leads the investment journey to start with a ‘beauty parade’ for investment managers, who are shortlisted to present their services to the potential client or client’s trustees in a panel.
These are not quick affairs; after hours spent listening to the same presentations produced by different wealth managers, for the majority of investors this process is more or less a trial of endurance than anything else.
Issues with this process emerge; confident individuals with well-presented pitches are undeniably attractive, leaving investors increasingly influenced when faced with a positive and enthusiastic panel. Herewith is the dichotomy, while the attraction and merits of a beauty parade are undeniable when choosing a fund manager, for many, the decision is based on first impressions of meeting the person responsible. Yet almost always this decision and the process behind it are flawed, failing to dig deeply beneath the polished pitch surface.
Sadly, in today’s investment industry, it is often those with the biggest marketing and entertainment budgets, the largest brands, and sharpest marketing professionals that sail through this screening process. Typically, those entrusted to make informed decisions and select investment managers for beauty parades use the wrong value set, difficult in an atmosphere of corporate entertaining, renowned firms and sterling performance charts.
To counter this, hiring an investment manager should be a rigorous process, beginning with planning and analysing your goals and objectives. Here, considerations are needed for shaping the personal investment policy, including time frames, liquidity requirements, risk appetite and short-term cash requirements. The strategy should additionally allocate funds effectively across tax-efficient wrappers, such as Isas and pensions. Other options include non-stock market investments and whether buy-to-let properties, for instance, are valuable investments. Many investment managers will not advise on such matters, often allocating minimal funds to cash or bank deposits because they generate a meagre profit for managers. Most will only allocate between 2 to 5 per cent of funds to cash; this will be a standard investment model allocation rather than a client-specific decision – conversely, independent advice will show a clear and pragmatic view of cash holdings in lieu of future plans.
Once the foundations of the investment plan are established, you must identify, screen, and select managers who could generate an attractive roster of partners. It is worthwhile establishing if those presenting to you execute investment decisions; if not, this is not necessarily an issue, as a ‘relationship manager’ role can work well. Nevertheless, it is important to understand the process and roles investment staff will have regarding your portfolio. Investigate in order to establish who the investment team’s key members are, whether the team in place was responsible for the past performance figures, and whether said figures are true and reflective of the overall team. Are the numbers realistic for your mandate or do they apply to differing sets of objectives? And finally, are those at the beauty parade the ‘dream team’ – pitch experts whom you may never see again?