Choosing an investment manager
For the busy individual, whether investing for himself or as a trustee, it is wise to engage the services of a professional investment manager. The investor must decide the type of management style best suited to his needs. In some respects, this will reflect the sum
to be invested.
For an investment portfolio of less than, say, £100,000, the investor should consider collective vehicles such as investment trusts, unit trusts or OEICs, or, for charities, Common Investment Funds. These are managed portfolios in which each investor acquires a ‘vertical slice’ of the assets thus achieving a wider spread of individual investments than if the same sum was invested in a selection of individual companies. Investment trusts are quoted companies and frequently trade at a discount to asset value, while the other types trade at asset value and are dealt in through the fund managers. The investor cannot influence asset allocation or stock selection by the managers of these vehicles. The underlying portfolio of each collective scheme may be actively or passively managed, and may be widely spread or concentrated on specific geographic regions or industrial sectors.
It is possible to invest larger amounts through collective schemes, although some unit trusts may impose a daily maximum on individual trades. However, some investors may be more comfortable with segregated portfolios. A segregated portfolio is a list
of stock and shareholdings specific to each investor tailored to suit the investment objectives of the individual or fund, whether for capital growth, high income, or having particular constraints on investment in companies, industries or geographic regions.
If the segregated route is taken, should one adopt discretionary or advisory management? Transactions in advisory portfolios take place once the manager has contacted the investor and, having explained the proposed change, received authority to proceed. This is a cumbersome procedure in what may be a fast-moving market, especially if there is a group of trustees to be consulted.
A discretionary fund manager makes daily decisions about asset allocation and stock selection and implements them without prior reference, although any portfolio changes will be made within a framework agreed at the start of the arrangement and regularly reviewed. The client will receive contract notes detailing each transaction
and reports from the manager at regular intervals, both in writing and either in meetings or by telephone.
Both advisory and discretionary investment management services are offered by a large number of financial organisations. To operate in this field both the company and the individual managers have to be authorised and regulated by the Financial Services Authority. It is clearly of great importance that investors who choose the discretionary route should have full confidence in the organisation they choose and the individual who will be responsible for the day-to-day management of the portfolio. Several service providers should be interviewed before an appointment is made.
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