How to choose an investment manager
You might have just decided to invest some of your money, or you may have investments (e.g. a pension or an ISA) which you don’t manage yourself and you just want to select a new investment manager. Either way, how do you choose an investment manager?
The most important thing to remember is to make sure you are dealing with a firm on the Financial Services Register.
An investment manager invests your money into a portfolio of funds usually with the aim of growing your money or creating a regular income.
Advised or Discretionary?
Some investment managers work on an advised basis. This means that every time your manager wants to buy or sell a fund in your portfolio, you will need to consider each change and then make a decision as to whether to proceed or not. If you have time to analyse the funds in your portfolio, want to be involved in deciding which funds to buy and sell and have the appropriate skills, this could be a good solution.
However, because the process of obtaining your consent for each change to your portfolio can be time consuming, you might find that your manager suggests fewer changes than optimal or that change only happens once a year as a result of your annual review meeting.
At ClarityAM, we only offer a discretionary investment management service: we maintain your portfolio for you (subject to the constraints of the risk profile you select). When we update our investment strategies, you benefit immediately. And because all our shareholders and employees use the same range of investment strategies, your portfolio is managed with the same care and attention as we use to manage our own money.
Ask these four questions
1. Can you please send me the investment returns (after all costs) for each of your investment strategies for the last three calendar years?
2. Is your investment return data prepared by an independent organisation?
3. Can you please show me a peer-group return table – i.e. how the investment returns (after all costs) for each of your investment strategies compare with the returns of similar portfolios managed by other managers for the last three calendar years?
4. Once I am a client, will you show me how my investment return (after all costs) compares to the average return of a peer group of similar risk portfolios every year?
Beware of very low or very high investment management fees
Very high investment management fees can make achieving a decent investment return (after all costs) unlikely. Very low fees can be an indication that the investment manager is making a healthy profit by supplying you with other services (see the warning regarding conflicts of interest below).
Beware of conflicts of interest
Sometimes, an investment manager will own the investment platform which you are using or will invest some of your money in a fund which is also managed by the investment manager. In this case, the investment manager may benefit from more than just the investment management fees you are paying. At ClarityAM we never receive or benefit from the fees charged by the funds in your portfolio or the fees you pay to your investment platform.
Avoid mistakes by using effective communication
Some managers use an online questionnaire to understand your risk profile. At ClarityAM, we believe that a conversation is a more effective way for you to get an investment strategy that matches your needs.
Know how much it costs to change your mind
Some firms levy an early withdrawal charge or exit penalty if you decide to switch to a new manager. At ClarityAM, you can appoint a new manager at any time. We never charge exit fees.