If your main reason for using a wealth manager is to have your investments professionally managed, the most important consideration is how they will actually invest your money.
Wealth managers can take very different approaches to portfolio management. Some invest directly in shares and bonds, others primarily use funds and ETFs, while some combine different investment styles and asset classes.
Use our wealth management finder to compare the best wealth managers for investing.
How To Choose The Best Wealth Managers For Investing
The best wealth manager for investing should provide an investment strategy that matches your objectives, appetite for risk and the amount of involvement you want to have in managing your portfolio.
Understand their investment philosophy
Start by asking how the wealth manager believes money should be invested.
Some firms are strongly committed to active management and employ investment managers and analysts to select individual companies, funds and bonds. Others favour lower-cost passive investments designed to track major markets.
There are also firms that combine the two approaches.
There isn’t necessarily a right answer. What matters is understanding what the wealth manager is trying to achieve and whether you agree with its investment philosophy.
Look at what they actually invest in
Ask to see examples of portfolios for clients with similar objectives and risk profiles to you.
Look at the underlying investments rather than simply accepting labels such as “balanced”, “growth” or “adventurous”.
Depending on the wealth manager, portfolios could contain individual shares, government and corporate bonds, active funds, index funds, ETFs, investment trusts and alternative investments.
More complicated doesn’t necessarily mean better. Every investment should have a clear purpose within your portfolio.
Bespoke versus model portfolios
One important distinction is whether your money will be individually managed or placed into a centrally managed portfolio.
A genuinely bespoke discretionary portfolio may allow an investment manager to select investments specifically for you. Model portfolios, meanwhile, generally mean clients with similar risk profiles hold broadly similar investments.
Neither approach is inherently superior. However, make sure the service you receive matches what you’re paying for.
Make sure the portfolio suits you
A good wealth manager shouldn’t simply recommend whichever investment strategy it happens to specialise in.
FCA rules require firms providing investment advice or portfolio management to gather information about your investment knowledge and experience, financial situation, ability to bear losses, objectives and risk tolerance before determining what is suitable.
Your investment strategy should also reflect how long you intend to invest and when you are likely to need access to the money.
Diversification
Look closely at how the wealth manager diversifies portfolios.
Your money could be spread across different companies, sectors, countries and asset classes so that your financial future isn’t excessively dependent on one particular investment.
But don’t judge diversification simply by the number of holdings. Owning ten different funds that invest in many of the same large US technology companies, for example, may provide less diversification than it initially appears.
Compare investment performance
Past performance doesn’t tell you what will happen in the future, but it can still help you understand a wealth manager’s investment approach.
Ask to see performance over several years and through different market conditions. Compare it with an appropriate benchmark and, where possible, look at returns after fees.
Crucially, compare portfolios taking similar amounts of risk. Higher returns aren’t particularly impressive if they were achieved by taking substantially more risk with clients’ money.
Understand the complete cost
Investment costs can have a significant effect on long-term returns.
Ask for the total cost of having your money managed, including investment management and advice fees, underlying fund charges, custody costs and transaction charges. Current FCA rules specifically include management, advisory and custodian fees among the investment-service costs that should form part of client cost disclosures.
For larger portfolios, always convert percentage charges into pounds. A 1% annual charge on a £1 million portfolio is £10,000 a year.
Decide how involved you want to be
Finally, think about how much control you want over your investments.
With discretionary investment management, you give the manager authority to make investment decisions within an agreed mandate. Other services may allow you to retain more control over individual investment decisions.
The best wealth manager for investing should ultimately be able to explain what they will invest your money in, why those investments are appropriate, how much risk they are taking, what performance you should measure them against and exactly how much the service will cost.
You shouldn’t need to be an investment expert yourself, but you should always understand how your wealth manager intends to make your money work for you.