Discretionary investment portfolios – making sure they are “Made to Measure”

David Watson

David Watson

Chartered Financial Planner

With another large bank announcing that it is moving their discretionary investment management (DIM) for portfolios of under £1m to their Managed Portfolio Service, David Watson considers the impact to clients.

If a client has a discretionary portfolio, it should be bespoke to them, and managed in accordance with their individual needs, and wants, utilising the skill of the discretionary manager to buy and sell the right holdings to deliver enhanced returns. The DIM can also manage a client’s capital gains tax position by selling the appropriate level of investments to ensure that their Capital Gains Tax allowance of £11,100 is utilised and not breached. This is obviously not important if monies are held in ISAs or Pensions, but can be significant for direct holdings held in a non-tax wrapped environment.

It seems that many discretionary investment managers are moving away from bespoke portfolios, whether that is compliance or research or other factors, the trend recently seems to have been to move clients discretionary investment portfolios into their managed portfolio service (MPS).

An MPS is a packaged solution, typically holding funds rather than direct equities, hence this can be easier for the investment company to ensure that their clients with a certain risk profile all end up in exactly the same portfolio. Typically they take no account for Capital Gains Tax, which could have significant tax implications for some.

The charging structure of many MPS portfolios seem opaque with quoted figures of around 1%, when typically a client will also pay VAT, and annual management fees of the underlying funds which are held in the portfolio. This can lead to the overall cost of ownership of over 2% and sometimes close to 3%, significantly higher than those quoted.

At Johnston Carmichael Wealth our investment philosophy caters for both reducing cost by reduced ongoing investment charging and tax reduction ,usually the biggest cost factor.

If you’ve received correspondence from your DIM, and would like to discuss how this fits with your wider financial planning then please contact a member of our Wealth Team by email on enquiries@jcwealth.co.uk or your usual local office Financial Planner.

Nothing in this blog constitutes advice to undertake a transaction and professional advice should be taken.