In the first part of a two-part feature, this article recounts the experience of how private clients of wealth firms have pushed for - and sometimes achieved - higher performance.

“Client A” may be relatively new to wealth management, yet his investment managers are getting anything but an easy ride. Here, in the first section of a two-part feature, he tells WealthBriefing how he constantly pushes for better performance – and why.

The investment management industry has come in for some pretty harsh criticism in the mainstream press recently, with advocates of DIY investing rounding on what they see as a high fee/lacklustre performance paradigm prevalent among the professionals. True or not, these exhortations to seek greater value seem to be having an effect: a recent straw poll found that around half the new clients coming through the online matching service findaWEALTHMANAGER.com had successfully negotiated their fees down. But what is even more striking are the efforts one of these clients is making to push investment performance up.

“Client A” recently told WealthBriefing of his struggle (see here) to find a wealth manager which could present a truly “all-in” total expense ratio for running his money, let alone one that could match the (admittedly) very ambitious figure he had in mind.

After taking great trouble to meet his terms, a wealth manager was finally engaged to run a pretty aggressive mandate on a segregated account. Yet, as Client A would have to agree, this was only the start of the pains the firm would have to take to keep this senior performance management executive happy – not least because he currently has six other wealth managers running shadow portfolios against his chosen institution, hoping that their investment prowess will eventually win out.

Aiming higher
While Client A is by no means representative of all high net worth investors, his exacting requirements may serve well as a benchmark of the level of scrutiny wealth managers should be aiming to be able to live up to now. He is also schooling institutions on the standard of performance reporting that today’s increasingly tech-savvy and cost-conscious clients are likely to become more and more enamoured by: it is to the great credit of the wealth managers who have worked with Client A that they have actually asked him to help with ideas for potential reporting enhancements. Just as the emergence of challenger brands can help reinvigorate a sector, businesses might also learn a lot from challenger clients it seems, particularly ones like Client A who are willing to invest their own time alongside the institution’s to develop the right solution.

Although his requirements were exacting, Client A believes that his search for a wealth manager which was able (and willing) to meet them was aided by the fact that he was offering a substantial portfolio of several millions pounds, which could be managed on a fairly unconstrained mandate in a bid to generate superior returns. In essence, he believes he was throwing down the professional gauntlet and offering the kind of challenge an investment house, and its portfolio managers, should enjoy taking on. Certainly, heightened regulatory and cost pressures seem to be driving a kind of homogenisation in investment approaches, at least at the lower end of the wealth spectrum. And, as investments become more vanilla, it is easy to see why a talented investment manager would relish the freedom of investing on a “best ideas” basis for a client who is pretty sanguine about risk.

Yet for Client A, autonomy always has to be matched with a corresponding degree of accountability to garner the best results. Central to Client A’s approach to what he calls “managing the managers” is creating a tension between demanding low fees, but also being ultra focused on performance at the same time. “Then - like so many things - you’re asking for the impossible, but it makes it a much more lively discussion,” he said. “If they know you’re cost-conscious, they’ll go to the trouble of explaining why they think something is good, for example.”

Details, details
Asking a wealth manager to explain why one type of financial instrument was deployed rather than another is crucial in Client A’s view – if only to stop the investment manager simply reaching for the most convenient yet not necessarily the best, or most cost-effective, instrument. Likewise, Client A wants to see the investment manager adding value wherever possible by making insightful investment calls which take advantage of both short- and long-term opportunities. And make no mistake, Client A is seriously informed about the markets, holding as he does a degree in finance and keeping a keen eye on the financial news and even trade press. In his words: “I basically ‘mess in the kitchen’; I give them a hard time and I ask them to justify.” Missed opportunities will not be missed, so to speak.

“I want to look down the disposals list and know the gain or loss on that disposal, and why it was disposed of in line with the macroeconomic assessment and the rationale for buying it in the first place,” he said. In effect, Client A’s reporting template is designed to ensure that the truth will out - very rapidly - when it comes to poor investment decisions being made. “If they make a bad call there is nothing I can do about it, but they know that I know,” he continued. “If they keep doing it and evidencing the fact that their judgement isn’t very good then that’s a key learning. You obviously won’t want to continue with that.”