Shares digital

Being a broker that makes all the investment decisions requires trust and the ability to meet a clients’ needs

by Chris Menon

As Shakespeare wrote in All’s Well That Ends Well, ‘Love all, trust a few’. Certainly, for any client their discretionary broker could be regarded as one of the few.

This is because a discretionary broker not only deals in stocks and shares on behalf of the client, but also makes the decisions about what should be bought and sold for the portfolio, and has authority to execute those decisions without getting prior approval.

You can obtain a pretty comprehensive list of firms offering discretionary broking in the UK from the website of the Association of Private Client Investment Managers and Stockbrokers (APCIMS) at www.apcims.co.uk. It has 95 members who offer discretionary broking.

If you are going to give any brokers such a high level of responsibility, investing money on your behalf, you need to really trust them. Georgina Mitchell, head of investment services at Redmayne Bentley, which offers discretionary broking for clients with a minimum portfolio size of £50,000, considers trust to be the most important aspect of an investment manger/client relationship.

‘The client needs to be able to trust the manager understands what their objectives are and what level of risk they are prepared to take, while on the other hand, the client must understand the views the manager has on risk and the basic approach he or she will take to the management of the portfolio,’ says Mitchell. ‘For example – active or passive? Absolute or relative returns? Simple equities and bonds, or all newfangled types of products that will require some additional explanation? If a client does not get on with their investment manager it is unlikely this level of trust will be built up – and it is one of the reasons why so many clients choose a broker based on a personal recommendation from a friend or family member.’

To help achieve this level of trust it is obviously vital you have direct and easy access to your investment manager, providing opportunity for one-on-one discussion.

Mitchell also considers a good broker will be ‘someone who has a good understanding of both the stock market and wider economy but also an equally good understanding of differing clients’ needs, from how much hand holding they need through to reasons behind specifics of the portfolio such as investment restrictions. The firm behind the individual manager should also have a good administrative record.’

Charles Stanley won last year’s Shares award for discretionary broking and currently handles over £3 billion of discretionary funds for private clients. Anthony Scott, director of private clients at the firm, outlined why he thinks they won. ‘We do not pay lip service to the phrase “knowing our clients”. Instead we go much further in trying to understand our clients’ needs and personal investment goals while making sure that they clearly understand our ethos and working practices on an individual basis. We ensure that the management of our clients’ portfolios is a highly personal process and do our utmost to keep our clients’ needs at the forefront of all our decision making.’

It is this client-centric service that, in Scott’s opinion, makes a good discretionary broker. ‘A good discretionary broker is one with the ability to listen and understand what their client really wants and to be able to explain the opportunities and risks of investing in the stock market,’ he says. ‘Charles Stanley’s investment managers are not obliged to adhere to rigid models, allowing them to tailor portfolios to specific individual circumstances while at the same time being conscious of the overall risks.’

As Alan Sugar would probably add gruffly, perhaps the single most important criterion on which to judge whether a discretionary broker is any good is simply to ask: do they make you money?

The presence of helpful and efficient staff, pretty newsletters, a personable investment manager, low dealing and commission charges are all very pleasant add-ons. However, if you have ‘cost me money’ it must be time to say goodbye – bear market or no bear market.

In rating the performance of your discretionary broker you should judge them against the following criteria.

• Are they making you a good return on your investment?

• Are their commission charges reasonable?

• Do they charge a management fee? If so, is it excessive?

• Do they explain their investment strategy?

• Do you have a good relationship with the person managing your portfolio?

• Do they send you regular portfolio valuations?

• Do they help minimise your tax exposure?

• Do they provide value added information or other helpful services?

Best Discretionary broker?

2007 winner:

Charles Stanley

Also nominated in 2007:

Hargreaves Lansdown

Killik & Co

Lewis Charles

Redmayne Bentley

TD Waterhouse