DFM

086 | Investment management in practice

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Tutors:

  • John Wallace, Director, Brooks Macdonald
  • Robin Eggar, Director, Brooks Macdonald

Learning outcomes:

  1. How DFM offerings have evolved in the last 20 years
  2. How centralised processes can complement a bespoke portfolio
  3. How to judge the track record of a DFM

Channel

DFM
Learning outcomes: 1. How DFM offerings have evolved in the last 20 years 2. How centralised processes can complement a bespoke portfolio 3. How to judge the track record of a DFM PRESENTER: What are the key principles an investment manager should abide by when putting a client portfolio together? JOHN WALLACE: Yes, I think consistency is key to any relationship, certainly when there’s a professional advisor involved, and I think DFMs want to get their philosophy out there right from the beginning. You need to articulate to clients and to advisers what you stand for, and indeed what you’re trying to achieve for them. We have a pretty simple investment philosophy, which is that we have a proven active investment management process, and then we have a risk management system that sits on top of that, and that allows us to fulfil the portfolio mandates that we’ve given by clients and advisers. PRESENTER: And, Robin, those key principles, have they changed at all over the last say 20 years, because the industry’s changed a lot? ROBIN EGGAR: Yes, I think it has, and I think that the consistency point is actually also key in this as well, in that I don’t think 20 years ago there was any consistency at all in the discretionary fund management industry. I think you had different firms doing very different things for different clients. And also it was very much only available to those clients with a significant amount of money to invest. I think improvements both in systems, technology, etc. have enabled that proper discretionary fund management approach to be available to a much wider range of clients. So for a fully bespoke service something like £250,000, a modular basis maybe as low as £50,000, but still getting exposure to the same underlying asset classes, the same speed of response, the same underling active portfolio that would have historically just been the preserve of the very large client, and even those large clients I don’t think would have got such an active and professional service as they do today. PRESENTER: And over what time period should you judge whether your DFM has fulfilled the client mandate? ROBIN EGGAR: I think it depends slightly on what the mandate is that you set at the outset with the client. But certainly we would expect clients to be looking at a three to five-year view before making a decision as to whether they should be continuing with that particular discretionary fund manager. Different houses will go through different periods of outperformance, of average performance, and undoubtedly there will be periods where individual firms will underperform, and that will be because of their particular style or their particular outlook etc. Now clients have to buy into that outlook, buy into that strategy at the beginning, but it may well then take a few years to play out over an economic cycle perhaps. PRESENTER: John? JOHN WALLACE: Yes. I think there’s another couple of things to add on that. Things have changed dramatically over the 20 years. Certainly when I started my career the majority of clients were managed on an advisory basis; that being said as an investment manager you went back to the client before you invested, you went back to the client before you sold anything, and it was a very much two-way relationship. And things have changed. And I think things have changed because of centralised investment propositions allowing strength and depth aiding returns, and indeed the marketplace has changed. Things are much more fluid than they were, and returns are harder to come by and so there’s a lot more volatility in markets. And so the market’s almost gone hundred percent certainly on the discretionary side to just bespoke portfolios; there are very few of us offering advisory services any longer. Of course there are some advisers still managing portfolios on an advisory basis, and I completely understand that, but the issues you have with that is it’s very hard to be proactive. By its very nature it moves you to a reactive portfolio management position, and you see so many issues with it. Certainly if you want to make a change and the client’s on holiday, for example, and the portfolio could go down quite rapidly and there’s nothing you can do. PRESENTER: And how would you distinguish these principles from the investment process that you then have if you’re typically running a discretionary fund management operation? ROBIN EGGAR: Well the investment process is all about getting the right investments into the portfolio for the right clients and the right amounts at the right time. So that might consist of perhaps a top-down asset allocation. So we’re looking first of all at where in the world we want to be invested on a geographic basis, which asset classes we want to consider, different points in the investment cycle etc., and then the bottom-up stock selection, if you like, so we’re then deciding how we’re going to get exposure to those various different asset classes and asset types that we’ve decided on at the beginning. So that would be the principles of the investment management process. It’s then the client’s criteria that fits into that, and we’re then matching their particular requirements with both that asset allocation that we’ve set and the bottom-up stock selection as well. PRESENTER: And, John, how do you marry up the risk parameters that the client wants with the risk process centrally? JOHN WALLACE: A lot of it comes from the IFA originally. So they set the risk in conjunction with the clients, and then that feeds back through. I think we’ve got to be clear from the outset with both the professional adviser and the clients where our risk parameters sit. And then once they fully understand those and those have been fully explained to both, then it’s pretty much mapped across to our risk. So it is important to know that not all DFMs are the same, and we all look at risk from a slightly different perspective. I mean we know what risk is, but how we asses risk and how we develop our bandings for clients is different. PRESENTER: If the risk parameters of the portfolio go somewhat, not massive but move a little bit away from what the client’s expecting, what happens next? JOHN WALLACE: We have tolerances. So we’ve got tolerances across the board for every risk profile. I think this comes back to the risk management system that you employ. So if you’ve got a risk management system that sits on top of the portfolio, then that allows you to monitor where the portfolio sits on a day-to-day basis. It’s not taking anything away from the investment manager, and it’s not taking it away from his or her job, but it allows them to keep a full rein on where that portfolio sits. We employ a system called BITA, and that allows us to know where a portfolio sits on a daily basis. And it will flag up anything that’s outside those parameters that we set. PRESENTER: And Robin, we hear a lot in the market that returns mainly come down to asset allocation. Should a discretionary fund manager be able to produce their track record on asset allocation, what worked, what didn’t – is that something an adviser should expect? ROBIN EGGAR: Absolutely, I would agree yes. Well firstly I would agree that yes the bulk of returns will come from asset allocation. So therefore it’s incredibly important that any discretionary manager ought to be able to show exactly when they made changes to their asset allocation, why they made those changes to the asset allocation, and indeed what the output of those changes were. Whether you get it right or wrong is perhaps of less importance; it’s understanding the decision you made and the impact it had on the returns to the client portfolios and to the portfolio construction process that you’re undertaking. So I would say it’s absolutely key yes. JOHN WALLACE: And you should point you, I mean there’s been a far greater emphasis placed on asset allocation over the last decade. We’ve all read so many articles on the basis that 90% of your returns plus come from asset allocation, rather than from timing all the underlying assets. So I think you’ve got to be able to demonstrate as Robin said how you’ve got to somewhere, and why you made those decisions in the first place. PRESENTER: So does that mean you’d more resource into getting asset allocation right for clients than you would for say fund or stock selection? JOHN WALLACE: I think you try and get it all right. But asset allocation drives performance. So your asset allocation has to be right. And of course if you can get the underlying assets right as well, then you’re going to do better than the average. PRESENTER: And we talked a little bit there about looking for the track record and asset allocation, do you think you’ve got the same responsibility when it comes to the track record on stock selection or fund selection? JOHN WALLACE: Completely, yes, and I think it’s not only something you need to be able to demonstrate to the client and to the professional adviser; I think it’s something that you need to be able to demonstrate in-house. It’s a learning curve, always, so you want to be able to see what works and what didn’t work. And you need to know why something worked or didn’t work. And indeed I think portfolio management is quite repetitive, and so a lot of the things that you buy you will buy a number of times over your career. And so you do need to be able to keep a log of how things have performed. PRESENTER: OK. I suppose the next thing is we’ve mentioned risk a couple of times, but what are some of the specific risk parameters that you need to consider? Robin, can you talk us through some? ROBIN EGGAR: Yes, there are a number of different factors that we would look at when considering risk. I think the key one for me would be asset allocation. We’ve already spoken a little bit about when a portfolio might stray away from that set asset allocation. We clearly need to look at volatility, and that’s both the volatility of the overall portfolio, the volatility of individual holdings within that portfolio, and indeed the volatility that might result from the combination of holdings that you have in a portfolio. So I think volatility is really key and has become more important in the last couple of years. Alongside that you might look at things like how much do we have in an individual security, an individual fund. How much we might have with one particular fund management house for example. It’s always important to recognise perhaps any unintended style bias you might have in a portfolio by the use of particular fund or a particular fund house, so that will all come into it. And I think also liquidity is increasingly important, both from a regulatory point of view, and also what we do: whose money are we looking after? It’s private client portfolios that we’re running. We need to have liquid assets. We need to be able to change those portfolios as our asset allocation changes, the market positon changes etc., but also these are our client’s monies, their circumstances can change, and we need to have that liquidity to be able to exit and to raise cash as and when required. PRESENTER: Is it important that your clients have got exactly the same definitions of risk as you have, and have absolute agreement with you on how to manage them? ROBIN EGGAR: I think it’s absolutely key that they understand what our definition of risk is. I think risk means different things to different people, and we have plenty of medium risk clients who might have a different propensity to take risk. They will understand what our definition of that risk is, and provided we clearly document how much risk we anticipate taking in their portfolio, and they’re comfortable with that, they understand that, then I think that’s absolutely fine; albeit their definition of medium risk may differ slightly from what ours is at the outset. PRESENTER: And I suppose one question that’s often asked of discretionary fund managers is is it better to put everyone in a centralised investment proposition, fit people into a system you’ve got, or give everybody a discreet portfolio? John, what’s your take on that? JOHN WALLACE: I think you can do both. I think things have changed dramatically over the last couple of decades. I mean I think if you go back 20 years ago most investment managers were running portfolios, they were doing the research, they were choosing the underlying investments within a portfolio, and there wasn’t a huge amount of recognition of risk. I mean a client would come in and say they were medium risk, but I mean what did that mean, touching on what Robin just said. So fast forward to today, a centralised investment proposition means different things to different people. But to my mind if you’ve got a centralised process you are then feeding off of everyone within the firm, and everyone has input. And I think everyone can input into something, and indeed everyone can take back out of what you’re producing. So it is strength in depth. And that adds significantly I think to the client’s experience, certainly from a risk standpoint, and indeed from just choosing the individual components of any portfolio. PRESENTER: But isn’t there, I hear the positives but just playing devil’s advocate for a minute isn’t there a danger then that you end up with investment that’s decided by committee? JOHN WALLACE: You do if you’ve got an overbearing centralised investment proposition. I think it differs between firms, but I think certainly from my experience those firms that employ a process whereby the individual investment managers do the research. So they all have a research team. So they will sit under a specific sector. They do the research. They’re also running the money as well for their underlying clients. They feed into the pot, and they take out of that pot. Then you’ve got to have tolerances. I think you end up with a prescriptive process otherwise. So for a medium-risk portfolio you do need to have tolerances on the percentage of assets you can hold say in UK equities, and that allows the individual investment manager to still show flare and indeed manage that portfolio on a bespoke basis. So it’s bespoke but with a risk control in place. ROBIN EGGAR: It’s also worth just bearing in mind who’s got the responsibility for the ultimate decision made in a portfolio. Provided that is the end investment manager who’s also responsible for the relationship with their client, then even if the investments they’re choosing have been selection via the central investment process, by a research committee etc., it’s still up to them to implement it in the client portfolio. So therefore will always be bespoke to that particular client, because they will have different timings, different circumstances etc. So it’s the manager using the tools of the central investment process. PRESENTER: I can see that, but again with that centralisation what happens if somebody very important at the centre goes, and all of a sudden an organisation thinks we just haven’t got the experience say to look at structured products? ROBIN EGGAR: Yes, I think that’s a fair point. I think that’s where it comes back to having strength in depth which John alluded to. If you’re going to have a central investment process, you don’t want one person being responsible for that asset allocation. I would advocate having an asset allocation committee who are both doing their own proprietary research, they might be buying in economic research from top economic houses, the likes of Capital Economics, BCA etc., all widely available but not cheap. Therefore you need to have that resource in place to properly be doing that asset allocation. If then the decisions are taken based upon the committee’s output, then I think you’re much less reliant on one particular person in that process. JOHN WALLACE: And I think that’s sorry, I think that’s why these things have changed from the past. In the past when you had one person making the decisions, and one person investing in that portfolio, if they were to leave the firm normally they would leave and the clients would go with them. You’ve got to have an investment process that involves everyone. PRESENTER: But I suppose if I were an adviser and I’m bringing a client to a DFM, say it’s yourself, isn’t there a danger that if what’s in my client’s portfolio bears no relation to what’s on your buy lists I end up having to turn the entire portfolio around, rather than you working with me and saying well given what you’ve got here’s how we can tweak it? JOHN WALLACE: I think you have flexibility, and I think as Robin said earlier there’s sort of a critique that is employed right at the beginning. And you go through that portfolio, and of course some portfolios may be CGT locked. And so we can run portfolios that are CGT locked, and we can gradually sell down those assets using the annual allowance that a client may have. And it’s not something that you achieve on day one. I think inheriting a portfolio is a moving process, and one very much that you’ve got the end goal to get to. You do have to be cognisant of the risk. There’s no point taking a portfolio in that’s incredibly risky, and you’ve agreed with the client that it’s low risk and they’ve signed a mandate for low risk. So it’s a three-way conversation between us, the clients and the professional adviser. PRESENTER: Well, taking your point it’s a journey rather than a handover process, how long might that journey last? JOHN WALLACE: I think if it’s a new client and it just comes in as cash, I mean majority of DFMs will get money into the market within six months. And that should allow them enough time I think to take advantage of volatility and buy different asset classes at different times, taking advantage of low points. I think if you inherit a portfolio that is already invested, again over six months to 12 months, unless there’s some huge capital gains tax issues, that should give you enough opportunity to move the portfolio into where you think it should be, or at the very least get it into line with the risk mandate that you’ve agreed. PRESENTER: And, Robin, you talked a lot about research and resource, now advisers are often, the message is it’s so tough to do all this research for investment. So give us some idea how much time would a DFM spend researching? ROBIN EGGAR: I mean within the firm, within a DFM firm they’re going to be spending an awful lot of time on research. We’ve already touched upon that investment committee, the asset allocation committee, and I believe their job should be full time to be doing research. They should be just considering that asset allocation, that overall macroeconomic picture. Different firms will do it in different ways in terms of the stock selection. They’ll either have a separate team, or as we do we have individual investment managers with a particular research responsibility for a geography, for a sector, for a theme etc., and I would say 25 to 30% of their time will be taken up by researching that particular sector. And when you’re looking at the depth and the breadth of opportunities that we can consider now in a client portfolio, then unless you’ve got sufficient people to be doing that you’re absolutely going to be missing out on some pretty interesting opportunities. PRESENTER: And as this more global approach takes hold, there are fund managers, they’re not just in London, they’re all around the world, interesting investment houses springing up everywhere, how much more time is spent looking outside the UK than it was say 10 years ago? ROBIN EGGAR: I mean it’s difficult to put an exact number on that, but I think the opportunity set has increased the whole time. And I think here’s an interesting example that perhaps we weren’t looking at 10 or 15 years ago, something like biotech or healthcare for example, you know, those top biotech companies. There are some good ones in the UK, let’s be honest, but a lot of them are centred in the US, and we simply wouldn’t have the expertise to be able to cover that sort of investment if we were buying direct stocks say in that particular sector. So much rather be using an external manager who’s got people on the ground, who’s got expertise, who are interviewing those companies, etc. So we need to be looking outside of the UK to get those really top opportunities. PRESENTER: So buying funds is always, is an important part of the process. ROBIN EGGAR: Yes, absolutely. I mean I think as a discretionary fund manager the key point is to not shut off any opportunities that you have available to you. We can invest in the whole remit of investment vehicles from direct stocks, direct bonds, structured products you mentioned earlier, unit trusts, investment trusts etc., but collectives will be a key part of that, particularly when we’re looking outside of the UK and for particular themes or more difficult to research geographic regions for example. PRESENTER: Now, just popping back to asset allocation, we covered it from a high level a little earlier John, but talk us through how you might go about setting up an asset allocation strategy. JOHN WALLACE: Yes, I think I mean fundamentally you can have a committee. I mean I know committees are everywhere these days, but you will have a committee. And you’ll have people who sit on that committee, and they will meet predominantly monthly. I mean if markets dictate it will be more often, so certainly if you’ve got times of volatility they could be meeting on a weekly basis. But they will certainly set the top-down theme and view, and they’ll achieve that through buying in external research, Robin mentioned earlier, and indeed their own analysis. And so they will look at short-term tactical asset allocation depending on where they think the world is going to move short term, and they’ll also have a longer term view. And things that could come into play certainly in the short term would be currencies. And certainly transitional phases between different market caps. Will the FTSE 100 outperform or will the FTSE 250? And then they’ll employ a bottom-up process. So they’ll have the overview of where the world sits, and then they’ll backfill with the component parts of that. So you’ll have the geographical asset allocation, and then you’ll have the underlying asset classes. And no doubt you’ll decide what percentage you’re holding in each asset class and each geographical area. And then that kicks back in with the research department and your investment managers who are doing the research and their fund picks, and they join up with the bottom-up view. PRESENTER: Well, strategic and tactical asset allocation, it sounds very professional, but in terms of timescales, Robin, if someone says they’re doing strategic asset allocation what sort of time period? ROBIN EGGAR: I think strategic for me is anything up to five years, and when we’re buying investments we’re not really buying them to tomorrow or next week; we’re buying them on that longer term strategic view. I think where we can add value a good example at the moment might be within North America. Now we’d have a strategic asset allocation to North America, and indeed we may have over-weighted that in the short term on a tactical basis, partly down to currency as John alluded, but also at the moment within that we might make a tactical call to have more exposure to mid and small cap stocks with more of a domestic bias as a result of the policies that Donald Trump is implementing in the US. So that might be a strategic weighting to the US for the medium term, but a tactical allocation to particular part of the market, and that may only be for the next 6, 12, 18 months. PRESENTER: And how do you factor in specialist funds within your overview? So if you suddenly think technology is a place to be, how do you integrate that with the more if I say mainstream conventional portfolios? ROBIN EGGAR: Yes, that’s right. I mean we tend to look at it by having a weighting to what we call thematic investment. So we have things like technology you mentioned, healthcare, natural resources, infrastructure etc., where we see those less as a geographic play, but as a thematic play. So a technology fund again probably be slightly biased to the US, but there’s going to be UK in there, there’s going to be Europe, there’s going to be Far East etc. So we don’t want to miss out on that by just saying we’re going to look at things on a geographic basis. I think what’s important though again is to make sure you’ve got the strength of depth of research when you’re looking at those thematic investments to understand where your exposure is. You may find otherwise you’ve got a much larger exposure to North America and to the dollar for example than intuitively you would have thought when constructing that portfolio. JOHN WALLACE: I think that’s a really good point, because if you buy a portfolio, and I think people have been overweight US equities certainly for the last couple of years. If you double it up with some infrastructure exposure and some healthcare and some technology, you could end up with a portfolio that could be medium risk and yet it’s got over 60% in US exposure, and was that what you set out to achieve at the beginning? PRESENTER: Well, when you get the software that crunches all of this to tell you where your risks really are, is that something you’ve built yourself in-house or are you and all the other DFMs all buying in, plugging into exactly the same product at source? So you’ve all got, essentially all got the same view. JOHN WALLACE: I think we’ll all have a system. And certainly from my experience you have a system and then you tweak it a lot and you end up with something that’s proprietary. And so it will different between houses. I think the interesting thing with risk is that it’s always backward looking, so all the stats you look at will be what’s happened in the past. So it’s never going to give you a clear picture, but I think all houses will have a different view on volatility bands, for example, how you invest for a medium risk portfolio, or lowest medium. How far apart are you going to go from a risk standpoint? But there’s always going to be a bit of commonality. PRESENTER: And given the size of a DFM compared to the size of an adviser, what asset classes, what types of investment vehicle does that mean are on your radar screen and you can access that others can’t? JOHN WALLACE: Yes, it’s a good question because I think platforms have been a wonderful entry into our marketplace, because they’ve allowed access for so many people who couldn’t access funds. But they’ve created an issue as well, which is the investment universe. The investment universe for a DFM is huge, far greater than a platform, because by its very nature a platform will just have access to those funds that are on platforms. So the sort of assets that we could buy and have access to that maybe the average adviser cannot would be investment trusts, would be direct equities, would be structured products, would be direct gilts, direct overseas treasuries, direct corporate bonds, a multitude of things that we would buy, and I would add probably that reduce risk and volatility within a portfolio. PRESENTER: Well, Robin, just been looking through the other end of the lens, does that mean given your size there are things you can’t buy, smaller funds, some investment trusts because of liquidity, you’re just too big to put all your clients? ROBIN EGGAR: Yes, I think that’s a fair point. There will be the odd occasion where there may be an investment trust, investment trusts in particular where we see perhaps not enough daily liquidity in the shares for us to warrant having a position across our client portfolios. And TCF, treating customers fairly, is clearly at the forefront of our minds. So if we are having to sell an investment for a particular reason, it wouldn’t be right for us to sell for five clients but leave 25 clients behind. So if liquidity is an issue then we wouldn’t buy it in the first place. And what we tend to look at before something even goes on our list is whether we think there is sufficient liquidity for that. And the same goes for an open ended fund. We wouldn’t want to own more than a certain percentage of that fund, so that may restrict our access as a fund is getting up to full scale. JOHN WALLACE: What we can get involved in is that we can get involved in new entrants, new listings. So we can be seen investors, founder investors of open ended trusts, and indeed investment trusts. So that does afford you a bit more opportunity for clients. PRESENTER: And in terms of things like VCTs and EISs, the really small end of the small cap, is that something that DFMs typically would put in portfolios for clients? ROBIN EGGAR: Not typically, I mean I would consider a VCT or an EIS to largely be a tax driven investment, and therefore we would expect the financial adviser to be giving that advice given that they are doing the overall holistic financial planning for that client, and that would be I would say where the decision should come from. Yes there may be opportunities where we want to invest right at the smallerend of the market cap, but we’d rather do that via a unit trust or a specialist investment trust, rather than a specific VCT or EIS investment. PRESENTER: But presumably you can’t completely unpick tax from investment for clients. I mean if you say had a client who’s coming up to retirement, how do you, because if you’re saving them tax that’s risk-free return they’ve got, so how do you I suppose maintain your specialism but be aware of…? ROBIN EGGAR: That’s a good question. I think for me the key is the adviser will always have that oversight of the financial plan, the financial roadmap that client is on, and the likelihood is that in developing that plan over many years the client will have different pots at their disposal. So they might well have a standard general investment account. They’ll most likely have ISAs. They may well have a pension fund by way of SIPP etc. They may well have an offshore bond. All of which will have been set up for different tax reasons. But our job is then to manage the investments within those wrappers in the most suitable way to make the most of those tax advantages. So dividend rules or dividend laws have changed in the last 18 months. Now all clients have got this £5,000 dividend allowance each year, so absolutely we want some yielding investments in their general investment account, which previously we might not have done. So it’s up to us to make sure we’ve got the right balance in there. Within the ISA clearly we’re looking at the higher yielding investments, fixed interest investments etc. Within the pension fund again we can look at high yielding investments, not worried about capital gains etc. either, and in the offshore bond similar environment, then with the adviser making use of the potential 5% withdrawals each year. PRESENTER: So are you saying it would be part of your job and responsibility to remind the adviser say you’ve got this £5,000 a year dividend allowance, or just saying this is the money that’s in the dividend allowance pot, let’s use it as effectively as possible? ROBIN EGGAR: No, we would say we want to proactive as well, and because it’s a change in legislation it’s affected all of us. It’s affected our clients. We’d be liaising with the client and with their adviser, to understand whether it’s appropriate that we do that. I have other examples of clients where we hold their portfolios. They also may be directors of businesses. Maybe they’re receiving dividends directly from those companies already. So we can’t just blindly go in and say oh it’s great, we’ve used your £5,000 dividend allowance, when they say well actually I’ve already done that over here. So it’s got to go back to the adviser understanding the overall picture before we then just go and act. But it’s in our interest and our clients’ interest to make the most use of those tax advantages that we can. PRESENTER: Well I suppose one, John, that’s out there is pensions. You can have, it varies a little bit but rule of thumb you have a million pounds in a pension, and that’s a mixture of contributions and growth. Are there any decent rules of thumb out there for how much you want to put in a pension by a certain age before you say you really don’t want to put any more in this because investment growth alone is going to get you to take that magic million pounds figure? JOHN WALLACE: Firstly I’d say that that sits with the professional adviser. I mean they sit down with the clients and they’ll do the pension planning over the longer term. Now obviously it’s much more complicated than it was, because the cap has kept coming down. PRESENTER: And you know what investment returns should be, so surely that’s where. JOHN WALLACE: Yes exactly, but I think it’s important not to build a portfolio for tax. I mean I think the old adage was always applying to capital gains tax. There’s been so many instances over my career where a client didn’t pay the tax instead of taking a huge gain, so they just sat there with this capital gains tax issue, and then those shares fell. And I mean going back to the tech boom and crash, so many clients could have made so much money had they have paid the tax but they didn’t, so it could be quite painful. And I think that relates to pensions today. I think that you can over the cap, but you’re going to pay some tax on it, but you’re still going to have some growth. And I just don’t think you can build a portfolio that meets a specific limit, it’s very difficult if not impossible. PRESENTER: Now, we’ve got about five minutes left, so I wanted to, we’ve talked a lot about how discretionary fund management and outsourcing works, but let’s go back to the nitty gritty there. How might the process of opening an account with a discretionary fund manager work? ROBIN EGGAR: So typically the first step in that process would be meeting with the client and their adviser. Most usually before that the adviser would have given us a good steer as to the client circumstance, the client objective etc. So it’s then a case of discussing with the client and the adviser how we might go about meeting that particular objective, explaining about our investment process, our investment philosophy etc., so they can get a good feel for is this something they want to explore further. We may then if they’ve got an existing portfolio offer to do a critique of that portfolio, not looking to pick holes in it but saying why we might do it differently, how we might do it differently, do we think the asset allocation is appropriate, etc. Thereafter we’d always put together a specific investment proposal for that client. Again setting out our understanding of their position, their risk profile, their objective etc., and showing exactly how we would go about achieving that longer term goal. At that point and only then if the client and their advisor are happy, they’ve answered all, or we’ve answered all the queries they may have etc., then we would go through the account opening documentation. So there would be forms to complete for the client and the advisor to countersign, the usual AML checks to go through etc. But once we get those forms back it’s very quick and easy for us to set those accounts up, and thereafter the monies or the existing portfolio can transfer in. PRESENTER: Now, we’ve touched on some of these already, John, but in summary what is the support and communication, the levels that an adviser and their client can expect or should expect from a DFM? JOHN WALLACE:I think there’s quite a suite of things that they should expect, and indeed what they can expect. A lot of the time they can pick and choose what they want. So I think some of the things are regulatory, mandatory. So for example a hard copy valuation does need to be sent out every six months to the client. We will always send a copy to the adviser as well. The client should expect online access so they can look at their portfolio on a daily basis. And again the adviser would have access to that as well. They would expect to have access if they wanted to an investment manager on an annual basis for an annual review. They would expect to have contact on a daily basis I suspect to answer any queries that they may have. Now, of course, it’s not mandatory that we see the clients. So I think for a lot of DFMs the adviser and the client meet, they agree the risk, and the DFM is given the mandate to run the portfolio without ever meeting the client. So I think it’s very much what the client and the professional advisor want from us, and we can certainly deliver. PRESENTER: So, it’s really down to the, just get this right because I know occasionally people worry about things like client poaching, it’s down to the adviser to work out, to tell you how much connectivity you can with the end client. JOHN WALLACE: Very much so, yes. And I think we have so many clients that we just do not see. But we have communication through the adviser. So the adviser’s the conduit to us. It doesn’t mean they get any lesser service, I mean they’re still having a portfolio that they agreed to, but the adviser’s more comfortable dealing with the client directly. PRESENTER: We have to leave it there. John Wallace, Robin Eggar, thank you both very much. BOTH: Thank you.