Differences between a discretionary and advisory service
With a discretionary service, the client delegates full authority to the wealth manager to make the investment decisions on their behalf. This service is highly suitable for clients who prefer a hands-off approach and trust their manager to act in their best interest. This approach tends to involve the wealth manager investing at your desired level of risk, usually in a defined model.
An advisory service, on the other hand, is a collaborative approach where the wealth manager provides recommendations, but the client retains control over the final decision to proceed. This service is ideal for individuals who want to be involved in their investment strategy while benefiting from expert guidance
An advisory service, on the other hand, is a collaborative approach where the wealth manager provides recommendations, but the client retains control over the final decision to proceed. This service is ideal for individuals who want to be involved in their investment strategy while benefiting from expert guidance.
What are the benefits of an advisory service?
Client involvement:
The client actively participates in decision-making, approving, amending or rejecting the wealth manager's suggestions.
Personalised investment strategies:
An advisory service creates customised investment plans based on each client's unique objectives. Whether the goal is retirement, seeking an investment income, funding education or wealth preservation, the portfolio is constructed to achieve the client’s aspirations and then constantly adjusted for the prevailing economic environment.
Ongoing dialogue, flexibility and adjustments:
Markets are constantly changing, and so are clients' financial situations. The client has the flexibility to decide how the portfolio is structured and can be adapted depending on their changing circumstances or market conditions.
With an advisory service, wealth managers continuously monitor portfolios, suggesting changes to ensure that the investment strategy remains on track, is appropriate for the current market conditions and in line with each client’s appropriate level of risk.
Access to a broad range of investments:
Advisory services often provide access to a wider range of investment opportunities. This can include bespoke structured notes, exclusive funds, alternative assets (such as hedge funds, private credit/equity and commodities) and particular regions that might be difficult to access in a diversified portfolio.
Hedging:
As each portfolio is unique to the client, it is simple to hedge currency exposures or add short-term protection in an advisory portfolio.
Top Tip
Lee Goggin
Co-Founder
How does an advisory service work?
An advisory solution is provided by a number of wealth managers, however often at a high minimum investment value and at a relatively higher cost than a discretionary portfolio. At Mirabaud, we take a pragmatic approach when helping clients to ensure they receive the right service for them.
For example, we recently were introduced to a client who had their investments managed by multiple discretionary wealth managers. The client felt disillusioned as they found the performance underwhelming, had difficulty understanding the reporting, and hence where they were invested, as well as the underlying costs.
we recently were introduced to a client who had their investments managed by multiple discretionary wealth managers. The client felt disillusioned as they found the performance underwhelming, had difficulty understanding the reporting, and hence where they were invested, as well as the underlying costs
We began by preparing a no-obligation ‘portfolio health check’ where we reviewed the underlying data across their existing providers. The client did not want an overweight to the UK and preferred direct equity exposure via single stocks. Yet, to their surprise, their investments were not managed in this way and the costs were also higher than anticipated.
Our proposed portfolio solution
We agreed to provide a restructuring proposal bespoke to their updated objectives and goals. We then educated on the risk tolerance required with this approach to ensure it was acceptable.
We suggested the inclusion of cash deposits with laddered maturities and money market funds for the monies needed for their short-term expenditure requirements with a focus on security, yield and counterparty diversification.
For their longer-term goals, we suggested a portfolio of our favoured equities, direct sovereign/corporate bonds and quality active funds generally operating in more niche areas, and passive ETFs to ensure diversification where necessary
The client was interested in generating an income from the portfolio and we included positions that would meet this target whilst also having scope for capital growth over the longer term. The bespoke nature of the advisory portfolio meant we could tailor accordingly
The client was interested in generating an income from the portfolio and we included positions that would meet this target whilst also having scope for capital growth over the longer term. The bespoke nature of the advisory portfolio meant we could tailor accordingly.
The client agreed and we implemented in a staggered approach to smooth our cost prices. We agreed to begin in areas of the market which we felt offered good value at this point and delayed others for a superior entry point.
Exposure to preferred investment themes
As a satellite to the core portfolio, we included an equity structured note to give exposure to a theme that intrigued the client. This was linked to the performance of the two market leaders in anti-obesity drugs and was structured to benefit from further share price appreciation but to protect against a modest pullback. We felt this offered an excellent risk/return given the rich valuations and potential headwinds that these businesses could face, such as negative side effects or regulatory scrutiny.
We now speak regularly to review the portfolio providing market updates and suggest implementing changes to reflect our convictions discussed and agreed at our Investment Committee. As an example, earlier in the year, we tactically increased exposure to US small and mid- cap equities, which we felt would benefit from the increase in protectionism post US Presidential elections.
We now speak regularly to review the portfolio providing market updates and suggest implementing changes to reflect our convictions discussed and agreed at our Investment Committee. As an example, earlier in the year, we tactically increased exposure to US small and mid- cap equities, which we felt would benefit from the increase in protectionism post US Presidential elections
This is just one interesting example where at Mirabaud, we can add bespoke client portfolios for those that would like a more hands on approach to wealth management.
We would be more than happy to have an initial conversation or provide examples of Health Check reports for those interested in an advisory service.
Important information
The investment strategy and financial planning explanations of this piece are for informational purposes only, may represent only one view, and are not intended in any way as financial or investment advice. Any comment on specific securities should not be interpreted as investment research or advice, solicitation or recommendations to buy or sell a particular security.
We always advise consultation with a professional before making any investment and financial planning decisions.
Always remember that investing involves risk and the value of investments may fall as well as rise. Past performance should not be seen as a guarantee of future returns.
