Eight questions to ask your investment advisor before taking the plunge

by Jono Gourlay Head of Investment Advisory Jono Gourlay has over 20 years' experience in private wealth management, advising individuals, families and charitable organisations on strategic asset allocation, portfolio management, risk and investment policy. Contact Jono

Jono Gourlay outlines some of the key criteria successful families should consider when they are selecting an appropriate advisor to manage their wealth over the long term.

  1. How do you ensure the wealth management strategy will achieve the long term objectives of our family?

Advisors should clearly understand the purpose of a family’s wealth. Some may want reliable income to distribute to family members, while others may seek to grow their assets or some may choose to give it away through philanthropy. All options are valid, but advisors must appreciate what a family wants to accomplish overall when developing an investment strategy.

Mutual Trust advisors work closely with families to develop a tailored, documented investment policy that is integrated with the broader family strategy to help achieve long term financial goals and maintain family harmony.

  1. How do you manage tax as part of a long term investment strategy?

Tax is an important component of calculating total, net return. Successful investment decisions in isolation can be less effective if they do not take into account your tax position. For example, global equities can enhance a portfolio’s overall diversification or growth prospects, but what is the best entity to use when investing offshore to minimise withholding tax and avoid US estate duties? Many investment advisors are not trained on tax issues, nor motivated to consider such matters.

Mutual Trust offers a fully integrated wealth management and tax and accounting services to clients, so all investment recommendations are made on a tax aware basis. Our focus is on achieving strong risk adjusted returns for clients, after all fees and tax.

  1. How do you measure the success of the services provided or recommended strategy?

All families have different dynamics and circumstances, and therefore different financial goals. Advisors should be able to clearly identify and quantify what the expected outcomes of their advice will be, e.g. as a percentage return or absolute dollar income generated. This means the client can measure the effectiveness of the recommended strategy and keep their advisor accountable.

Mutual Trust maintain a rigorous quarterly review cycle with clients, to review the asset allocation and total portfolio performance (against agreed benchmarks) to ensure the investment strategy is achieving the financial objectives and expectations of your family.

  1. How are you remunerated and motivated?

Financial advisors are typically remunerated two ways; via sales commission and trails or paid a salary. Traditional “sell side” brokers generate commission from buying and selling shares for clients; higher turnover generates higher commissions. They may also be paid upfront incentives or trails to distribute preferred funds or security issues such as hybrids. The alternative model is where an advisor charges a fee on assets under management and is paid a salary by their employer.

Mutual Trust have adopted the alternative model as it believes it better aligns us with the long term interests of our clients.

  1. Are you selling a product or giving objective advice? Are you aligned with your clients’ best interests?

An advisor selling a product or recommending a trade to generate commission in isolation is different to a more holistic funds under management model. Investing in a fund or buying shares may form an appropriate part of an individual portfolio. However, a family requiring a universal strategy to successfully transition and protect their wealth from one generation to the next is likely to require a more strategic approach, utilising a range of different skills and advice.

Mutual Trust believe a funds under management philosophy engenders more objective advice and a service culture which is better for client outcomes. This model means our advisors are motivated to protect and grow clients’ total net wealth over the long term, rather than recommend individual products or securities.

  1. What is your experience, expertise and knowledge?

Continuity of service across generations is especially important if a family is grappling with intergenerational wealth transfer issues. Therefore, it is essential that your advisor is part of a sustainable business that is focused on having a stable advisory team with significant experience. It is important to understand how long your advisor has been advising clients and managing portfolios. Families with considerable wealth naturally gain peace of mind from an advisor who has witnessed numerous market cycles and has successfully navigated client portfolios through periods of market stress and volatility.

Mutual Trust has a stable team of well qualified wealth advisors with significant industry experience in investment advisory and asset management, looking after wealthy families for decades. A number of senior staff are shareholders of Mutual Trust. Mutual Trust are uniquely placed with over 60 years’ experience to provide the stability and continuity that assures prosperity across multiple generations.

  1. What is your investment philosophy and how do you implement portfolios?

The investment offerings of advisors and wealth managers differs significantly, often due to the history of the business or the model by which they implement portfolios. “Sell side” stock brokers offer stock research and execution services for sell directed investors, typically focusing on domestic equities, but some now offer global equities and access to other asset classes such as listed hybrids. “Buy side” institutional fund managers offer a range of specialist strategies or products within each asset class.

Mutual Trust’s philosophy focuses on appropriate asset allocation for client needs, providing tax aware advice with a global focus. We have an in-house portfolio management team, who run internally managed, tailored Australian and Global equities portfolios for clients, complemented by best in class external managers for other asset classes where appropriate. This is all implemented on our internal custody & reporting platform.

  1. What investment administration and portfolio performance tools do you offer?

Good investment advice and strong portfolio performance can be limiting if it cannot be recorded accurately or administered efficiently. Families need relevant, current and detailed information on total portfolio performance, asset allocation and their tax position when making important investment decisions.

Mutual Trust have developed a purpose built, flexible & integrated solution, which simplifies the complexities of the investment administration, custody, performance & tax reporting and cash management requirements of family offices.

Mutual Trust Pty Ltd ACN 004 285 330 (AFSL 234590). Liability limited by a scheme approved under Professional Standards Legislation. For participating members (other than for the acts or omissions of Australian Financial Services Licensees). This information is general in nature and subject to change. It does not constitute tax, legal or financialadvice. We recommend you seek advice specific to your circumstances before taking any action. Copyright © 2014 Mutual Trust Pty Ltd.
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