The trend is now so well established that experts have coined a new term for those lucky people: the "emerging affluent". And fund management firms are fluttering round this new breed, hoping to be allowed to look after its money - at a price.
In the past people with "only" a few tens of thousands have had to rely on independent financial advisers (IFAs) to sell them products. Increasingly however, we are seeing both stockbrokers and fund management houses look longingly at the smaller end of the market, not least because they believe that today's emerging affluent will become tomorrow's filthy rich.
Christopher Humphrey, principal at Gemini Consulting, a research firm, says: "Most people are now waking up to the fact that there is a lower wealth segment group that it is worth giving a service to."
Martin Smith, managing director of Close Wealth Management, provides a portfolio management service. An officer at Close will establish the client's risk/return profile and choose the appropriate bond/equity split. Generally, Smith says, the UK exposure will be achieved through direct investments, while the overseas exposure is achieved through holdings in investment trusts.
A number of other fund management groups and stockbrokers, including Brewin Dolphin offer a similar service, although its recommended minimum tends to be higher than Close's pounds 25,000. Brewin Dolphin suggests that a client should have at least pounds 50,000 to invest. Annual management charges can vary between zero and 1 per cent while brokerage fees, payable whenever a purchase or sale is made, can range from 0.25 per cent to 1.85 per cent. Some groups will direct client assets into a range of funds and avoid direct equity investment as dealing in small amounts is relatively expensive.
In addition, as Mike Fitzhugh, a director at Thornhill Investment Management points out, the last Budget made it more tax effective to hold investments for the long term. Hence it makes more sense to invest in a fund that you will hold for the long term, than in a basket of stocks that you will be trading in and out of.
ABN Amro has a service that invests in a range of in-house and outside funds, including tracker funds. The Management Portfolio Service has a minimum investment of pounds 25,000. Other groups, such as Quilter & Co, Greig Middleton and Raphael Zorn Hemsley, offer similar products.
Quilter & Co, a London-based stockbroker, has a product geared to clients who cannot match the pounds 25,000 minimum. For a minimum of pounds 5,000, a client can buy units in Quilter's Private Growth Portfolio and Martin Currie has a similar product for a minimum investment of pounds 10,000.
For the great majority of financial institutions, however, the minimum for professional fund management remains prohibitively high. Mr Fitzhugh says: "We feel that professional fund management is too expensive for the lower end of the market, both from the client's point of view and our point of view. You really should have at least pounds 250,000 for that."
Rathbone Brothers, a London based firm, suggests a minimum of pounds 100,000. Mary Leuchter, a marketing manager at the firm, says: "For smaller amounts it doesn't make sense to invest directly into equities because the cost of dealing in them would be relatively high. For people with pounds 50,000 to invest we'd recommend they invest in collective investments."
Investor Intelligence, which represents IFAs, has launched a product called the Wealth Management Service, geared towards smaller clients who want a sophisticated service but are unable to do it themselves.
It provides cash management through Cater Allen, a small bank, a life assurance product through Clerical Medical and investment management through Henderson Investors Unit Trust Management Service. Ian Sheppard is managing director at Swift Assurance Services, an IFA based in North Wales. He says: "Wealth Management Service enables the IFAs to provide stockbroker type service to people who would usually not have access to it."
Not all IFAs agree. Roddy Kohn, at Kohn Cougar, says professional IFAs will design a portfolio which reflects the client's individual needs rather than rely on a range of ready-made vehicles, some of which might not be totally suitable.
Mr Kohn says: "Investors have got to shop around [for the best IFA], ask recommendations from friends, relatives and colleagues and even then, if they thought it was going to be a stroll in the park then they should reflect on how long it took them to accumulate their pounds 50,000 in the first place."Reuse content