Could you be the 'fund manager next door'? –

This post was originally published and is credit to this site

Rising numbers of confident DIY investors are managing not only their own investments but those of their partners, children, parents and even friends and neighbours.

Investment brokers or “platforms” have revolutionised amateur investing over the past decade by slashing costs and giving free access to data and software formerly available only to banks and other institutions. 

This has encouraged experienced investors to take on the role of fund managers, overseeing relatives’ savings alongside their own. In most cases the family members are only too pleased: they welcome the help of someone with the confidence to build and oversee a portfolio.

Investment platforms are encouraging the trend, seeing it as a way to reach younger customers. Many have created “linked” accounts that allow one “master” account holder to oversee multiple pots owned by other people.

Some firms have gone further to encourage collective investment, providing discounted fees based on the total amount invested across all linked accounts.

John Cossey (second from the right) manages his own investments as well as those of 18 other friends and family members of all ages

All major brokers report a steep rise in the number of linked accounts, and expect the trend to gain momentum.

However, there is the potential for falling out if the “fund manager” fails to meet the expectations of his “clients”. There is also no recourse to the financial ombudsman.

John Cossey is typical of this new breed of investor. Using the Vantage platform of Hargreaves Lansdown, Britain’s biggest fund shop, he oversees his own portfolio as well as 18 others: 15 belong to family members of all ages and three belong to friends. In all he manages more than £1m.

Now 65, he retired 15 years ago from a job in corporate IT. He observes strict rules for managing other people’s money.

He restricts himself to around 12 investments, which never include directly held shares, at any one time, and keeps a “reserve” of two or three funds to switch to if a manager’s performance dips.

He invests others’ money only where he too has exposure. “If any of my friends or family lose money, then my wife and I have also lost money,” Mr Cossey said.

If any of my friends or family lose money, then my wife and I have also lost moneyJohn Cossey

He ensures that his investors use their Isa and pension allowances and asks them to read six-monthly investment updates so they feel comfortable with his views and decisions. His “clients” have enjoyed recent returns of at least 10pc a year, Mr Cossey claimed.

For those who want to invest but lack the confidence or expertise, these “fund managers next door” could be an attractive answer. The alternatives – investing in a “fund of funds” or using a financial adviser – are not cheap. At Hargreaves, financial advice on a £1m portfolio would cost £10,000 in initial fees, for instance.

While the cost of professional advice is a deterrent, there is also the question of trust. Many people will feel happier entrusting money to a family member than to a stranger, however highly he or she may be qualified, commentators say.

Another factor driving the trend is the change to pension legislation that took effect in 2015.

The “pension freedoms” have led many more pensioners to keep savings invested into old age where in the past they would have bought an annuity. 

For wealthy families there is an additional advantage in that unused pension money can be passed on to the savers’ beneficiaries at death without inheritance tax being incurred.

One broker, AJ Bell, said it had around 5,000 customers with linked accounts. For security, only the original customer can make withdrawals.

A spokesman said: “In agreeing to link their account, customers agree to accept any outcome that arises directly or indirectly as a result of any act or omission by the account ‘lead’, so permission should only be given to people they know very well and trust.”

Providers such as Hargreaves typically charge a percentage of funds invested, with fees falling in tiers as the amount increases. But Hargreaves doesn’t combine linked accounts when calculating the fee.

In future though, this may change.

A new wealth manager, Netwealth, has spotted the potential of “multi-generational” investing. Although it is not a DIY service like Hargreaves – it offers ready-made portfolios instead – it calculates fees on the basis of the total assets held in up to eight linked accounts.