Spotlight on treasured assets and collectibles

Fraser Donaldson - Insight Analyst (Investments)

Over the course of a lifetime, many investors will have accumulated a significant number of assets. Some will be mainstream packaged investment products; others will be more esoteric in their nature, explains Fraser Donaldson.

Beyond the monetary value

While discretionary managers will want to convert existing investments into portfolios of their own making, there is a recognition that clients will want to retain some of their assets. There's a variety of reasons for this.

Perhaps the client has inherited some shares from a family member and wishes to hold on to them for sentimental reasons. Perhaps the shares are in a company they helped to establish or in a company that was their first job. There also may be sound financial reasons for having untouchable shares, for example when the holding has significant capital gains.

Whatever the reason, there will always be some clients who wish to hold on to some assets. Regardless, these ‘treasured’ assets still form part of the client’s wealth. It makes sense to combine assets under discretion with those under administration, for valuation and reporting purposes.

Bringing the investment portfolio together

Increasingly, discretionary managers are allowing these treasured assets to be held within portfolios, on the understanding that they do not fall under discretion.

Some clients will hold more esoteric assets. While stamps, fine wines, vintage cars, art and the like are not immediately thought of as part of an investment portfolio, they are nonetheless assets with value and performance characteristics. Again, it makes sense to have these assets accounted for within investment portfolios, if only for reporting and valuation purposes.

While we have observed an increasing willingness to accommodate these 'special situations' over the past couple of years, the way that is done does vary. This needs to be explored in the due diligence process.

For administration purposes

Looking at bespoke portfolios, as you would expect, there are only a couple of discretionary providers that would consider including collectibles as an active part of a discretionary portfolio, and it would probably only be an option for the ultra high net worths.

The vast majority look upon both collectibles and stocks under administration (but not discretion) as treasured assets. This facility manifests itself in three different ways:

• A manual addition to portfolios in terms of holdings and value - this would be a normal approach for collectibles, but also can be the facility for more mainstream, priced retail investments
• A holding that is flagged to be held, but not touched, but is automatically priced and valued along with all other holdings - this is not likely to apply to collectibles as mentioned above as readily available values are not available
• A hybrid of the two methods, where there is an execution-only account as a sub-account of the discretionary portfolio, which can be automatically combined for reporting purposes

Some nice touches that we have seen are including pictures of collectibles.

We have all come across clients with special requirements, so it is important to know that just because some solutions are labelled discretionary management, it does not necessarily mean that other assets cannot be included under administration only.