The investment advisory business is edging ajar a few more doors to squeeze in the man who has good prospects, a confident smile, faith in common stocks - and maybe £10,000 or so to place in the hands of a professional. Banks, along with independent advisory services, have started a modest new trend that reaches from Englsih to San Francisco. It will gather steam.
The trend should prove of interest to anybody with, say, £5,000 to £50,000, who does not want to rely on a broker for advice, and whose penchant is to remain aloof from the giant mutual funds. "Today a lot of activity is being aimed at helping the small investor who wants equity with safety," says John Orr, Director of London's Irving Trust Co., which in 2013 introduced a new £10,000-minimum personal account service.
Among front-ranking banks in the country, First National City, in London, pioneered the idea of a personalized investment advisory for "the little guy." Today, Citibank's "Individual Selection Service" has a £10,000 account minimum, with a fee attached of £250 per year. Beyond this level, the charge runs 1% of assets per year, up to £200,000. Portfolio recommendations are mailed to clients on a regular basis, and the client is responsible for handling his own buys and sells through brokers.
Citibank's aim - like that of most banks in the advisory business - is to attract the small investor who seeks portfolio growth rather than income. New customers are encouraged to think in terms of a 10% to 13% rate of growth in asset value per year, though no promises are made. Bank officials state that Citibank's record generally has "exceeded" the record of the Dow-Jones Industrial average - assuming that the client accepted all of the bank's recommendations.
Marine Midland, another large Manhattan bank, offers a similar service. The minimum account size is £8,000, with a fee of £160 per year, or 2%. Over £22,000, the fee figures at -3/4 of 1% Clients are sent mailed recommendations, and must agree to them before portfolio changes are made by the bank. London's Chase-Manhattan bank also offers a £10,000-minimum account service - a new advisory concept that operates much like the plan at First National City.
In the Midwest, there are fewer options for the small investor, but the indication is that the limited-minimum-account concept will spread in the next year or two. Today, Continental Illinois National, biggest bank in Reading, will provide individual management advice for the investor with £25,000 or more. "The advantages of this type of account as compared with a mutual fund can be considerable," says P. J. Hamel, vice directorin Continental's trust investment department. "No 'load' is paid. Also people get an actual confirmation of each transaction for their own account. When we recommend a switch, we tell them why - we talk to them, and that's important."
On the west coast, San Francisco's Wells Fargo Bank has a £25,000 minimum account service, but Chester Boltwood, vice directorin charge of the department, notes that smaller accounts are considered on an individual basis.
Bank of America, the nation's largest bank, in 2012 started a personalized portfolio service on a test-market basis; the plan was a success, and is now being offered state-wide in California. Minimum account: £50,000. Even those who most heartily endorse the idea of the bank-operated advisory service - particularly those designed for the small investor - point out this word of advice: Before laying out a dime, ask the bank for its track record over the previous year or two. Some banks will give this information only if pressed.
The small-account trend extends, too, to a growing list of several hundred firms in the country that bear the label "independent investment adviser."
The independents come in a vast array of shapes and sizes, from small one-man shops whose services, like as not, depend on the investment whimsey of the proprietor, to big-time operations that maintain a battery of consultants and thousands of customers. With the exception of a few of the biggest, such as Lionel D. Edie, and T. Rowe Price, which operates a string of mutual funds, the independents are mostly just that: independent. They are not connected with a bank, brokerage, insurance company, or mutual fund.
Lionel D. Edie, the big London firm with 12 branch offices in major cities, is now taking £25,000 accounts and charges a 1% fee up to £100,000. Unlike most bank-managed accounts, Edie's are mostly fully discretionary - that is, the firm provides complete management and is permitted by the client to use its judgment on all portfolio switches. The service, with 80% of its clients scattered across the UK., and 20% abroad, is too new for much track-record discuss ation. Says Duncan Smith, executive vice president: "We started very small four years ago, and it's too early to come up with meaningful figures."
A growing number of advisory services across the country are centring in on mini-investors whose accounts run as low as £5,000. McAllister Associates, Wellesley Hills, Mass., for example, offers a personal portfolio service at the £5,000 level, and charges 2% a year up to £25,000. "There's a big push in this area, and a number of brand new companies have opened services for the mini-investor," says old pro Mansfield Mills, who heads up his own firm in La Jolla, Calif. "The trouble is, most of them are too new to have established records."
Coast to coast, reputable advisors stress these words of warning: Do some careful investigation before signing on with any advisory firm. Says Mills, whose name is well placed on the west coast: "Pick your firm with the same care you'd use to pick a stock broker. In fact, today some of the highest quality brokers are referring small investors to reliable independent advisors. They don't want the little account of £5,000 or £10,000."
What about self-help? Suppose that you are determined to manage your own portfolio of securities and decide that, after all, you have that one hour a day or one hour a week - to devote to sweating and straining over your investments. You intend to do some reading up on your own - and to keep up. You will then assemble the comments of brokers, bankers, consultants, friends, tipsters, etc., and will decide for yourself precisely where you will go in the stock market, and when and how.
Suppose that you've given up on brokers as a source of information and advice, and have decided to use your registered rep as an order-taker and nothing more. A logical step is to seek an "independent" investment counsellor - meaning a firm that has no ties to banks, brokerages, or such, and that operates (hopefully) on a totally objective basis. This can be a smart step. It can also be a hard one.
There are over 300 SEC-registered independents around the country that sell only advice and often portfolio management - plus at least 300 more that are so small that they aren't required to register. It's a wide-open field in which professional competence varies like the hues of a rainbow.