Fund Managers often set up their own firm. Why don’t Private Client Managers?

Simon RoderickCareer management, Research, insights & industry news

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It’s always interesting to see the number of “spin outs”, or start up funds in London each year. Experienced, well paid, and capable traders and fund managers often set up their own firm. Whilst financial reward may be a motivation for some, I suspect the most common reasons for starting a fund include: challenging their business as well as financial skills, more control over their investment strategy, more flexibility in their business and therefore personal lives, wanting to focus on a select number of clients, or a desire to spend less time on internal politics and more time investing. Whatever the motivation, new hedge funds seem to be started all the time and makes me wonder why it doesn’t happen more often in the private client world?

Generally speaking, private client investment manager pay has been flat for many years. Despite increased regulation and a tougher working environment, many investment managers often complain that they are worse off financially than they were a few years ago. Also, they feel they are gradually losing control over their investment strategy often having to fall in line with the house view. It’s fair to say that in some firms’ morale is quite low, but often they know that the grass isn’t always greener elsewhere. The other thing that strikes me when I meet investment managers is that many of them are actually frustrated entrepreneurs. Intelligent, with a savvy understanding of how companies operate, they are often full of business nous, but few set up their own firm. I think the main reasons they don’t are the same as why people don’t set up their own firm across the population generally – fear.

Many believe it is hard to set up a regulated firm, that the accounting process will be complicated, and that they will struggle to attract clients. I don’t think any of those factors are particularly true. There are a number of firms who will let people set up as an Appointed Representative, the accounting is easy, and given most private client firms do very little marketing I can’t imagine it is too difficult to attract some clients.

If Investment Managers really want to increase their earning potential, have more control over their investment decisions, and have a better work/life balance, perhaps more should consider becoming self-employed.

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