Boutique investment manager to take monetary responsibility for margin calls

A boutique investment company is working on an initiative that transfers margin lending risk from investors to the funds management company.

Boutique investment firm Wealth Within has created a new managed account service, and is working towards offering internally geared investment mandates on the platform by July.

Wealth Within chief analyst Dale Gillham said through the platform the group will offer non-recourse investment loans to retail investors. Through this arrangement, if a client of Wealth Within enters margin call territory, Wealth Within will be liable for it.

“What this means is that instead of the investor borrowing the funds, the platform will borrow from an institution so that there is no recourse to the investor outside of their investments in the platform,” a statement from the group said.

The group said it believes it is “the fund manager who is ultimately responsible for the underlying investment decisions” and therefore fund managers should be “held accountable for those decisions, not the investor”.

“You’ve seen Storm Financial and all the others around the place, and they’re saying borrow, borrow, borrow and they’re not taking responsibility for it, but they’re the ones that are directing the client,” Gillham said.

Gillham believes that as fund managers make buying and selling decisions, they must be aligned with the client.

“The only way to ensure that for the client is to make sure that I [as the fund manager] take responsibility for it,” Gillham said.

Gillham said he is confident the service will get off the ground.

The group is now in discussion with “a major Australian institution” to bring this service to market by July 2009.

Through the platform, investors will be able to invest in mandates approved for gearing and gain leveraged exposure in the market. This service could benefit self-managed superannuation funds trustees who have been restricted from borrowing funds in their own name, the group said.

That initiative will be just one part of the new Direct Equity Managed Account Service being offered by Wealth Within — a ‘revolutionary’ platform it said will enable retail investors to tap into individually managed accounts (IMAs).

This investment manager usually restricts its services to investors with $500,000 or more to invest.