Should we bank on high street for best return?

Now that the dust is settling slightly since the UK officially moved back out of recession, perhaps we should also now be reviewing whether the bank is the best place to house and manage our personal investments. While we may balk at the taxpayer propping many of them up financially, we accept it had to be done to stabilise the system. Most politicians and economists would agree that deposit taking remains a traditional domain for a retail bank. Even given the panic surrounding whether a bank will survive or not, we still seem comfortable enough to leave our money to be fairly passively managed within the investment divisions of some of our high street banks.

However, when it comes to investments, should we look beyond banks? It is interesting to see how many "in house" investment funds the banks can offer – for four of our top high street banks, it ranges from 14 to 25 funds.

Independent financial advisers typically have access to more than 2,500 funds, which is a valuable foundation from which clients can receive individual and tailored investment advice. In contrast, within most bank-related investment solutions, we see clients who hold less than four funds (and often just one) which can raise concerns about both diversity and the pro-active management of the investment.

Clearly, banks do not provide a great deal of choice and, taking into account that they are generally more passive than active money managers, how do they stack up against their peers in the fund management arena? If we focus on the cautious managed sector, given how common this is for bank customers' investments, the sector average fund from all companies and investment fund groups returned 15.14 per cent from May 2009 to May of this year, whilst the lowest performing cautious managed fund from our top four banks returned 6.94 per cent.

One of the banks during this same period returned 18.07 per cent, illustrating that some can outperform the sector average, though the variance from lowest to highest performing is significant. Additionally, having reviewed one of our own in-house model portfolios, which is benchmarked to the cautious managed sector, during the same period the returns were 36.84 per cent – showing that, although past returns are no guarantee of future performance, active management and reviewing portfolios is fundamental to optimising any long-term financial planning.

It is imperative that the initial focus is on finding an option that best suits a client's personal tax position, coupled with their long-term planning objectives. Growth should then become a bi-product of the most appropriate solution. However, having access to a range of investment funds provides greater opportunity for higher returns. As ever, constructive and regular advice is key.