On the one hand, boutiques tend to market themselves as modern, bespoke propositions with star managers and a well-defined philosophy. On the other, the larger houses emphasise their size, stability and research capabilities. It can, therefore, be a difficult decision to make.

For Mona Shah, co-manager of the Rathbone Multi-Asset Portfolio funds, choosing the optimum funds to fill out her portfolios means comparing and contrasting boutiques and large investment houses. She believes boutiques have distinct advantages, not least in the superior performance some offer.

She says: “Many of the boutiques we have invested in have massively outperformed their larger peers. Whether that is because the funds are more nimble because they are smaller, I cannot accurately say. However, the reason we invested in them in the first place is because their investment process is so robust and they use their human capital so much more efficiently that it does not matter that they have a small team.”

John McClure, director and co-founder of Unicorn Asset Management, agrees that working effectively and playing to your strengths is a vital part of running a successful boutique, highlighting too the benefits of the manager being able to have autonomy over the decision-making process.

“Operationally we are a lean business, we do not get bogged down in bureaucracy and the headcount remains heavily weighted towards investment professionals,” he says. “The interests of investors and management at Unicorn are also very much aligned. The company is majority owned by the directors and management.”

However, Ms Shah points out that, while there are advantages of boutique managers being financially invested in their funds, rather than feeling as though they are simply one of many managers in a bigger house, there is more key-man risk. If that manager leaves, there is unlikely to be anyone who can easily step in and replace him.

“If you are, for example, at Schroders or M&G and have an underperforming year, you are probably not going to be nearly as worried about your wages, bonus and job as you are at a small boutique,” she says. “With a boutique, if you only have two or three products and two or three underperform, you will be really worried. The flipside of that though is it can incentivise the boutique managers to work harder.”

Meanwhile, for Jason Hollands, managing director, business development and communications at nationwide fund broker and wealth manager Bestinvest, some of the appeal of boutiques has been undermined by changing economic conditions.

“Advisers have liked the idea that managers had more ‘freedom’ to manage money without having to follow a company-wide philosophy or have an army of risk officers peering over their shoulders. They also liked the idea of managers having ‘skin in the game’ in terms of high levels of ownership in their business,” he says.

“However, since the credit crisis unfurled, a little perspective needs to be injected into this. Many of the small boutiques with a narrow focus have had a tough time and it is the nature of small businesses that there is less fat to cut.

“They have had more exposure to volatility in flows than asset managers with large institutional client banks and a narrow product set is fine when those products are in fashion, but this approach lacks the stability that a bigger, more diversified business operating across multiple asset classes and capabilities will have.”

The practice of boutiques charging performance fees has also fallen out of favour with investors, particularly if the level of performance generated is not high. Moreover, an over-reliance by the boutique on this performance fee can lead to a weakness in the proposition, making it vulnerable to future volatility.

“A key benefit of boutiques is their willingness to capacity constrain, which means they stay nimble. However, often this means they want to charge a performance fee,” explains Ms Shah. “We are happy to pay that fee as long as it is justifiable and the performance is worth it. However, I always check the reports and accounts to make sure the firm is not overly reliant on performance fees to pay their costs, because that can stop them being a going concern.”

Overall, the investment house an investor chooses is likely to be determined by the type of fund they are looking for, the asset class they want exposure to and the performance record that fund has secured. It is then a case of making sure needs are aligned with the style that an investment house employs.

Definition - What is a ‘boutique’ investment house?

- While there is no universally agreed definition of a boutique, the general consensus is they are relatively small, with a limited number of focused strategies and high levels of ownership from within the management team.

- Investment data provider and performance analyst FE defines boutiques as: “Companies that are owned by their staff and have less than £7bn under management from no more than 10 funds.”

- The Oxford English Dictionary defines a boutique “a business serving a sophisticated or specialised clientele”.

Investment boutiques - Adviser views

Adrian Lowcock, senior investment manager, Hargreaves Lansdown:

“Investors need to be aware of the risks of a boutique. First, there is key-person risk as a boutique is usually built around one or two key individuals. Second, financials is a factor, as a boutique company may not be as financially strong as some larger players. However, overheads in running a fund are not too severe. Finally, does the boutique have enough resources to operate and compete to provide a competitive advantage? Boutique firms are very useful in a portfolio but an investor should consider a balance and hold a mixture.”

Darius McDermott, managing director, Chelsea Financial Services:

“When comparing boutiques and large houses it is not simply a case of one is bad and the other is brilliant. The advantage of a larger house is they will have greater resources and better access to senior management teams. They can also presumably secure better dealing terms as they are buying in bulk.

“The strengths of boutiques are they are less run by committee and can therefore be quicker and more nimble. The boutique culture also means less dealing with politics, which gives more time and clarity to the investment process.”

Mike Horseman, managing director, Cockburn Lucas:

“The idea of a boutique is a bit passé now. It used to be the buzzword and was a way of saying a firm had the ability to specialise, to offer a tailored strategy and to be nimble. In reality, what it has shown post-Lehmans is that, while the ability to move quickly sounds fantastic, boutiques can be under-resourced, without the capital backing of a larger organisation. With all things boutique, don’t get hooked by the label. Look instead for a investment house that can add value, whether that be a boutique or a larger house.”