The business of Monkey
No Monkey Business began life in the pages of a book. The idiosyncratic name is Fowler’s view of what the FSA was really trying to achieve with all its initiatives. “Imagine the FSA had decided to write a book, encompassing treating customers fairly, RDR and its other projects,” he says. “This is what they might have come up with.”
No Monkey Business, the book, provided the blueprint for No Monkey Business, the advisory business. Fowler’s background was in institutional fund management for blue-chip companies, managing public funds. He believes that this experience was instructive - it taught him to be in sync with the consultants who drove investing practice and most importantly of all, it educated Fowler in the importance of liability-based investing.
When he looked at the financial advice market, he saw that few people were having their investments matched to their personal liabilities.
Ultimately, he saw no reason why private clients should have a different planning process than institutions. Planning for household finances required the same discipline. He saw a lot of investment portfolios did not directly tie to financial plans - they were simply not customised enough. He also saw that the public was alienated from the whole process. Money was managed for the product rather than to a set of client outcomes.
Fowler believes that most of the regulatory initiatives that had attempted to shift this model had failed. “They are based on high-level principles but have failed to transform the advice model. The FSA had to get rid of commission completely for that to happen. To date, the advice model in the UK has not worked - it has not served the customer or the industry.”
When Fowler decided to put theory into practice and set up No Monkey Business, flat fees were key to the group’s premise. It was not just about avoiding commission but about avoiding portfolio-based fees altogether. He says “If you have portfolio-based fees, you can’t say that you will avoid all capital market risks. I don’t believe that you can charge 1 per cent for a portfolio of gilts. Flat fees are the only way to align our interests with those of the client. That way, we have no economic interest in the decisions they make.”
Fowler also believes that the investment process should be an asset-allocated passive strategy. In the 1990s, Fowler had been one of the first to commercialise this approach for the US pension market. He recognised the importance of asset allocation in terms of explaining outcomes and managing risk. He adds: “Whether you believe in efficient markets or not, it is clear that the costs structures for retail investors are not worth it and there is also a huge hassle factor. This creates a systematic negative portfolio bias. When designing a portfolio, it has to deliver planning outcomes. It has to be a dynamic, hands-on process.”
The group started with nothing except these ideals in 2004. Fowler had a few friends and contacts and has built incrementally from there. He has maintained a steady growth rate of around 30 per cent per year, with revenue and client growth showing a similar pattern. He admits that the steady growth path has its disadvantages - he has reached break-even point at a much slower rate, for example, and it would have been impossible without capital backing - but he believed this was a better route because he was less likely to make management errors in the execution of his strategy. He adds: “We have managed to do it all without making any serious mistakes or losing control.”
His client base is largely high-earning professionals rather than entrepreneurs or “old money” clients. He says: “This group recognise the format - it looks like what they are used to. They tend to be from magic circle law firms, headhunters or management consultants and this is the way they work.”
Internal engine builds and monitors portfolios
Fowler operates in the same niche as groups such as Sanderson House or Towry Law. This will often be clients who have not had anyone managing their money in the accumulation phase and recognise they need to change that in the decumulation phase.
Everything the group does for its clients starts with a clear financial plan. It has built a sophisticated internal “engine” that builds and monitors a client’s portfolio against that plan. Fowler has been resolutely and vocally anti active funds. He says passive funds make it easier to manage the process and much more cost-efficient. He adds: “It is also good for margins rather than emphasising prima donna managers.”
The group’s asset allocation modelling is stochastic. Fowler believes there is a huge difference between trying to solve nominal and real problems, so he aims to look at “real world” asset data. This would include things such as the inflationary environment.
He also makes extensive use of cashflow modelling although he believes that many systems currently in the market are inadequate. “I can’t see how anyone could do financial planning without cashflow modelling but much of the software that is currently being used suffers from the ’garbage in, garbage out problem’.
“Fowler believes that his approach to risk assessment marks him out from much of the wider market. The group has a band of possible outcomes that it uses to judge a client’s real attitude to risk. The adviser will explore a worse-case outcome to establish what clients can tolerate. In exploring this, he uses an internal model to find the optimum risk range for each client. This is an ongoing conversation. At any stage, Fowler can outline the worst-case scenario for a client and how that might be solved - whether that is putting more money in, bringing the risk down or gambling.
So far, his portfolio model has proved successful. He says: “We can’t market our performance because every portfolio is different but we are happy with performance. We have around £88m under management. Each client has a different risk tolerance and therefore a different portfolio make-up. But the uniqueness of the individual portfolios is a good test that we are really liability-driven. A lot of discretionary managers are simply shoehorning clients into a small number of portfolio types.”
The group currently has 36 clients with the resources to comfortably manage twice that number.
Fowler says: “Our approach is highly systemised, so we won’t need to add more people. I have no ambition to transform the mass-market experience. If someone wants to do that, I don’t have the answer. I don’t have an exit strategy in terms of selling out. I prefer to manage the group on the basis of a professional partnership.”
To date, the theory that was set out in the book No Monkey Business has worked in practice and, via the RDR, the financial advice industry is slowly coming round to Fowler’s way of thinking.
As Fowler himself sees the situation, it is simply a means to break the financial advice industry’s long-term habit of making monkeys of those it deals with and its willingness to make monkeys of itself in exchange for a quick buck.
- No Monkey Business
- Staff: Five
- Number of clients: 36
- AUM: £88m
- Launch: 2004
- Fowler’s vision is laid out in his book No Monkey Business, written in 2002
- His background in institutional asset management taught him the importance of liability driven investment
- The group uses an asset allocated passive strategy, believing this gives clients the best long-term value for money
- Everything the group does for a client starts with a clear financial plan
- The group only uses flat fees for clients, believing this is the only way to align its interests with those of its clients