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Be prepared

News that Schroders star income duo Nick Purves and Ian Lance have quit the firm to join investment boutique RWC Partners has high-lighted the importance of succession planning.

The pair have produced stellar returns on both the £1.5bn income and £633m income maximiser products in their time at the firm, with both funds top quartile over the past three years.

The duo are set to join RWC in August to run a traditional income fund, according to RWC head of business development Dan Mannix.

For Schroders, and for the wider IFA community, the move puts the spotlight on the need for good succession management, with the company moving quickly to appoint Kevin Murphy and Nick Kirrage as co-managers on both the funds.

But how important is the cult of the fund manager these days, with the growing use of platforms making it easier for IFAs to switch out of funds?

Dennehy Weller managing director Brian Dennehy says that the firm has never encountered a good fund going sour following a change in fund management, pointing to Tony Nutt replacing William Littlewood at Jupiter and Tineke Frikkee replacing Toby Thompson at Newton as two examples of smooth transitions.

Dennehy says Schroders had to find apt replace-ments for the pair as the revenue is vital and key to upholding the group’s reputation. He says it was also important for Schroders to show it had a successful succession strategy that could be repeated.

He says: “Not only is there a team of analysts applying this process day to day but also other fund managers, hence the ease with which Schroders have moved to fill the Ian and Nick hole.”

But although Nutt and Frikkee show that the loss of star managers does not have to be a disaster, there have been occasions when assets have flowed out from funds following departures. For example, the constant turnover of manager on Credit Suisse Asset Management’s income range saw the leading income fund fall from over £1bn at its height to around £400m by the time it was bought by Aberdeen Asset Management.

Chelsea Financial Services managing director Darius McDermott says it depends on how a fund is positioned. For example, whether the sales team is promoting the manager or the process.

He says: “We bought the Schroder income fund not only for Nick Purves and Ian Lance’s ability but also the value perspective process driven into the portfolios.

“If it had been the pair leaving RWC, that would have been a different story, as more questions would have been asked around the processes backing it up.

“It is important to judge on a case-by-case basis, given that, in the examples of Littlewood and Thompson, both were replaced by high-class managers.”

Dennehy says the Schroders’ departures reflect the need to populate the centre of an investment portfolio with bigger companies which have processes and can ensure continuity, as opposed to boutiques which he says “can only ever be a sideshow on the fringe of portfolios”.

Hargreaves Lansdown senior analyst Meera Patel says these managers are not incentivised enough to stay at bigger firms and so they end up at boutiques.

She says: “Look at the amount of people that Swip has lost to boutiques over the years. I do not necessarily believe that larger firms have the ability to handle succession as well as boutiques, because, on many occasions, the scenario of too many chefs can occur.”

Skerritt Consultants head of investments Andy Merricks says larger funds are not always a safe enough bet to sit at the centre of an investor’s portfolio.

He adds: “I do not see anything wrong with placing a fund that is smaller or with a boutique provided it has the investor’s interest, rather than revenue generation, at the heart of its process. We must also remember that the likes of Artemis started out as a boutique and it has grown into something considerably greater than that on the back of its success.”

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