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How advisers invest: ‘If it’s beneficial to clients, it’s good for business’

Thomas Miller Wealth Management managing director Matt Phillips on how a little bit of cynicism does not hurt when it comes to fund selection

Do you outsource investment management, do it in-house or combine both approaches?
We combine both approaches. If you look at our assets under management, the split between our wealth management business and in-house discretionary business is broadly half and half.

Our investment process starts from our independence – we don’t use any of our own funds. Instead we use open architecture. To think that we have the answers to everything in-house is not right.

What investment options do clients have?
We provide clients with end-to-end wealth management, starting with identifying their risk and return profile. They then go on a journey with us, investing in our model portfolios if suitable. Our in-house discretionary business is predominantly model-based.

However, some clients have specialist needs – they may have large capital gains issues or “rag, tag and bobtail” investments, so will need something other than our structured models.

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Some might have accumulated shares and selling out of them to move into the models may not be appropriate.

We think it’s right for those clients to have something bespoke.

What DFMs do you use and why?

The main one we use is Brooks Macdonald because we think the service is very good.

What we like when looking for DFMs generally is a clear process with a disciplined and vigorous approach so that results are repeatable. We’re increasingly not interested in star fund managers or fund managers unable to tell us how and why they perform the way they do. We are looking at it from the viewpoint of what they expect to happen.

We also use Quilter Cheviot, which is more disciplined and “old school”. When we choose DFMs we are looking for something that fits together well but which will be different. We are not looking to buy expensive quant traders, as what value would we add to clients if that was the case?

Our DFM panel is reviewed annually by members of our wealth management team, which includes members of our management and the investment team.

What platforms do you use and why?

We use platforms on the retail side of the business. A lot of what we do is sitting on SEI, which we use as a custodian. For example, we might have clients who have a Sipp with AJ Bell and we will hold it on SEI. We also use Standard Life as the minimum investment level is smaller.

Although our core client base is £250,000 and upwards, we also want to deal with clients who do not have that level of wealth. For those clients we have started to use Standard Life’s MyFolio range and some of our own models as well. We use the Standard Life platform as a one-stop shop – it’s easy when doing a lot of Mifid II reports for clients, for example.

We review the platforms annually but we’re unlikely to propose changes unless they become uncompetitive in terms of the administration or costs.

How are funds selected for your model and bespoke portfolios and what would trigger a change?

I am a little bit of a cynic. What I see far too often is people in the industry sitting in front of me telling me one thing and expecting me to forget it by the next quarter. Recently, two fund managers in an organisation told us two different things about that organisation in meetings. If I was the chief executive, I’d be concerned about the facts they were putting to the market.

We take a pragmatic approach to selecting funds and making changes. We have a team of four people who run them on a database and we buy funds that we feel can do a sterling job over the long term, looking at risk and volatility.

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Lower-risk portfolios will hold fewer equities than our higher-risk buckets. We use a mix of active and passive funds, and are very comfortable using passives almost as a default for US, UK and European equities. When we’re picking active managers, we look for a good long-term track record.

We review funds monthly and make changes if there are changes to their parameters, where a fund manager leaves and they are important to the investment process or if a fund is not meeting expectations. If we wanted to be in a different market we would also sell funds or part our holding to meet asset allocation requirements.

Finally, how does your investment approach benefit your clients and the business?

We have a strong belief that if it is beneficial to clients, it is good for business. It may sound trite and a bit of a cliché but it is always good for business if you put clients first. We have a seamless solution for clients as portfolios are managed by us and financial planners are at the top in the client relationship, finding out from clients what their objectives are, what they want to achieve and why they are investing.
Because we are independent and have no compulsion to go in-house, clients know that if something is more suitable, that is what we will use. If we’re not trustworthy, we don’t have a business.

Fact file

Date company established: 1988

Assets under management: 0.5bn in-house discretionary business, 0.5bn with DFMs, £200m offshore, £3.5bn for institutional clients

No of staff: 83

No of clients: 1,500 UK retail clients, 1,600-1,700 institutional clients

Platforms used: SEI and Pershing on retail side, Bank of New York Mellon on institutional side

DFMs used: Brooks Macdonald, Quilter Cheviot, Standard Life

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