LEBC director of public policy and investment committee chairman Kay Ingram on giving clients access to the defensive qualities of active funds, even though passive funds have lower charges
Do you approach investment management in-house, outsource it or combine both?
We do both as we look after a wide variety of clients, ranging from group pension scheme members saving on a monthly basis to private clients with six-figure sums to invest and upon which their income may depend.
We outsource our research to independent third parties, which we pay for. The outputs of that research are used in our recommendations to clients and inform our selection of investments and the running of our advisory governed investment portfolios.
The management of client money is largely undertaken in-house, but we also work with discretionary managers where appropriate to client needs. Then the day-to-day management of funds will be determined by the discretionary manager, with additional oversight provided by ourselves.
What investment options do clients have?
Since 2010, we have offered a range of governed investment portfolios which are objective-led and risk-rated. We offer four growth models and three income models. Our advisers can select any combination of these to meet an individual client’s needs.
They can be held alongside other bespoke investments or can form the core of the client’s investments. We leave it to the advisers, who will look at each client’s needs on an individual basis and determine what approach is right for them.
Clients who come to us with an established investment portfolio are not required to sell everything to invest with us, but can hold a complementary range of investments, made up of governed investment portfolios alongside existing holdings, where these meet the client’s objectives.
Our original governed investment portfolios are offered on an advisory basis. They are reviewed quarterly by our investment committee. Some clients prefer their investments to be managed without them having to agree to the recommended changes prior to implementation, so in 2016 we introduced an outsourced discretionary governed investment portfolio service, over which we conduct high-level oversight.
Tell us more about your investment committee
The quarterly review process is two-stage. First, we undertake an asset allocation review, taking account of macroeconomic and market trends.
This is followed with a bottom-up look at individual funds, which make up each portfolio.
The committee also meets on an ad hoc basis when events require additional oversight – in the wake of the EU referendum result, for example.
How do you select the DFMs and platforms you work with?
We work with a wide range of DFMs and platforms and we review their selection on a regular basis. We have a review process which looks at the whole market and identifies key performance indicators against which we measure platforms. We undertake this in conjunction with independent consultants. Service delivery is a key requirement for us.
How do you build model and bespoke portfolios?
Asset allocation is the first driver. After that, individual fund selection is informed by a quantitative analysis of long-term performance and a qualitative forecast of the prospects for each fund. This takes account of the fund’s asset allocation, sector allocation and style, currency exposure, regulatory and political risks, as well as individual companies held within the fund.
The strength and depth of the management team and fund charges are also important, especially when there is a change in personnel.
We may choose managers with different styles to complement each other at different stages of the cycle. This helps to maintain low volatility and a defensive hedge when markets take a downturn.
The theme dominating our current thinking is Brexit-proofing our portfolios.
What are your views on using active and/or passive funds in building your portfolios?
We offer both to clients and include both in our governed investment portfolios. We understand that passive portfolios offer the benefit of lower charges but are also aware they may lack some of the defensive properties which active fund managers can add.
We always seek value for money for our clients and have been able to negotiate lower charges on many actively managed portfolios.
The choice of what is right for the client is determined by their adviser, who takes account of the client’s investment experience, capacity for loss and the importance of charges. Most clients are invested in actively managed funds.
What are the benefits to clients and to the business of your investment management approach?
Clients know that our recommendations are based on in-depth research, and that their portfolios are being reviewed on a continuous basis without them needing to initiate this. Our centralised investment proposition enables us to deliver this service cost-effectively. The cost is the same whether we recommend a change or not, and there are no costs for buying and selling investments. It frees up their adviser to concentrate on understanding their needs and it is easy to make changes to their investments when their circumstances change.
Established investors who come to us know that we will not recommend selling everything they hold just to fit our process and that we will only recommend changes where their existing investments no longer meet their needs.
Date company established: 2000
Assets under management: £3.2bn
Number of staff: 275
Number of clients: 11,881
Platforms used: Aegon, Fusion, Fidelity Funds Network, Aviva, Standard Life and others
DFMs used: Wide range selected from whole of market