Tilney head of financial planning Andy Grant explains how the company’s
search for active managers avoids looking for a needle in a haystack
Do you approach investment management in-house, outsource it to a third party or use a combination of both?
We operate it in-house as we have a pretty extensive investment management team. We think it’s good to have it in-house so that financial planning and investment management are tied together.
That’s clear when you understand our belief in making clients’ financial goals, investment strategies and attitudes to risk easier to fit together. It’s never possible to completely see inside someone else’s structure, compared with the inside of your own.
It’s also the case that third-party investment management has to gear up everything it does to cater for the range of potential clients it has, but we don’t have to do that.
What investment options do your clients have?
If clients want execution-only services, we offer that through Bestinvest. We also offer advisory and discretionary management.
Under the discretionary management option, we offer a personal investment management service with a manager who looks at what clients want and whether they need bespoke portfolios to deal with existing holdings, capital gains tax issues or any ethical exclusions. We can do all that.
We can bring in a personal investment manager where a client wants something alongside the financial planning, so they can understand the investment strategy and the performance over time.
Clients don’t express their preference for a personal investment manager as a want; rather they reveal it through what they tell us.
Where we want to bring in a personal investment manager, the first thing we do is look at the client’s requirements.
If they have no particular requirements, we look to consider portfolios in our overall strategy.
This is a centralised offering, which is structured and managed as an investment portfolio.
Clients have the choice of the unitised implementation of our strategy or a personal/bespoke one.
How do you choose the underlying funds in your portfolios?
We have a significantly sized in-house strategic and research team full of excellent people, such as those with hedge fund backgrounds. They do the research, looking at managers to find the ones that deliver.
They start with strategic asset allocation and an analytic approach of asset classes – a quantitative, mathematical approach.
Then we have a tactical overlay based on our understanding of the prevailing market conditions.
That is how we can add value, for example when we outperformed in the fourth quarter of last year.
Company fact file
Date company established: 1836
Assets under management: £24.4bn
Clients: Approximately 100,000
DFMs used: N/A
Platforms used: More than 10
Finally, we put significant effort into looking at managers across the industry.
In our view, there is a very small proportion of active managers who can add value in terms of outperformance. We think the number of managers who can deliver and sustain outperformance is in single figures. We select those to add value.
To summarise, we start with a quant approach, looking at the performance against the benchmark. We will look at the outperformance, then go and find out why. Is it just luck or the approach taken?
What is your view on using active and passive funds in portfolios?
We are agnostic between active and passive funds. As I said earlier, we sign up to the view that most actively-managed funds don’t add consistent value over the long term, but some do.
When we are looking for managers, we examine them very carefully, so that we are convinced they are delivering super returns, and we have the evidence that they have done so.
When we use active managers, there is a reason why, but the question that is always out there is whether the reason is still valid. If anything has changed, we would review the fund.
In areas where we don’t believe active managers can deliver, we will use passive funds.
Which discretionary fund managers and platforms do you use?
We don’t tend to use DFMs. Since we have our own in-house platform, we only use third-party platforms where clients have arrived at Tilney with assets already on a platform and the circumstances mean it doesn’t make sense to move them.
We use a broad range of external platforms; over 10 of the usual names. But the way we deal with our service, transfers and reports means we will drive an improvement in fees through our own unique system.
What are the benefits of your investment approach to clients and to the business?At the high level of our broad offering, we can give clients whatever they want. We don’t just offer discretionary services, so if a client doesn’t fit that mould, we can still help. Also, the way we put portfolios together for clients across the whole range means we can much more easily match our investment management content with the financial planning needs of the client.
Our “dual-expert” approach of financial planner and personal investment manager is popular with clients and you can see why: having one expert in financial planning and one in investment management looking after your circumstances. But not everyone wants this.
Finally, we have a 10-year demonstrable performance and in quarter four of last year, our tactical approach saved our clients from making greater losses.