Parsonage Financial Planning director Flora Maudsley-Barton on why she uses three platforms and complements in-house investment management with outside expertise
Is your investment management in-house, outsourced or a combination of both?
It is a combination of both. We come at it from a financial planning viewpoint first. We set the objectives for portfolios and also retain outside expertise – Steve Williams at Cormorant Capital Strategies, who is an independent voice on our investment committee. Steve is an investment analyst with more than 20 years’ experience and I also have more than 20 years’ experience.
When drafting the objectives for our model portfolios, we have plotted predetermined points on the efficient frontier, which helps us determine the level of risk and return for different attitudes to risk. It gives us a base to work around. We construct our core portfolios around those points, looking at where they lie and intersect.
What investment options do clients have?
We have five core growth portfolios and three income portfolios. We have spent time and effort building and managing those. They are suitable for most clients – they will work in over 85 per cent of cases. But we find them easy to flex and create bespoke portfolios when it is suitable to do that.
An example of where the model portfolios will not work is when clients want an ethical filter on their portfolios. Another not-so-common reason is where customers say they just want passive-only portfolios, or where we could use a discretionary fund manager to fulfil the brief.
Because we are independent and give independent advice, if we feel we cannot fulfil the brief in-house, we will do it – I’m agnostic about going to a DFM. But as I said earlier, the portfolios do the job in the majority of cases.
How do you select DFMs and platforms?
We are members of the Sense Network and it does the legwork in terms of research on DFMs.
Platforms are something we regularly review – we do it yearly. What we look for in a platform is low cost and reasonable service, but I do think they are all too expensive.
We use AJ Bell, Old Mutual and Aviva, depending on the complexity of the case needs. We use three rather than just one because they are good at different things. AJ Bell is particularly good at post-retirement – drawdown – and great for tax-free portfolios like Isas and pensions.
I don’t find AJ Bell that easy to use for taxable investment as I do not think it has got much in the line of tax reporting. We use Old Mutual for that and for bonds – by that I mean single-premium investment bonds.
Aviva is in the middle, it is fairly low cost and while it did have its problems last year, when it is working, it is good.
Company Fact File
Date firm established: January 2009
Number of staff: Six
Number of clients: 180, with 135 households paying retainer fees
Platforms: AJ Bell, Old Mutual and Aviva
DFMs used: Octopus and Downing for Venture Capital Trusts and Enterprise Investment Schemes
How do you construct your model and bespoke portfolios?
The methodology is the same for both – it takes us far down the line, so we only stop and veer away from that when the model portfolios don’t work for individual circumstances.
We start with our strategic asset allocation policy – how much in equities, bonds etc – to maximise the returns for any given level of risk. We then select an appropriate risk position for the client in front of us. It may be one of our predetermined ones but if not, we will vary it until it is suitable.
Then we select the funds for the appropriate asset allocation. Creating bespoke portfolios is easy for us because we have the flexibility to move from model to bespoke and know what we have changed.
In an extreme example, we run 50 per cent equity in our growth 50 portfolio but if we needed it to be 51 per cent, we could do that. Or we could do a much more likely scenario where we need to keep cash at a greater level because people in drawdown need it.
If we needed to keep 6 per cent in cash, we’d have 94 per cent of the portfolio invested, so instead of a 10 per cent allocation to any given fund it would be 9.4 per cent.
What are your views on using active and/or passive funds in building your portfolios?
We use both. Anyone anywhere would only pay for active in the hope of outperformance and passive in the belief that outperformance is not forthcoming.
We are fairly pragmatic about it. I’d say we have a tendency to look at passive first – if we feel it meets the brief at a low cost, that’s what we will use. But if the sector isn’t efficient, we will look at active.
Finally, what are the benefits to clients and to the business of your investment management approach?
Coming back to the investment return being managed in line with financial planning, that’s what clients are going to get first. We ensure portfolios provide value for money and because they are flexible we can easily tweak the model portfolio or customer in front of us.
The way the quantitative fund screen is put together and the graphics on there are clear about the rewards and downside risk. That helps us articulate downside risk and return to customers.
I believe that might be the thing that enables customers to cope well with difficult market conditions as they come up. We don’t get many people worried by market falls.