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Inside AFH’s investment proposition

Money Marketing seeks answers over the consolidator’s links to its fund managers

AFH has become a well-known name in the advice market in recent years due to the volume of acquisitions it has made. The Aim-listed consolidator bought a total of 16 advice firms in the year to 31 October, and has now passed £4.5bn in assets under management.

The firms that are purchased receive both an upfront payment and deferred payments in subsequent years, based on meeting performance criteria.

Less has been reported, however, about the discretionary mandates and devolved authority funds it operates, so Money Marketing decided to look at what is on offer.

AFH runs a number of devolved authority funds with a firm called Margetts Fund Management, listed on the latter’s website as the “AFH range”. There are 13 MGTS AFH funds listed on the FCA Register, ranging from European Equity to UK Smaller Companies, Asia Ex-Japan Equity and Global Emerging Markets Equity.

St Johns Asset Management acts as the investment adviser to the AFH range, according to financial statements for the Margetts funds. Annual returns filed at Companies House show that AFH’s directors are also directors and shareholders of St Johns Asset Management.

The registered office of St Johns Asset Management is also the same as AFH’s: AFH House in Bromsgrove near Birmingham.

St Johns Asset Management was renamed AFH Private Wealth in June this year. This was part of an “ongoing branding strategy and had no effect on our clients”, the firm says. AFH offers independent advice, according to its website.

Money Marketing sent the following questions to AFH, asking for comment and a follow-up interview:

  • What proportion of total assets under advice at AFH is now managed in the Margetts/AFH fund range?
  • The documentation shows St Johns Asset Management Ltd acts as investment adviser for the funds – a firm of which AFH directors are also directors and shareholders. Please illustrate where and how this is disclosed to clients.
  • Please detail any and all elements of the deferred earn out payment to advice firms acquired by AFH that relate to recommending Margetts funds or conducting replacement business into Margetts funds.
  • AFH gives independent advice. Mifid II rules state that, to be independent, firms must not have any limitations with regards to “other entities with which the firm has such close legal or economic relationships, including contractual relationships, as to present a risk of impairing the independent basis of the advice”. Please explain why you believe the St Johns/Margetts relationship does not invalidate this condition.

An AFH spokesman responded: “AFH is satisfied that its devolved authority funds are fully compliant with all relevant regulations. AFH is proud of its independence and its long-standing determination to deliver the best outcomes for its clients, and our establishment of devolved authority funds and our removal of platform fees are fully consistent with both these values.” The spokesman added: “Given we think our statement adequately answers your questions, we are declining your request for an interview at this time.”

A source with knowledge of the firm urges any advice practice which is also involved in fund management to make sure clients are aware of the nature of the arrangements.

They say: “I don’t mind them doing it; I just challenge whether the customers know what’s going on.

“[Some advice firms] have come from multi-million-pound loss-making businesses. Fast-forward and what has changed? It’s [flows into] in-house ranges. The average production of their advisers may be up 3 or 4 per cent, and revenue has gone up, but not by the same extent as they are making profits.”

As an example of size, FE data shows the MGTS AFH Tactical Core fund had £442.8m in assets as at 31 October, up from £385.3m at the start of the year, and AFH DA UK Alpha, launched in March, sits at £51.7m.

While the Margetts deal could, in theory, form an incentive for advisers acquired by AFH to move replacement business into the AFH range, the spokesman confirms that to take advantage of the firm’s removal of platform fees, clients do not have to be in the Margetts funds or on AFH’s clearing account with Pershing.

The spokesman confirms that platform fees have been removed for all AFH direct clients, regardless of the funds in those clients’ portfolios.

This could come at a significant cost to the firm. Take an example where clients had £100m on an external platform like Nucleus, paying a 35 basis point charge, and AFH’s advisers had decided to leave the funds where they were after acquisition.

In order to remove platform fees for these individuals – essentially paying Nucleus’s fees itself rather than the clients – AFH would incur a cost of at least £350,000 a year.

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Tosh, try speaking to an adviser or a company that has been taken over. Its all about getting funds in the AFH funds . . . that’s where the value lays for the company, the advisers and its shareholders.

    You seen any investment proposal from them at least 30% is in their in house funds.

  2. Serious misunderstanding again Justin. I would have expected better research from you. AFH do not pay for 3rd party platform fees. They only waive custody fees if the client uses their DFM service as no platform is involved. Understand?

    • Hi Alan, I did put that to them because that it what I had heard too, but the wording of their response suggested differently. I’m more than happy to pick up with them again or feel free to email me if you have anything that can shed further light.

    • Hi Alan, are you saying that if the AFH DFM service is not used the clients still bear the cost of the platform charge?

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