Rick Eling, investment director at Quilter-owned advice network Intrinsic, explains how focusing on factors that can be controlled, such as objectives, provides the best long-term outcomes for clients
Do you approach investment management by building portfolios in-house, outsourcing or a combination of both?
We have built our investment offering on the basis that the client is better off when the portfolio is looked after by a professional manager. That means no Intrinsic adviser will assemble a client’s investment portfolios themselves.
We don’t build portfolios ourselves – we are one level up from that. We use third-party research from Morningstar and Square Mile to offer packaged solutions and we use discretionary fund managers for bespoke portfolios.
Our approach is based on common sense and being honest with clients about what we can and can’t deliver in relation to their objectives and the risk needed to meet them.
What investment options do clients have?
We offer packaged solutions comprising a matrix of unitised funds. Some are managed by Quilter and some are selected independently by us. We start by sending Morningstar and Square Mile into the market with a brief relating to client objectives and risk levels. They provide a shortlist and we cross-reference the investment funds on the list.
In populating the matrix, we are looking to deliver an objectives- and risk-based toolkit. We look at what the client is trying to achieve and what level of risk they will need to take in order to achieve it. We don’t believe first quartile returns is evidence that a fund is good or that fourth quartile performance is evidence that it is bad.
The test, I think, is based on our experience, whether a fund is likely to meet client objectives.
We also have a panel of DFMs to build bespoke portfolios for clients.
What DFMs do you use and how are they chosen?
We have a panel of three DFMs – Quilter Cheviot, Vestra and Rathbones. We believe they are appropriate partners for clients who need bespoke portfolios as they build portfolios from the ground up. The DFMs we currently use have been selected on the basis of their different styles of management that complement each other. By that I mean that we like the way they balance being in global and UK equities, and investing in direct equities as well as using funds.
When selecting DFMs we have looked at how experienced they are at working with financial planners and if they are genuinely bespoke, as some DFMs are more so than others. We look at their track record and investment risk – it is important for all clients to have a clear idea of the investment risk in a portfolio.
We review the DFMs annually and have a book of research on computers if we need to make changes.
With DFMs, you are also looking at service, because that is the core of the offer. Quilter Cheviot has 12 offices around the UK and location is important because clients will need to be able to meet their portfolio manager. It’s a more relationship-driven business where you have a personal fund manager who knows you – that is what bespoke clients are paying for.
Date company established: 2006
Number of staff: About 750
Number of clients: More than 200,000
DFMs used: Quilter Cheviot, Vestra and Rathbones
Platforms used: Old Mutual Wealth and Aegon
How do you select the platforms you work with?
We use two platforms – Old Mutual Wealth and Aegon. With platforms, what we look for is trade-off between service, the availability of different assets and price. I am not personally involved in the selection of platforms – that is the role of our proposition director, Phil Carroll.
What are your views on using active and passive funds?
I think it comes down to client preference and client beliefs. The most important thing is to get the risk level right, but before that you need to consider how broad an investment universe you want.
You can only track a listed asset class, so if you’re happy with that constraint and cost is a priority, that’s the way you are going to go. If you want a broader investment universe, you look elsewhere.
Finally, how does your investment approach benefit clients and the business?
For clients, we are very honest about what we know. Chasing short-term sector performance can lead clients down a blind alley.
There are some advisers who don’t have investment qualifications but think they can pull a lever at the right time, put clients in cash and put them back in again at the right time. The reality is they can’t. If our starting position is what we don’t know, we look to what we can control. We can control risk, client objectives and persuade clients to take a long-term view to deliver the best outcomes.
For the business, a focus on risk is a good place to be. We are honest with the client in that going with the process we have set up may make them a lot of money, but things do go wrong. Managing expectations is important because if clients are not prepared for a fall in their portfolio, they may feel that they have grounds for a complaint.