Thorntons Investments was founded as part of a legal practice in 1995, and is now a separate company with offices in Edinburgh and Dundee.
Can you explain your approach to investment management?
We manage clients’ investments in-house. By way of background, I had a 28-year career in institutional equity investment before I joined Thorntons Investments. The majority of our financial planning clients go into one of our risk-rated model portfolios, which have built up a three-year track record. However, our planners assess the suitability of new clients for our discretionary private client service or externally if they can be better served by another provider. We also offer an Aim IHT portfolio service which we have made available as a model portfolio.
Why give clients an Aim option?
The primary objective for clients investing in this is that all the Aim companies they own after two years will hopefully qualify for business property relief.
The Aim portfolio service was originally an offering for private clients on the discretionary side. When I joined and started to key out the performance numbers, I saw it was successful and wanted to expand it as a model portfolio through a platform. Going through a platform is cost-effective but a lot of hard work went into it, as trying to get the portfolio to work on a platform was tricky. We didn’t want it to end up distorted by the platform’s requirements.
Why did you make the Aim model portfolio available through the Standard Life platform and do you use any other platforms?
One reason for choosing Standard Life was cost, you can deal extremely cheaply and, from an adviser’s perspective, keeping all clients’ money on platform makes a lot of sense. Another reason was flexibility in dealing. We did a lot of scenario testing for liquidity in terms of what would happen if we needed to make a change.
As soon as an Aim company no longer qualifies for BPR we need to take it out and replace it, so it is important we can make single switches. We also looked at who is likely to survive in the platform world. For the Aim model portfolio, we use Standard Life and internal discretionary client money is run through AJ Bell. The bulk of money on the financial planning side sits on Standard Life, Nucleus, Novia and Old Mutual.
How do you select investments for the model and discretionary portfolios?
We have an investment committee that meets monthly. We delegate to three sub-committees who make investments selections for our approved list. We have a sub-committee for Aim stocks, one for the rest of listed equities and one for collectives.
Everything stems from our three-year investment outlook. We have a house view on the most probable returns from different asset classes and regions. That influences our decisions in terms of weightings for the models and discretionary portfolios.
When selecting Aim companies and listed equities, we focus on bottom-up selection. We also need to be fully satisfied that Aim companies will qualify for BPR. Then it’s a question of selecting companies on their individual merits. You can diversify risk away and make sure you’re not running unintended correlations.
The model portfolios contain a mix of active and passive funds because there are strengths in both. Passives give you broad investment at a low cost and, having run funds myself, I know what to look for in actively managed funds. We look at investment performance and consistency, trying to piece together where performance has come from.
What would trigger a change in the investments on your approved list?
For funds, the obvious reasons are if a manager leaves or they are moving away from their stated process. If performance is lagging, the fund will be under the microscope as to what has caused that. Sometimes the manager will stick to the process but it’s the nature of the market that has caused the problem, and that wouldn’t necessarily tip us into selling the fund.
With companies, it could be structural industry factors and obviously you’ve got valuation issues. It could be that a company is doing fine but the valuation is such that on a three-year investment horizon it is difficult to justify.
How does your in-house investment approach benefit clients and the business?
It gives us a much more coherent offering. We have greater control and alignment with client interests. If we had externally managed model portfolios, that could cause us all sorts of trip hazards if changes needed to be made and that would impact on the smooth running of our business. Being able to do it all internally makes actions quicker and ensures everyone is treated correctly under the new suitability requirements of Mifid II.
Date company established: 1995 as part of Thorntons Law LLP, from which it separated in 2014
Assets under management: Over £400m
Number of staff: 34
Number of clients: 560 financial planning clients, 310 discretionary clients and 35 advisory clients
Platforms used: Standard Life, AJ Bell, Nucleus, Novia and Old Mutual
DFMs used: In-house services