Money Marketing talks to Mazars Wealth Management chief investment officer David Baker about how the firm makes its investment decisions
Is your investment management kept in-house or outsourced to a third party?
We like to keep as much as possible in-house as that tends to give us a deeper understanding of the decisions we have to make. If we select funds for portfolios ourselves, we know them inside out and make the final decision on whether they stay or go. That is useful for discussions with clients.
We do make use of other resources available to validate the decisions we make. If someone else has reviewed a fund it would be churlish of us not to look at what they think about it. We have a number of external experts who sit on our investment committee. They have particular expertise in certain sectors and they provide their views on tactical allocation. They stop us lapsing into things like house views.
What investment options do your clients have?
The vast majority of clients go directly into one of our model portfolios, which accommodate most people’s risk preferences. We also offer bespoke portfolios governed by what the client might require.
If their risk tolerance is not met by one of our models we will design a bespoke portfolio for them. For example, they might already have a commercial property holding and don’t want to duplicate that in their portfolio with us, so we could offer them a bespoke account based on one of our model portfolios, but also based on their personal specifications.
How are funds selected for the model portfolios?
We have a rigorous two-stage quantitative and qualitative fund selection process, designed with our preferences in mind. We have a preference for genuine active managers – funds with high active share and bottom up stockpickers that can offer concentrated portfolios. We are not interested in managers who charge active management fees for tracing an index, but those with a track record who add value to clients by being different.
It is important that we do the thinking behind the fund selection. We use FE Analytics to give ourselves the whole universe of funds to choose from. Imposing our quant criteria then gives us a list of four or five. We use research from the Adviser Centre to check our decisions.
How often are funds in the model portfolios reviewed and what would lead to changes?
We review the funds every six months. If a manager leaves, that is a critical point at which to reconsider a fund. Some criteria will be specific to a particular fund. As an example, we like some funds because they have concentrated portfolios, but if more money comes into it, the fund may become diluted.
Some criteria will be common to all funds – for example, looking for a trigger to have a conversation with the manager around whether they are doing anything different to what they tell us. We know the reasons why a fund is in our portfolio and the characteristics we expect during the economic cycle. If there is any deviation, we would have a conversation about why a fund is not doing as we would expect.
That said, we are long-term investors and rarely remove funds. One of the European equity funds we hold will, on occasion, be fourth quartile. We know that is due to the style the manager adopts and it is successful over the long term.
Do you ever use discretionary fund managers?
Rarely. It is usually when there is an investment need we can’t cater for in-house; for example, Aim portfolio recommendations. We have a panel of DFMs – Quilter Cheviot, Charles Stanley and Brewin Dolphin. The DFMs are reviewed annually by our research and investment committee, which I chair.
Which platforms do you use and why?
We use 7IM and AJBell InvestCentre, which we review annually. If we use other platforms it will be where a client’s personal circumstances necessitate it; for example, if there are tax consequences. We have to think of the overall cost to the client on an individual level and to the entire population of our clients. If we engage with more platforms, we will incur higher costs because we have to maintain due diligence and a higher number of systems.
We take the interaction between platforms and the back office seriously. We are not just focused on fees for clients; we are also focused on value. We talk to the platforms about functionality and intended developments for the medium to long term. We also focus on how we interact with clients and how user friendly the platforms are.
Date company established: 1996
Assets under management: £815m
No of staff: 102
No of clients: 1,400
Platforms used: 7IM and AJ Bell InvestCentre
DFMs used: Quilter Cheviot, Charles Stanley and Brewin Dolphin