Is your investment management approach in-house, outsourced or a combination of both?
It’s a combination of both. We’ve got our own centralised investment process but we use EValue for capital market assumptions and fund research from Morningstar.
We run our range of model portfolios with three different terms – short (0-10 years), medium (10-20 years) and long (20 years plus). This may often be life-stage specific and we use EValue to allocate how much we should have in each sector.
Our default strategy is passively invested, and currently we blend a selection of multi-asset passive funds using EValue to configure the allocation. Optimisation of the passive portfolios is done once a year, at the point of conducting the annual review.
For active portfolios we do it four times a year, and have a lengthy but thorough process to contact the clients and get their consent on an advisory basis. There is considerably more involvement in the active funds because there is more research, filtering, investment decisions client marketing and administration. However, we are proud to be “style agnostic”.
We receive an active funds list from Morningstar each quarter. We do our in-house checks and filtering – dependent on performance – Sharpe ratio, charges and other criteria. We have an investment committee, of which I’m a member, and we have quarterly meetings to discuss the list of funds we’ve received, the filtering process and the funds we are holding that quarter.
For transactional clients we do not blend funds, and would use only one multi-asset fund in the portfolio. This is because we cannot do the same optimisation we can with those with annual reviews, and that’s not available if it’s a transactional piece of work.
We can still offer one multi-asset passive fund for short, medium or long term without the need for rebalancing – if we are asked to review the portfolio we would need to charge an ad hoc fixed fee.
How do you select funds for your model portfolios? What would trigger a change?
For passive funds we are heavily influenced by cost, and making sure we can manage the funds on a comparable (EValue) asset allocation basis.
For active management we review funds from Morningstar quarterly and do our own quantitative research. We apply filter criteria such as cost, Sharpe ratios and Morningstar ratings.
Having said that it doesn’t mean all our active models have the same range of funds. For example. It may be that if a portfolio is long-term, it would have more equity funds than gilt-based funds or cash. It could be the opposite for short-term models.
Reasons to change funds include changes in the Morningstar ratings. If the cost has changed – if it is more expensive we might replace it with another fund. If the performance changes it might be deselected and also, if there’s a corporate action – such a fund manager leaving – we might then put the fund on hold until further review.
Do you offer bespoke portfolios or access to discretionary fund managers?
Bespoke portfolios are case-by-case, although they are very rare. All deviations to the committee’s remit and rules require consent. An example could be income portfolios, as we generally employ a “total return” strategy to investing, where there is a specific need for income – for example, an interest in possession trust – we will do something different.
We don’t use DFMs. We feel we provide a very good service in terms of active and passive. We have spent a lot of time on it and believe DFMs would not provide any additional value. There would also be an additional charge for clients and we find that many clients already paying fund management charges, platform charges and advice charges do not want to pay a DFM charge. If clients asked for a DFM, we would refer them to other firms that we have relationships with.
What platforms do you use and why?
We use three main platforms which is led by the investment strategy an individual is recommended. Historically Standard Life was used for active management, and Elevate for passive, but due to recent changes at Standard Life, Elevate would be the more dominant now. We have due diligence every year in terms of platforms.
We look at a range of metrics, for example the financial strength of platforms, product availability, fund choice, charges and the rebalancing process. We also have legacy business where clients have funds in other platforms like Aegon ARC, Old Mutual Wealth and Cofunds. There is rarely a good enough reason to move them, so we continue to use the existing platform.
How is your approach to investment management beneficial to clients and the business?
Currently for the passive models, we use multi-asset passive funds, as the cost of these is lower than the commensurate passive funds, rebalanced to our EValue models. Furthermore, the multi-asset funds offer better diversification than might be practical otherwise.
For the active models, we offer an enhanced service and our 10 year track record is very strong. There can also be other benefits in the form of use of capital gains tax allowance etc. I feel we have a strong investment offering at a compelling price.
Date company established: 2008
Assets under management: £300m
No of staff: 18 financial planners; plus eight head office employees who share resource with Wingate Benefit Solutions
No of clients: 550
Platforms used: Elevate, Standard Life Wrap, Aviva, Aegon, Fidelity, James Hay, Phoenix, Old Mutual Wealth
DFMs used: Rarely