Brewin Dolphin group head of research Guy Foster explains how the company makes its investment decisions
Do you take an in-house or outsourced approach to investment management?
Historically, we are an investment firm, so the investment part of our proposition is central to what we do.
Our clients benefit from financial advice integrated with investment management and we run £10bn in assets where the financial advice is provided by an independent adviser — they lead the client relationship but we provide the investment management.
Everyone has some element of outsourcing — we buy third-party funds and don’t have our own managed funds. There is nothing particularly controversial about that.
What investment options do your clients have?
Our philosophy is that clients have different needs so we need to be quite flexible and cast our net wide to do the right thing for clients in every circumstance.
We run model portfolios and construct portfolios on a bespoke basis. It depends on what is right for the client. Often models are fine for them but they may have some special requirements that might warrant customisation.
The obvious example is where a client holding specific assets might be affected by tax or employment. If they work for a company they might already have exposure to that business’s shares and want less exposure to that sector or firm. There might also be restrictions on what they can buy and sell.
A model portfolio service is good but restricted when compared with a full DFM service where you have more access to closed-ended funds and direct equities. We will use active and passive funds, direct equities and funds, structured products and exchange-traded funds.
We are the primary discretionary fund manager but if there is a reason why clients need to have external DFMs, the client will have an external DFM. In all of our outsourced relationships, including DFMs and platforms, financial strength scores pretty high. Costs and charges are also pretty significant.
How are funds selected and monitored for your model and bespoke portfolios?
We have a research team of more than 20 people They review all our investments on a daily basis.
We select funds using a four-stage process. We analyse the universe to make sure we are comparing like with like; quantitatively assess the funds; conduct due diligence on the underlying holdings and performance attributes; and understand the management team.
The research is then used by a separate team who work out how best to combine funds and whether it’s best to access the fund directly or use a sub-advisory mandate to reduce costs or improve the liquidity of a fund.
What drives change? Anything. We might lose confidence in the management company or the manager, maybe the fund is not performing in the way we expect it to perform, or the asset class may be deteriorating. A frequent instance is when a fund manager changes company — you have to sell even if you want to follow that manager and purchase their new fund.
How do you select the platforms you use?
We use a variety of platforms depending on client needs. For our managed portfolio service we primarily use Aviva, James Hay, Novia, and Standard Life.
We have a process for identifying which platforms we are going to work with and financial strength is a very important aspect of that, as is cost. Other factors such as the flexibility a platform offers you is important.
We need to know that the platforms can implement our investment views, that they provide good investment choice and have the right infrastructure. We prioritise what we need to see from the platform and score them based on how well they fulfil that brief. This gives us a numerical score which enables us to compare and contrast platforms.
The platforms are reviewed regularly and scores are rebased if something substantial changes. We use more than one platform because we want to have the widest possible choice to ascertain the best solutions for clients.
There is never a situation where one firm can be the solution for all client needs. We can ensure clients get the right solution for them, not just the right solution for us.
What benefits do your investment approach have for clients and for the business?
Because we have an integrated solution, we can incorporate clients’ tax status, tax needs and retirement needs with whatever they are trying to achieve in the portfolio.
There is also a clear advantage to the way we do things using sub-advisory mandates. If a fund manager moves or their fund has seen a lot of outflows, it wouldn’t affect a fund that is managed for us on a sub-advisory basis.
We can also use our scale to keep costs low. We can typically access the cheapest share classes and if there are additional savings from accessing a fund on a sub-advisory basis, that can further reduce costs.
Our team is looking so much at third party funds and sub-advisory mandates that they can monitor them daily, rather than monthly or quarterly. I think if you choose any point in time, you are at risk of a fund’s performance being skewed by what happens during that period.
Company fact file
Date company established: 1762
Assets under management: £41.5bn, of which £35.3bn managed on a discretionary basis.
Number of staff: 1,614
Number of clients: Over 80,000 account holders, including individual, charity and corporate clients.
Platforms used: Varies depending on client requirements.
DFMs used: N/A