McHardy Financial is a firm of chartered financial planners providing independent advice to private and corporate clients from six offices in Scotland.
Could you explain the firm’s investment process?
We use in-house and outsourced solutions. We have two in-house solutions, where funds are selected by ourselves. One is a blend of active multi-asset funds and a passive element, which has been running since the company was revamped in 2013.
The second, introduced last year, is a portfolio range adhering to a multi-factor approach, which does not involve tactical asset allocation. It aims to match global asset allocation at all times, albeit we still have a small element of home bias.
The multi-factor approach is based on academic research going back decades that concludes certain characteristics in a stock (market risk, size and book to market ratio) create the likelihood of higher expected return.
It is also based on the idea the vast majority of return expectation is down to asset allocation, not stockpicking or market timing.
We also offer four platform solutions – Aviva, Novia, Transact and Zurich – and another external solution is the Brewin Dolphin Managed Portfolio Service, which offers active and passive routes. It was chosen after a beauty parade in front of our investment committee.
For more bespoke clients, we have a panel of discretionary fund managers advisers can use. There are six DFMs on the panel – Brewin Dolphin, Brooks Macdonald, Cornelian, Investec, Quilter Cheviot and Smith & Williamson.
Why did you opt for a mix of in-house and outsourced solutions?
We aim to be as flexible as possible because there is no such thing as one size fits all. Everything is fully researched with the intention we have a good fit for a client’s needs. That is the most important factor.
As an IFA practice, our advisers are free to select any solution, where appropriate for the client, with research and justifications documented. We use an indep-endent risk profiling tool at all times.
How do you select funds for your in-house solutions?
The funds used must all be capable of being mapped to our client risk profiling tool Distribution Technology so the particular fund “blend” matches, and continues to match, the client’s risk profile.
Funds are screened by criteria such as performance versus benchmark, rating agency scores and fund size. Our main research tool is FE Analytics and we also use Defaqto.
Factors such as fund manager changes and unexpected underperformance are core review factors when the investment committee meets quarterly.
Why do you use more than one platform and DFM?
We have three ongoing service propositions for clients and our fees reflect the expected amount of work for each. Priority Plus is generally for high-value clients who want unlimited access to advisers; Priority is for people who want annual reviews and Value is for clients looking to maximise their Isa and who want a valuation once a year. Because we want to make sure we have an appropriate solution for every client, we wanted to offer more than one platform or one route. We want to be completely independent as much as possible.
Some investors will need a platform that offers top-end functionality, and these tend to be more expensive. For investors with simple needs, keeping the cost down is key. For straightforward investments of £40,000 or £50,000, some platform functions are not required, so it is more cost-effective to purchase multi-asset funds from a different platform.
How do you select the platforms you use and the DFMs on your panel?
We used an independent third-party around the same time as the company was revamped in 2013. We feel it adds an extra level of evidence to researching the market: you can show you have taken on board their particular recommendations rather than decisions being driven only by the investment committee, although it does have the final say.
How do you monitor the platforms and DFMs you use?
Our investment committee, which monitors our investment propositions, meets quarterly. There are five people on the investment committee – one takes the lead on due diligence and the others take responsibility for the investment solutions.
Individual members are tasked with reviewing a particular aspect and presenting to the group. We use various criteria to screen platforms with the intention of selecting those that provide the best fit for differing client profiles. Platforms are reviewed quarterly.
Our panel of six DFMs is reviewed annually by our investment committee, which currently sees no reason to change them.
What would trigger a change in platform or DFM?
We are not looking to change them constantly but we have to be aware of things that are changing in the market. For example, one of the platforms we use is preparing for an IPO, so we will be watching that. You also need to look at the capitalisation of these things.
Who is responsible for the advice in relation to your outsourced investment solutions?
The adviser is responsible for selecting the most suitable solution at all times. Having well researched central investment solutions in place means there is an added layer of professional input that advisers can tap into.
Date company established: 1987
Assets under advice: £300m
Number of staff: 35
Number of clients: Around 3,000 across the three service levels provided
Number of in-house solutions: Two
Platforms used: Aviva, Novia, Transact and Zurich
DFMs used: Brewin Dolphin, Brooks Macdonald, Cornelian, Investec, Quilter Cheviot and Smith & Williamson