How advisers invest: ‘We buy managers, not funds’

KW Wealth chief investment strategist Richard Stammers on retaining control of its investment management and involving clients in decision making

Is your approach to investment management in-house, outsourced or a combination of both?
We do it ourselves. We have two businesses – the wealth platform and the investment management business. Our view is that wealth management is at its most effective if the wealth planning team works with an in-house investment team managing the assets. It gives us influence, control and complete transparency on the investment management.

‘If it’s beneficial to clients, it’s good for business’

What investment options do you offer clients?
We have two options we offer clients – the personal portfolio service and the managed portfolio service. The personal portfolio service is bespoke and is for clients who have capital gains tax planning needs, or who have any restrictions or investment themes that they want to run in their portfolios. The managed portfolios are driven by our model portfolios and can be run on a platform, such as Nucleus.

Do you use external discretionary fund managers?
No, we don’t offer them as we want clarity and transparency – that is at the heart of it. Clients can see and participate in every bit of the decision making – they can even get involved in the decisions about investment funds if they want to. When we sit down with clients, we’re not talking about decisions made by an anonymous team in an ivory tower. We make the decisions ourselves and we can explain it all to the client.

What platforms do you use and why?
We use Nucleus, Standard Life Wrap and Novia. We look at a number of things when selecting platforms. The first thing is the product offering. Then it is the cost as it’s the clients who have to pay for it, but we are mindful that the cheapest is not necessarily the best.

We also look at the functionality and the ability of the platform to integrate with our systems. Reliability and the quality of administration are important as the fastest way to lose clients is to mess up with their income payments. Then we look at financial stability – we need to make sure we use a platform that will continue to be there – and I don’t mean that glibly.

The platforms we have chosen tick all the right boxes, but some of it is also historical. We use Nucleus, for example, because we run money for a third-party IFA and it has assets on the Nucleus platform.

Company fact file

Date company established: 2010

Assets under management: Just over £2bn

Number of staff: 94

Number of clients: 2,900

Platforms used: Nucleus, Standard Life Wrap and Novia

DFMs used: KW Investment Management (in-house DFM)

How advisers are matching investments to their clients’ risk profiles

How do you select funds for your bespoke and managed portfolios?
The principals that lie behind our fund selection are that we buy managers, not funds. We are interested in the people running a fund more than the fund itself. Any fund we select has got to fit with our asset allocation and enhance the overall portfolio.

We start with quant screening because there are a lot of funds out there and we need to reduce the number to a manageable level. The second stage is qualitative research where we start off looking at the fund group, performing background checks. We ask ourselves, is the group not going to provide reputation or client risk? We look at the corporate structure and ask, does it work for the investment team raising the money? Are they happy there, do they have a say in the way things are done, do they have the support they need? Are the fund manager and support team working well together? Are there enough analysts?

Then we look at the investment philosophy and investment process. We look at how it fits together, how it is tested, how robust the research process is and what risk management it has in place.

We then drill down into the holdings and see if they are consistent with the investment philosophy and if the whole thing is joined up.

Lastly, we look at performance. We’re not just looking at outperformance of a benchmark or peer group. We want to know, is it what should have been expected? If a fund has a value bias and has underperformed during a growth phase in the market, that would be expected. But if it had performed well, that would have raised a question mark.

What would trigger a change in your portfolios?
If we were concerned about the financial status of the fund group, if we were worried about changes in the corporate structure upsetting the team or a breakdown in the team, and where a fund was not applying its stated investment philosophy. For example, where a value fund is not doing what it said it was going to do during a growth phase. If a fund manager leaves, that would lead to a review.

Other examples are if the investment process has broken down with regards to risk management or holdings are inconsistent with the mandate. For example, if the fund manager says they are investing in one area but they are buying things somewhere else. Finally, any unusual returns would raise question marks.

The impact adopting DFMs can have on client relationships

What are the benefits of your investment approach to the client and to the business?
The seamless integration of investment management and wealth platforms. It puts an experienced independent research team at the disposal of the wealth planning business to select the best funds from the whole of market and it is genuinely independent. It provides complete transparency over the whole of the decision-making process.

Recommended

FCA continues workshops for DB transfer advice firms

The FCA has said it will continue its UK-wide workshop series on financial advice and defined benefit pension transfers. In a newsletter yesterday, the watchdog confirmed it would push ahead with more “Live and Local” interactive events for representatives of regulated firms with DB transfer permissions. The sessions will feature case studies and practical examples, […]

4

Advisers blame complex regulation for long working hours

One in four advisers are working upwards of 50 hours a week and cite complex regulatory and compliance requirements as the catalyst, Prudential research shows. The 2018 Adviser Barometer surveyed 200 financial advisers across the UK and shows just 14 per cent worked more than 50 hours a week last year. Thirty-two per cent of respondents […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Good grief. I wouldn’t have believed it if I hadn’t seen it in print.
    You buy managers do you? Well you must be pleased having followed Woodford or Anthony Bolton when they left Invesco and Fidelity. You are supposed to be engaged with investments, so presumably you are not interested in what the fund invests in, nor it would seem that you examine the half yearly reports to see stock turnover to establish conviction and trading patterns.
    Personally I am far more interested in what the manager is holding than in the manager himself. Anyway do you really imagine that a fund house is going to say to a manager “Here is several billion, go away and play with it” (Yes it does happen on occasion – a good reason to avoid). Looking at today’s situation, do you want to invest into retail? The UK? Property? I want to see holdings that I consider have traction. Alcohol, Water, Defence, Specific IT (that which is cyber security) and so forth.

    • Calm down Harry. They may have no holdings at all in any of Woodford’s funds, whilst Bolton’s China Special Sit’s IT, though it got off to a bad start, has come pretty good.

  2. Sounds like they’re studiously avoiding outperformance, helping customers avoid nasty surprises such as high returns.

Leave a comment

Close

Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm

Email: customerservices@moneymarketing.com