Darren Lloyd Thomas, principal of Pembrokeshire-based husband and wife team Thomas and Thomas has been extremely selective in how and where he is willing to outsource since he set up his business 6 years ago.
He believes that as he always has responsibility for his clients, it is case of drawing in external expertise in select areas, rather than handing over assets or compliance to external providers.
The business started life in 2006, after Thomas and his wife Lisa tired of the daily commute to Bristol. Both had been part of larger organisations and felt they were sufficiently well-qualified with a robust business strategy to run their own firm on a fee model.
At the start, they knew they needed the support of a network and therefore began life as a small appointed representative firm. They maintained this structure for eight or nine months, to get them launched and provide some breathing space to help build their capital adequacy. However, they quickly moved to being directly authorised. Six years on, they have £23m in assets under advice and are one of 300 chartered firms in the country.
Thomas says: “We consider ourselves a ‘new model’ adviser. We haven’t taken any initial commission in the five years we’ve been in business. We have a proactive and a reactive offering. For the proactive model, we charge 1 per cent of the portfolio’s value and do four quarterly reviews a year. We write and record switches and then we do a full annual review, portfolio maintenance, tax planning and Isas. For our reactive service, we review the portfolio once a year, charge 0.5 per cent and any additional work is done on a fee basis.” Everything they do is advisory not discretionary. As a result, the group’s typical client wants to be consulted when things change and wants to be nudged in the right direction.
The group has decided that it does not want to outsource investment management for the time being, believing they have a sufficiently robust process in-house. However, this requires drawing in outside expertise, so Thomas makes extensive use of Financial Express tools, in particular their Analytics system. This enables him to back test the group’s five benchmark portfolios, which run from very cautious to more speculative.
Although the group devises its own asset allocation, Thomas will cross-reference their decisions with the Verbatum tools on SimplyBiz and the Spectrum range from Skandia, plus model asset allocation from Towers Watson and Morningstar. “We like to check that we are steering a middle course. We don’t want to move too far from that, but we are still holding the responsibility in-house.”
Within the group’s model portfolios, the aim will be to blend different types of funds together to achieve the best result. Thomas believes in the diversification arguments put forward by Harry Markowitz: “We will try to match a boutique fund with a top-down fund. We meet the fund managers and have a good relationship with the individual fund houses. We know you can’t just pick from the figures.”
For fund selection, Thomas will make use of Morningstar and OBSR ratings to help them make decisions. However, a lot of the work is done in-house by Lisa and the group’s paraplanner, Matthew. This has entailed some sacrifice: When they launched the business, both Thomas and his wife were keen to be advisers, but soon realised this would be impossible because of the compliance burden.
They took on Matthew, the paraplanner, as a trainee. Thomas wanted someone ‘fresh’ rather than someone who had grown used to the old commission model. He has done his CII exams and, while that has been costly, the decision is now hitting the sweet spot: “I can leave him to write the lion’s share of the documentation,” says Thomas.
As far as the clients are concerned the investment is done completely in-house. Darren likes this system because it means that he can answer anything in relation to an investor’s portfolio. He can tell a client exactly why he might be using more or less gilts: “We’re being paid to provide a service. Everything should have your hands on it.” He believes that this focus has ensured a good result or clients, with every portfolio ahead of its benchmark over five years.
Thomas did consider outsourcing to a discretionary fund manager but did not like the idea of handing client assets to a DFM and then ‘washing his hands ’ of them. “We wanted to take ownership. The client is going to hold the adviser responsible whatever happens.” That said, Thomas is not averse to using a multi-manager fund if it works for an individual client: “For some clients an off-the-shelf solution is the right one.
The firm uses Skandia and Cofunds as its main platforms but will also use Transact. Its compliance adviser is SimplyBiz, but the group adapts its basic formula to suit its needs. He says: “The good thing about SimplyBiz is that it does not force its views on us. Its view is that it’s my firm and therefore my call how I run it. I think the SimplyBiz process would work well for smaller firms without investment expertise, but we have always had our own process and we are sure it is robust.” Thomas says he has received a lot of support in building his business from the platforms, particularly Skandia.
Thomas has made judicious use of external providers to retain his independence and offer the service he wants to his clients. It has meant that he has had to shift some of his initial plans for the business but it has enabled him to grow his client base rapidly.
Underpinning the advice
Compliance: Simply Biz
Number of advisers: one
Number of staff: three
Platforms used: Skandia, Transact, Fidelity and Cofunds
Investment strategy: In-house
Estimated assets under advice: £23m