GBI sat down recently with Nick French CDO at Blackfinch to talk about why he is passionate about helping advisers build value in their businesses, his views on alternative asset classes and the role of tax efficient products as part of holistic financial planning.
GBI: Who are Blackfinch and what is your role in the company?
NF: Blackfinch is an investment company that offers financial advisers’ access to tax-efficient products, single strategy investment solutions and multi-asset solutions. We also provide short-term lending for real estate, funding for disruptive tech businesses and financing for renewable energy developments. The group has been running for over 24 years. I have responsibility for the sales and marketing efforts across our product range. Both I and the teams at Blackfinch are on a combined drive to make a real difference in the marketplace overall.
“My background gives me a unique perspective as I have spent the last 25 years plus focused on helping advisers grow their business and I spent many years with Russell Investments focused on practice management strategies for advisory businesses. I was looking at their business as a whole and offering strategic guidance and direction to ensure they could improve their product, the service, and the solutions that they provided for their clients.
“I was involved in several major acquisitions and sat on the board of a network of 500 advisers. I subsequently did some consultancy work where I got involved in the other side of the M&A deal, which was with adviser firms selling to acquirers. I’ve also been involved in multi asset distribution, and I was CEO of a platform that was launched before subsequently joining Blackfinch.”
GBI: Can you talk us through the importance of diversification and the effective use of alternative asset classes?
NF: “If we were talking about diversification more generally, the concept of spreading your money between different asset classes is not a new one. Currently, a technique of diversification with alternative asset classes would be to go and buy an alternative asset fund, an infrastructure fund, a global property fund, or a commodities fund. We could identify those alternative asset classes but what we asked is whether there is a different way of doing this via an open-ended vehicle or in fact could you do it through tax vehicles that have additional tax benefits to them. What I wanted to assess, to begin with, is whether these different types of asset classes could be incorporated into a person’s overall portfolio and what impact that would have on a traditional asset allocation.
“This was the driver when we set out to do some recent research, and it was genuinely an uncertain outcome. I wasn’t sure if some of these alternative asset classes would increase the risk or whether it would decrease but what we discovered, which we outline in our latest paper, was that by adding these alternative asset classes into the mix we essentially achieved an increased level of return with broadly the same level of risk.
“Ultimately, portfolio optimisation is the main objective. We constantly must ask ourselves can we get exposed to greater levels of return but for similar levels of risk? In the first part of our research, we explored the idea of diversification of asset class and what we wanted to explore in the second half was what if you are to incorporate these tax products into those asset allocation? Instead of going to buy a certain open-ended structure, you could go and buy an unlisted tax product such as a venture capital trust.
“What we were trying to establish is if you could put them together with the right advice, the right tax advice, and a holistic view overall of a client’s portfolio, could that give a framework that is more effective than a traditional approach? This would potentially provide an additional return premium for the same level of risk but on top of that there are these additional tax benefits available through government schemes such as Business Relief, EIS and SEIS.
“There are, of course, additional risk factors with these products as they are different structures and different shapes. But that’s where the central part of this is key, the essential part is the adviser who must be in the middle of this. So, this is why financial advice is so important. To demonstrate the value of advice it requires the adviser to look at the whole client holistically, which we know they already do. But what we wanted to do in the paper was explore this idea that not enough people are buying tax products.
“Various studies and statistics have been published and we’ve done our own research, and it’s estimated around 80-83% of advisers are not buying tax products. This means we have this situation where we’ve got these great products that can really help, and they are being underutilised.
“The challenge for us is to try and make sure that the message reaches a wider amount of people because when you get into it there are several reasons why people choose not to engage in alternative asset classes, and a lot of that is around experience and comfort, fears of increased costs or it being too complex.
“However, when you explore those queries in greater detail, the perception is not necessarily always a reality. For example, when you talk to some PI brokers, they can generally be okay with this as long as it’s done within a framework, within clearly defined processes and parameters and it is part of good holistic financial advice.”
Ultimately, Blackfinch’s plan is to support and educate advisers on the benefits of tax products and their use, whilst keeping the risk levels aligned to traditional asset allocation.
GBI: Could you tell us about the role of tax products in a portfolio, how aware are advisers and investors of the usefulness and potential of them?
NF: “We have produced our own surveys on this exact topic, and we came up with some enlightening statistics. In essence, most high net worth individuals were either not aware that there were tax products available that could mitigate tax, and even if they were aware they did not own them.
“Al clients have unique circumstances, but I think it’s important to stress that overall, most clients follow what their advisers suggest because of the high- quality of the relationship which is based on the values of that adviser. As clients typically tend to go along with the advice that they’re given, that tells us there’s an education piece required to make sure information is made available to more advisers in more detail.
“If advisers are made more aware of these products, we can make sure that we put our information in the right language for the clients and that documentation and explanations are clear. Besides, not all products are the same from a risk perspective and as I mentioned earlier a lot of PI insurers are satisfied if these are being used as part of holistic financial advice specific to the individual client.
“What PI insurers don’t like is an extreme situation where a client with £1,000,000 in total assets is entirely invested in a VCT. But an exposure of 10% to VCT’s could be deemed suitable in the right circumstances depending on the individual client. What we’re saying here is it provides the advisers and the clients with the right information so they can see how these things can benefit them.”
GBI: Do you think some advisers currently don’t have the time to go through that learning period to start with before they can start offering alternative asset class solutions to their clients?
NF: “As I said earlier, I think advisers are busy and they’re working incredibly hard. They’re doing a great job. We intend to support the learning and development needed for advisers who are maybe new to this area.
At Blackfinch we believe there’s a greater risk in not engaging in these types of investments. I say this because if other firms do start developing an ability to do so, current larger clients could either be unhappy or dare I say, potentially end up leaving. As well as that you may have disappointed families left with huge inheritance tax bills because no actions are taken.
It’s important to understand the various tax mitigation strategies available to your clients. Exploring them going forward, especially in the light of consumer duty is essential, as is making sure that value and products are appropriate for the individuals.
If anyone would like a copy of the latest diversification discussion paper from Blackfinch, please email enquiries@blackfinch.com
