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Advies: Walking The Line

We talk to Alex Reynolds, from City adviser Advies Private Clients, about the company’s investment link-up with FE. And why these arrangements don't need to mean a wholesale surrender of independence

 

If you think all City advisers are towering institutions with a hundred client-facing personnel and whole squadrons of admin staff beavering away behind the glass walls, think again. Number One Cornhill, right beside the Bank of England, is home to a small but ambitious firm of advisers who have been exploring the possibilities of outsourcing some of their its investment activities to a bigger and better-connected firm. In this case, FE.

Advies Private Clients has been running in its present form since 2006, catering predominantly for a London-based clientele comprising high net worth individuals, city professionals and small to medium sized companies. The firm has grown its flourishing client base organically, almost exclusively through personal recommendations, and it now has seven advisers and four support staff, with a rather impressive online presence.

And yet, just as much as any provincial one-man-band, Advies has been feeling the weight of RDR – the legal obligations, the exams, and the endless, endless compliance. Which is why, like a growing number of modest operators, it’s been turning to outside help for its investment management. Last year, after two years of research, Advies finally signed up for an investment relationship with FE.

Doing Things Differently

Now, it’s at this point that hackles tend to arise in some quarters of IFA Magazine’s readership. And not surprisingly, some will say. What’s happened to the I in IFA, some of them will demand? What about the clients who are going to find themselves forcibly shunted into model portfolios whether they like it or not? What does it mean for client service when an adviser’s decisions are outsourced in this way?

To which Alex Reynolds would probably reply, why the question? Nobody has shifted the clients’ portfolios willy-nilly across to the FE portfolios, and nobody is going to force them to go. Advies retains a high degree of autonomy vis-à-vis FE, including the right to ignore or to disagree as loudly as it likes. Which is exactly as it should be, since the regulatory buck still stops with the adviser, no matter who’s making the decisions.

A Conventional Basis

As we’ve said, Advies is predominantly a private client business, but over the past 18 months  has developed and  grown its involvement in running pension schemes for various companies – an activity, says Reynolds, that will continue to pick up speed as auto-enrolment kicks in across the system. Aside from his expertise in investments, he also  specialises in high new worth mortgages, an area that he and the partners of the firm have developed within Advies, , whilst maintaining focus on the investment and financial planning requirements of their clients. Organising mortgages in the City is easier if you’ve got good connections with the private banks, he says. “And that can often help us to get better rates than you’d find on the high street, but also a more flexible approach to underwriting.”

But the cornerstones of Advies’ business are conventional. “Retirement planning, investment planning, financial planning and mortgage planning are the basis of what we do,” he says. Mortgages have the advantage that they can open the door to younger clients – because a mortgage is often the first bit of financial planning that they’ll do. And a lifetime relationship may be built from there.

 

Relationships with FE

So how did Advies’ relationship with FE develop? “Previously,” he says, “we’d been advising clients on funds, and we were running our own investment committee and organising manager meetings with clients, and so forth …But the trouble was, there are a very large number of funds in the market, and it was getting very difficult for a small firm like us.”

“Keeping up with all those funds was impossible within a realistic timeframe. So we were looking for a research firm that could help us to bring down that surveillance list significantly and help us to build up model portfolios.”

“We started out by using FE’s Analytics software, as our first foot in the door. It’s a really useful piece of software which is great for data, and great for reporting to clients. But last year, after about two years with the analytic software, we finally approached FE when they launched their own model portfolio service.”

Thorough Research

The choice wasn’t simple. “We looked at different options in the market. With some set-ups, you would go straight to a discretionary fund manager, and they would then effectively have your client and manage the relationship. Whereas we wanted to keep control of the client – our client! –  and in that situation, what are you actually doing with the relationship? You’re basically sitting there nodding your head.”

“DFMs do things in many different ways,” says Reynolds, “but what they really do is very commoditised, and whilst you might think your client’s getting a bespoke service, it’s not actually like that.” He agrees that RDR has provided a great opportunity for DFMs to tailor their activity toward IFAs, but he feels that too many just push their clients into a basic model portfolio.

A Gradual Process

“We didn’t want that,” he says. “We wanted to be very much part of the whole process – to use someone external for the research – but also we needed to remember that the final responsibility rests with us, the advisers, whatever we do. So we want to make sure that we still have the final say on everything that our clients invest in.”

Do you still have an investment committee, we asked? “Yes, it meets every two months, which ties in with FE’s six-monthly reviews, and we still sense-check everything that FE tell us. It’s only relatively rarely that we don’t go ahead with what FE propose – but it’s always an option.”

“We’re going in very slowly, testing the water as more of our clients opt to make the switch. Obviously every single fund switch has to be agreed with them and approved by them, because we don’t do things on a discretionary basis at Advies. That was previously a lot of paperwork, but  we have recently built and successfully launched a bespoke system within our website to notify clients of changes and record their acceptance, which will save significant time moving forward.

Keeping the Client Informed

One obvious advantage of the relationship, he says, is that you can pull down information from FE to show your clients. “Absolutely, the eventual plan is to have that information from FE available on our website as well. And FE provide us with monthly reports that we can share with our clients.”

“In fact they also do weekly investment bulletins, but in our situation that would have been overkill, so we’ve asked them instead for a quarterly bulletin which will give our clients a bigger-timeframe update on what’s going on, and what the market’s expectations are.”

“Obviously we could have done all that ourselves, using information from fund providers. But we think having it from an independent source is the best way forward.”

Flexible Feedback

You’ll have gathered that Advies have insisted on shaping the relationship in a way that suits them. “We were one of the first firms to sign up,” he says, “and we’ve actually been fairly vocal about what we like and don’t like. And they’re responding well. It’s a work in progress, and for firms like FE or Morningstar that’s how it’s always going to be, because there are rules and regulations that are constantly changing.” Then there’s the fact that every adviser’s compliance basis is slightly different, so firms like FE have to stay flexible.

So what’s next? An improved focus on financial planning, says Reynolds. “When we looked at the time and resources that we were putting into investment management, we just didn’t have the time to do what FE are doing for us. And we didn’t have that kind of access to fund managers. They’ve saved us a significant amount of time in putting portfolios together. And we now have more time to focus on other activities.”

“We still go and see fund  managers, obviously. And if we ever disagree with FE about including or not including a fund, we won’t be shy about letting them know. That’s the advantage of working with a fully independent firm.” 

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