Uphill, Downhill, Ever Onward

by | Mar 9, 2015

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Cedric Bucher, Head of UK Sales at Architas, talks to Neil Martin about Risk, Diversification and the Shortage of Skiing in London


 

In Switzerland, it seems, you have two main career choices: skiing, or financial services. When the call didn’t come for Cedric Bucher from the national downhill skiing team, he chose financial services.

More on his background later, but when Bucher talked to the IFA Magazine about his role as Head of UK Funds at Architas (he manages the sales, marketing and distribution teams), he seemed comfortable enough with spending less time on the slopes and more time travelling around the UK, meeting and liaising with IFAs.

Time On the Road

Architas is the investment and multi-manager specialist arm of AXA Wealth, which itself is part of the AXA Group. Operating in some 56 countries, the Group has €1,113bn assets under management and 102 million clients. Underlying earnings stand at just shy of €5bn from €91bn revenues.

Bucher was upbeat about his view of how IFAs have coped with the changes forced upon the industry. “I feel more proud to be working in our industry now than I did ten to 15 years ago,” he told us. “I’ve seen various advice channels, previously bank-led independents, and I think that the quality of IFAs has improved significantly. Their qualifications, their approach, their processes.”

Bucher leads a team of managers and specialists, and he likes to see his role as building long term relationships with advisers – even though, as he admits, the concept is seen as a little clichéd these days. But understanding adviser’s particular requirements is a key element of his job.

He also believes it cannot be done from a central location. “I think it continues to be important to have actually a staff on the ground, in the regions,” he told us. “And as a result of that we have invested in distribution. We’ve now got five regional distribution managers, who are supported by telesales, but I think it is important to spend time with advisers, so as to really understand the business, and for us to be able to work with them.”

Bucher believes that advisers are well set up for the future. “What people often forget is that most advisers are self-employed entrepreneurs, so they tend to be very smart and know how to run a business.”

“They have clearly understood what RDR means, and clearly they have done everything that is required to be compliant. A lot of the initial focus was on fees and general regulation – but the other focus has been on education and building a tighter proposition, and that has clearly happened in the market. I am enjoying it a lot, working with advisors; we have very good conversations.”

Blended Approach

And those conversations centre around a number of key areas of focus for Bucher and his team.

He explained his approach with advisors: “In terms of our development, we’re launching and developing our products in line with their needs. We started with multi-manager funds, obviously, and then around the time of RDR we focused on our risk profile range, where we have active, passive and blended funds.

“All have open architecture, and it has been the fastest growing part of the market. It’s interesting that the initial focus was on active funds then, post-financial crisis, a huge focus on passive funds. At times we had 70% of new business going into our passive range, and we now seem to have settled in the middle which is our blended range. People now have about 50% active and 50% passive funds.”

“Within the risk profile part of the market,” he continued, “the blended approach seems to be the most popular and enduring. That works really well – and obviously now, with the market developing, we’re looking to add new products. So with the budget announcement last year, we are expanding our income range.”

The Pensions Freedom Opportunity

“We already manage around £800m of income generating assets, but we want to grow that going forward, so we have recently launched a real-asset fund which generates a good yield, and we are adding another fund later this year, again in a non-risk profile diversified income type fund.”

With retirement currently uppermost in many people’s minds, Bucher said that he sees this as a big opportunity. “For product platform providers [the April changes] can be quite a big challenge – but I think that for asset managers, everyone can see that it’s good news, and I believe there will be a lot of product development in the income space.

Protection – Harder Than It Looks?

“I think we’re well positioned to tackle that, but I think there’s going to be potentially a lot of thinking around investment funds that offer some sort of protection, or guarantees. On one hand I can see clearly that there is a demand for such products, because there is a need for such features. But what I’ve seen in the past is that whenever I have looked at these products, they can be quite tricky insofar as they are not terribly transparent. And they can be quite expensive.

“I wouldn’t be surprised if more providers bring to market products which offer some sort of a guarantee, or protection. But, at the moment we’re not going that route here at Architas. What we’ve seen is that with a good diversified low risk portfolio, you can offer good downside protection at a reasonable price.”

 

The Problem with Income Investing

Another challenge from the latest retirement changes, Bucher believes, comes from income investing. It’s always been popular in the UK and the US, he says, but it will become more so over the coming years – which means that more assets are going into income generating assets. And that causes him some concern.

“We’ve done some research, and it shows that the correlation of income generating asset classes is very high. So if you look at high yields and emerging market debt as a pair of asset classes – or high yield and high dividends, or emerging market debt and high yield, all of these assets classes turn out to be highly correlated.”

“So if you’ve got a problem at some stage in emerging market debt, and let’s say, in high dividends, it’s likely that they will fall at the same time. What we’ve done is a lot of research about alternative sources of income out there, such as infrastructure, or specialist property, or like aircraft leasing, or ground rent.

Basically what we’ve done is grouped all of these alternative sources of income into one fund and called it Real Assets. And I think it’s an attractive option on its own, which will fit extremely neatly alongside other income funds, as a good diversifier.”

Dealing With the Advice Gap

Asked what sorts of things keep Bucher awake at night, he says he is worried that smaller investors are slowly becoming disenfranchised.

“One area that does worry me, like everyone else, is the advice gap that everyone is talking about, because one of the results of RDR is that investors with smaller amounts to invest are not profitable for advisers to have on their books. They are effectively on their own, because the banks are no longer serving them, the advisers are no longer serving them, and I think as an industry the B2C offering is not good enough at the moment.”

“If you compare what banks have done over the last ten to 15 years, in terms of their online and mobile offering, it’s fantastic. Many people bank via the mobile phone these days – and we’re quite a long way from that, so I think that that is something collectively we should invest in and explain what we’re doing in a much simpler way.”

The Road to Here

As for his original choice to become involved in the financial services sector, Bucher replied with only a little wistfulness. “I grew up in Switzerland, and I wasn’t good enough at skiing, so I ended up in financial services – basically the only alternative there.”

“I started in consultancy in my early days, but always in financial services, some banking, some insurance, some asset management, I’ve been in the UK now for about 15 years and I’ve always worked in the multi-manager area, but that was my way into the industry.”

As a Swiss, he came back with an answer worthy of a diplomat when I asked why he had chosen London to develop his career rather than mainland Europe?

The two are not unlike, he explained, but there was one big difference. “Generally in continental Europe, the asset management distribution is still more bank-led. Whilst I think in the UK it’s very much adviser-led. All the banks have pretty much stopped serving that part of the market.”

Interestingly though, he pointed out that many advisory firms across Europe are now going through their own form of RDR and trying to get to grips with a new regime.

So what does he do with his spare time when he isn’t talking to IFAs or skiing (very difficult in London, he admits)? Well, he says, he enjoys good food and travelling. Ideally at the same time….

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