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.
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.
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.
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.