Tim Childe, Quilter Cheviot
Quilter Cheviot, part of Old Mutual Wealth, is one of the UK’s largest discretionary investment firms and can trace its heritage to 1771.The firm is based in twelve locations across the UK, Jersey and Ireland and has total funds under management of £21.8bn (as at 31 March 2017). Quilter Cheviot focuses primarily on structuring and managing bespoke discretionary portfolios for private clients, charities, trusts, pension funds and intermediaries. The firm’s Jersey office offers a bespoke offshore portfolio service to international clients.
Who are the natural clients for discretionary management?
Our client base is very diverse. Alongside our private clients, we look after charities, pension funds, trustees and friendly societies. Within our private clients, we have a lot of expats, who are busy working overseas. While they are focusing on their day job, they are often accumulating a lot of liquid assets and need those assets to be managed properly. We also have some ultra high net worth clients, plus individuals who want to plan for the next generation, for school fees or for healthcare. They may be entrepreneurs who have had a liquidity event and want that money carefully invested.
Our clients’ needs are also diverse: They may want income, or liquidity, or long-term capital growth, or a combination of objectives. We help a lot of clients pre- and post-retirement with a variety of investment needs
Do you set a minimum level of wealth?
There will always be a sum below which a collective pension strategy could be a better option. We do have a cut-off, though it varies with each region. That said, we do monthly savings plans up to full scale discretionary management. The entry level is generally not as high as most people think. Equally, our clients get the same level of service all the way up. We take pride in our process and application.
What is driving demand for discretionary management?
The regulatory backdrop is changing. Regulators are increasingly scrutinising firms that provide investment management and advice. There is also recognition that this is a very specialist function, particularly if you want to give clients the best reporting and research. Professional advisers are now focusing on MiFID and MiFID II, which brings a whole new set of hurdles.
If an adviser has a significant independent research capability, that is a good starting point. However, a lot of professional advisers are one-man bands. We are starting to see a real understanding come through of the complexities of investment management. Advisers need to look for an expert with full accountability, who can do it properly. This is transparent for clients - if the discretionary fund managers doesn't produce the returns, they can be dispensed with and advisers keep their reputation in tact by appointing new managers.
How should the relationship between an adviser and a discretionary fund manager work in practice?
The partnership between a discretionary fund manager and the investment adviser is critically important. The discretionary fund manager must respect the adviser’s relationship, complement and enhance it. They should help protect the reputation of the adviser.
How do you feel about the advent of robo-advice?
Central bank policy and the move to a zero interest rate policy has had a very broad and positive impact on financial markets. A rising tide has lifted all boats, but now normalisation is coming through. The US is leading the way with interest rate rises. Many are not sure how this normalisation will play out in financial markets. There may be greater volatility ahead and, to our mind, there is a real need for active management in that environment.
Passive ‘robo’ solutions can work well if everything is rising, but where we can add value is when clients need to change direction. We can advise whether to reduce or increase risk. That’s the relationship the clients value.
What criteria should advisers use to select a discretionary manager?
A discretionary manager needs to understand the adviser and the needs of their clients. Certainly, external performance consultants can help judge performance, but advisers could also look to reputation: Are they long-established in the market? Do they have a proven track record? Have they won accolades? Advisers would also tend to shy away from companies with lots of in-house products. Our process is completely independent and best-of-breed. Cost is also important.
Our analysts are fully qualified and don’t run any money. They only work for us and they understand accountability. With us, the investment manager is a relationship manager as well. They will take time with clients to outline what investment means, and we do a lot of education. We outline what they can expect of us in terms of the relationship.
There are other stresses in life and people want a safe pair of hands. We have low turnover – people stay with us for a long time. Our staff are well-trained and motivated. They believe in the service we offer. Our clients want consistency and we believe in responding quickly and explaining why we’re doing things.
How should the relationship be managed over the longer term?
Quarterly reporting is an integral part of the investment process. We also provide frequent market commentary. Transparency is key and we show how all our portfolios have fared versus their benchmark. Clients have online access to their portfolios. That said, we believe you can’t beat face-to-face: Everything goes back to suitability. We always want touch points with clients, to understand if things have changed for them. Also, we might want to shift the strategy, so we would consult with them, saying this strategy has worked for the previous six months, but it is not suitable for the next six months.
In our view, it is a two-way partnership – they expect us to provide added-value and manage their expectations and objectives. Our clients are often with us for multiple generations. We consider ours a high technology, high touch approach. We use social media engagement, newsletters, we’ve even got a wine club. These are points of common interest. We recognise that it is the relationship and dialogue that matters most.