Credo Wealth is proud of an investment process which shuns short-term fads and of taking a holistic view of its clients’ financial wellbeing. The result has been impressive organic growth.
Justin Urquhart Stewart, one of the co-founders of Seven Investment Management, explains his firm’s approach to building cost effective portfolios for a diverse range of clients.
The seven of us got together because we were extremely frustrated by what we saw in the industry – which was an industry primarily designed for the benefit of the industry, rather than for its clients. We were thinking about designing a facility and service which would actually provide value for clients, on the basis that if we can make the client wealthier then we can earn more. We wanted to do away with some of the things like trading commissions and all the extra charges and inactivity fees we had seen around the industry. We were coming at things with a sort of radical common sense to try to find a better way.
Of course, this was 2002 so a lot of things have changed since then, but we were looking to do things like broad asset allocations and no commission fees which are only now common. We also wanted to make things transparent so people could really see what is going on with their portfolios and to ensure that everything is really cost-effective by removing all those other charges. That’s still not necessarily very common at the moment.
We wanted to create a firm with personality. It’s not just an investment business; it’s a people business backed up with really good technology. One of the founders had his own software business and had written all of the cutting-edge front-end trading systems for one of the UK biggest stockbroking platforms. With this software development capability in-house we were able to design an investment process which minimised volatility, improved predictability and made things as cost-effective as possible. In many ways, we wanted to bring an institutional-style investment management discipline to the retail world.
Our ambition was to be able to offer to everybody – from those with £1,000 in a fund through to people with several million pounds – an investment process which would be the same. The service may differ, because with more money you can afford to offer a more personalised service for people, but we wanted to provide all clients direct contact with someone who has really good investment knowledge.
Typically, our clients are families with a net worth of somewhere between around £200,000 and a million pounds, with various ISAs and SIPPs and so on within that. However, the average is now creeping upwards towards £500,000 as families are learning to pool their investment resources across the generations.
We tend to focus on family wealth and managing it on a family basis, so there is just one fee for the family rather than lots of separate ones. This means it’s often cross-generational and linked to financial planning where appropriate. Some clients have already had their planning done, while others are doing it themselves, but there are people who want someone to discuss their investment requirements with – someone who is not a planner, who is willing to take a longer-term view on their investments and who will make sure the client understands what is going on through communication which is very clear and straightforward. One of the things I’ve always hated is the huge amount of paper the industry produces, normally printed in black and white, which actually doesn’t really tell you whether you’ve made any money or not. Nor can you sometimes see how much you’ve been charged for this.
The first step is to agree the risk-profile with the client, agreeing the levels of return they need and showing them very clearly their potential to lose money in any one year. We have our own risk-profiles for clients, but we also link them to those of the advisory firms or financial planners they might be using to make sure there is clear risk-profiling going on and that the investment process doesn’t breach that.
The next step is a rigorous process of asset allocation and this works at several different levels. For strategic asset allocation we work with Ibbotson Associates Inc to look at historical data on asset classes and see what the given volatility is across the blend of asset classes. Then we have a tactical view informed by an asset allocation team, many of whom were drawn from external industry expertise on different asset classes. Then we have our own investment team which watches things day-to-day, particularly with regards to issues like currencies, so that as much as possible they can hedge out those risks and use some of those institutional tools to make sure portfolios are within the right risk tolerances.
Yes, as they develop over the years and depending on what their needs are. A lot of people with financial planners in place want a discretionary service because it’s all been laid out for them. Other people want to be able to get more involved themselves. Quite often what you’ll find is that people want most of their pot managed in a way they can see is pretty secure and straightforward, but then they also want to have a smaller portion which gives them access to something that’s a little more interesting and might represent more risk.
People will often have different pots, which might be according to the members of the family. For example, for grandchildren they may be willing to take on greater risk as they’ve got longer to invest, whereas grandparents don’t. So, you give people a level of flexibility for their different pots.
For performance reporting we always had everything online for clients to see with an explanation of what’s going on. However, we realised that many clients couldn’t necessarily understand what we were talking about or just weren’t really interested because they were educated differently or see things in a different way to us. With our 7IMagine app you can see your portfolio on your tablet or smartphone in different dimensions; it moves, you can break it down by allocation, you can see where it is around the world and you can see your performance against benchmarks.
Technology is vital, not just to make it easy to access but to make it interesting for people. When you make it interesting people are going to want to understand it and, when they understand it, then they will appreciate things such as the risk, the return and the value that they are getting far better.
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