After starting from scratch in 2015, Chris Holmes has striven to cater for his clients’ appetite for ethical investing to give Almus Wealth the right ingredients for success.
On their way to suspending disbelief at a West End show, clients will often pop in for a portfolio health check at Almus Wealth, a firm that brings clients closer to the reality of their investments.
Chris Holmes’ London-based advice firm specialises in social impact investing (SII) and socially responsible investing (SRI), an area Holmes hopes will drive the young business forward. But the adviser remains pragmatic about the risky nature of SII and the fact it is not for everyone. Indeed the decision to go ethical was a personal choice and came to Holmes after a period of soul searching.
‘I have two older children and one much younger. They are quite socially motivated,’ says Holmes.
‘[I came to this decision] after having quite a serious talk with myself about what I did and what I think we are passing on to the next generation, as I am concerned the state is failing in what it is doing. I feel society needs to pick up the pieces.
Holmes is convinced there are a lot of clients who feel ‘there is a detachment between them and the way their money is being run’.
‘Social impact investing provides that proximity,’ he explains.
CHRIS HOLMES CV
- 2015-present Almus Wealth Management, director
- 2015-present Citizens Advice, MoneyPlan adviser
- 2015-2016 Personal Finance Society, chair
- 2011-2015 Alan Boswell Chartered Financial Planners, director
- 2007-2011 Origen Financial Services, head of professional connections and large corporate
- 2004-2007 Mazars Financial Planning, financial planning manager
- Chartered Financial Planner
Two years ago the father of three and keen baker left Norwich-based firm Alan Boswell to set up Almus where he is sole adviser. He bought the advice business Armstrong Financial (a New Model Adviser® cover star firm in 2009) from Keith Robertson one year later, in March 2016.
Robertson no longer advises but lectures on investment risk at the Chartered Institute for Securities & Investment and continues to work with Holmes as investment risk consultant for Almus where they are rethinking risk.
Holmes says mainstream investing, in the current climate, has its own set of risks, and he has built his business model around this.
‘I have been concerned about where markets are, whether they are overvalued, where we are in the cycle and about investment risk,’ he says. ‘I have also been concerned about the way we, as a community, measure investment risk.
Holmes says advisers are currently too focused on the ‘rear view mirror’ and are not asking clients enough questions about the future. Almus Wealth uses software from consultants Oxford Risk to measure a client’s attitude to risk, beginning what he describes as a ‘filtering’ process.
‘The real risk is when clients see their portfolio drop by 20% to 30% and their behaviour becomes completely irrational,’ says Holmes.
‘The question is whether they would buy something they thought was overvalued,’ he says. ‘If the answer is "no" then we talk about the options we have for measuring that risk and managing that risk.’
A number of Almus’ clients are serviced on a ‘guardian’ basis, which means they are referred to the firm from a legal or accounting practice, mostly for one-off pieces of work.
Although Holmes cannot rely on these clients for a recurring income he is happy with the model.
‘We offer two services,’ he says. ‘One is wealth management, I charge 0.5% on that, and one is a guardian one where we do a bit of work and then hand them back to the introducer because we have done the regulated bit [the lawyer or accountant] could not do. We charge on an hourly basis for these clients.’
‘My hourly rate is £225. I use these rates to calculate the scope of work and likely time to complete the work for the client, which is presented as a fee budget,’ he said.
The 0.5% fee applies to all clients, with wealthier clients invited to discuss a discount based on the type of service they want.
Holmes does not segment clients any further than that because he does not feel comfortable with cross-subsidisation.
For new clients Almus offers one or two free sessions at the outset to see if the working partnership is suitable, followed by a fee budget for initial advice, which is referenced to time costs.
‘It is done that way because, although advice is ongoing, the bulk of the work is at the outset,’ says Holmes.
From that point onwards, Almus will do client reviews at least once a year but often much more regularly.
More on the menu
As part of an attempt to avoid large drawdowns, the firm favours investment managers that measure market stress.
Canaccord Genuity is a Canadian discretionary fund manager (DFM) that has a market stress indicator. Holmes says he would like to work more with the company.
‘I’m conscious that investment managers do not get paid unless they invest everything,’ he says. ‘The client, adviser and investment manager may each have different motivations.
‘What I want to do is work with those where we are more keenly aligned.’
Holmes: active managers have the edge in ‘inefficient markets’
There is no cut-off point for placing clients in model portfolios; it depends on their preferences for cost and value.
‘For investment managers with the resources, who have the ability within model portfolios to invest directly in mainly UK equities and bonds, this keeps costs down quite comfortably. We think this is a really good approach, especially where dealing costs are low,’ says Holmes.
Clients with over £100,000 would be considered for a DFM, with Holmes’ preference being to work with fund managers like Canaccord Genuity, which use a market stress indicator. He believes going active can add value because of the ability to adapt to market sectors.
‘Do I think there’s value in active fund management? It just about falls down as a yes, partly because I don’t think markets are efficient,’ he says.
‘There are three main sectors making up the vast majority of market capitalisation of the FTSE 100: banks, oil and pharmaceuticals. And we know what has happened to oil companies over the past few years.
‘Active managers are able to look at and then discount sectors if they are doing it well. If you are buying passive you don’t have that option,’ he said.
Food for thought
Because of its social investment angle Almus is strongly focused on understanding client values, and Holmes wonders whether, as a profession, it is something advisers spend enough time doing.
‘Usually [asking if there is anything clients do not want to invest in] forms one question in a fact find,’ he says. ‘But if we ask about values, as opposed to whether they want to invest in tobacco, then you get a lot more out of the client.’
SII allows clients to invest in a social enterprise or a charity, which could focus on helping the homeless or finding work for young people in the local community.
Holmes believes this is an ideal opportunity to connect with wealthy clients.
‘For some clients their motivation for SII can be quite strong,’ he says. ‘For example if they have covered everything off, and they have enough money for them and their children and then feel they want to put something back in. They are really good clients.
Examples of SII funds currently available to retail investors are the Resonance Bristol SITR fund and Bright Futures fund, which have undergone due diligence by social investment consultancy Worthstone, which is used by Almus.
Just as Almus outsources its investment management for mainstream investors, it is keen to maintain a similar methodology for ethical investment clients.
Holmes has discussed outsourcing to King & Shaxon’s ethical investment proposition and already has clients with Rathbones Greenbank.
‘We are aware there are "ethical" portfolios from more conventional managers but we value the expertise from specialist managers, who are batting on our side in terms of activism and research.’
Separating the mixture
Because of the higher investment risk, even for enthusiastic clients, Holmes errs on the side of caution by not allowing them to commit all their money towards ethical investments and by keeping the portfolios separate.
‘Social investment carries greater risk and clients need to understand that the potential loss of this capital will not impact on their lifestyle – in the same way as enterprise investment schemes or venture capital trusts would,’ says Holmes. ‘The client motivation is different as they will want this capital to be allocated to a particular social need, which they may be close to.’
SII is a relatively new innovation, he adds, ‘and there are very few retail products that are geared towards it’. However the tide is turning with the government broadening social investment tax relief in April, which will lead to a wider variety of products.
Out of the frying pan
Wanting to keep the firm small and nimble, especially in the face of technological innovations, Holmes joined the Best Practice network when he started his business venture in March 2015.
Holmes does no marketing. His model and growth depend on maintaining good relationships with his clients and a small set of accountancy and legal firms.
Clients tend to be private clients but Holmes also advises on auto-enrolment and business development – a little too much in fact. Holmes says one of the biggest challenges he has found is taking on too much.
‘Having started out with the aim of working in a certain way it is easy to get diverted,’ he says. ‘I need to become aware of when things are getting too big and cut these down before they start to take hold.
‘Auto-enrolment is a great case in point. I am doing a lot of work around that including financial education. It does not bring in recurring income but I like doing it,’ he said.
Looking ahead, Holmes admits lacking the desire to ‘take over the world’ but says he wants to continue working on what he is good at.
‘I have been around for a long time and have accumulated some clients and introducers over that period. It is going pretty well to plan. I don’t lose much sleep,’ he says.
‘I have no desire to be part of a large regional practice. I have worked in them and some do it very well.
‘But advisers are hard to manage and a large number of advisers is really hard to manage. I don’t want to be in that position. I would like to better refine what I am doing; my proposition,’ he says.
Social investment will be a core part of that proposition.
FIVE TOP TIPS
- Be selective when you seek guidance about evolving your business.
- Advice is changing and we need to be open about how we will be affected, and change accordingly.
- Put yourself in your client’s shoes when making decisions on their behalf.
- The first client meeting is the most important; really embrace the ‘discovery’ process.
- Encourage clients to engage with their plans and feel close to their wealth.