Having ceased trading temporarily after his network collapsed, Simon Whitney is ready to rebuild income at Montpellier Asset Management, having taken his time to prepare it for the RDR and put the right team in place.
Simon Whitney, former young farmer and managing director of Montpellier Asset Management, is carefully nursing his small, boutique wealth management firm back to health after a tempestuous year in 2010.
The business is on the road to recovery after it had to stop trading for several months due to the collapse of its network, Alpha to Omega (A2O). Following that Whitney took time to prepare the ground for the retail distribution review (RDR).
Montpellier, named after the picturesque area of Cheltenham where it is based, has been running for 12 years and offers holistic wealth management and specialist estate and tax planning to clients, which include many small business owners and farmers.
It went through various guises before joining the A2O network as an appointed representative in 2004.
Things were going well and the firm moved to a fee-based proposition in 2009. However, in January 2010, the network went into administration due to compliance failings over a number of unregulated collective investment schemes (Ucis) used by one of its members.
‘The problem with a network is you never know what others are up to,’ says Whitney. ‘We had no community there. Unbeknown to us, the network failed to monitor [a rogue member] undertaking Ucis investments.
'At that time, we did not have any exposure to Ucis, so the Financial Services Authority (FSA) allowed us to reauthorise directly. We had a standard application process [to become directly authorised] which, due to the backlog of applications, took from March until November 2010 to be processed.
‘All our fees and commissions went through the network, and once it goes into administration, everything is frozen so you lose your income overnight. I lost both my employees to head hunters. We had to go out and find new staff again.’
Time for business planning
This gave Whitney plenty of time to plan, however, and choose new partners, such as back office provider True Potential.
Having previously advised both corporate and private clients, he decided to refocus on the personal side, working with other professionals and offering an holistic approach, including tax planning.
Last year Whitney took on Spencer McPherson (pictured to the right) as a technical consultant focusing on tax-efficient investments and estate planning, and Elizabeth Langford as office manager.
In 2011, he took on client relationship manager Andy Passman, who offers a different take on client meetings, as he is qualified as a neuro-linguistic programming (NLP) master practitioner.
McPherson says: ‘Andy uses his skills to make sure we have a more solid understanding of clients’ aims and objectives. Clients often do not know what they want to do with their wealth and how to unlock it for their future lifestyle. [Once we have a clearer idea] Simon can the give them the advice. But NLP doesn’t work for all clients.’
Whitney says: ‘It is a lifestyle planning approach: trying to drill down on client concerns. You want them to open up and [NLP] is a very good fit. Andy uses his skill sets on top end clients and it gives us a better idea of whom we can move forward with.
'People who are wealthy and entrepreneurial can be quite difficult, and Andy is there to gain their confidence by understanding their psychology. He explains the proposition to them as well; that can take an hour. That means we can go into the planning side straight away.’
The firm mainly services clients with an asset base, including property, of £2 million to £10 million. They are generally older clients with successful family businesses and include some farming clients, many of whom came through Whitney’s links formed while a member of Young Farmers in Hereford.
‘I was brought up in the countryside, says Whitney. ‘Farming is a very close-knit community. We also have a referral relationship with an accountant who has clients in agriculture. We have had quite a few farmers who have sold their farms and need planning to mitigate inheritance tax. We have always tried to position ourselves at the high end, as that is where you will have the most enjoyment working with clients and a good remuneration.’
Whitney says he does not necessarily like to measure his business in terms of assets under management. ‘In true fee-based, holistic financial planning, you step away from the liquid assets,’ he says. ‘Many clients are land owners and need advice on [how to manage the land most efficiently]. Those are not investable assets.’
The firm also has five solicitor and accountant referral relationships and one with a venture capital firm.
Last year the firm’s website was redesigned with a strong focus on estate planning and wealth management. ‘We have a good search engine optimisation operation and we have localised that to Cheltenham,’ says Whitney
McPherson adds: ‘Before, the brand was more formal, now it has become softer.’
Searching in-depth for passives that fit an up-to-date model
Since November 2009, Montpellier has been using model portfolios on the Novia wrap. Before that, it used asset allocation models but constructed portfolios individually for each client.
‘We decided we wanted to move away from active fund management towards passives and exchange traded funds [ETFs] as the vast majority of active funds do not beat the index to which they are aligned to...,’ says Whitney. ‘The model portfolios are now about 75% to 80% passive. We have implemented the Core Satellite philosophy which is an investment strategy that involves a core element of passively managed investments with the satellites being represented by some active funds that have the potential to outperform and also can cover exposure to smaller markets where fund managers can sometimes add value. The vast majority of active funds do not outperform their index, but there is always a small percentage that does and they can come into their own in [non-core] markets.’
The firm outsources asset allocation to Morningstar’s Wealth Forecasting Engine and asset allocation firm Ibbotson Associates, and uses a fund selection tool provided by Novia.
The last major change the firm made, says Whitney, was to decrease fixed income exposure in favour of equities in the summer of last year because of the potential for the interest rate cycle to change in favour of equities.
Portfolios consist of around 20 funds. Some of its most commonly recommended ones are Vanguard US Equity Index, iShares MSCI Emerging Markets, Premier Pan European Property and Octopus UK Micro Cap Growth. Some ETFs are used to gain exposure to specialist areas, such as the Far East.
‘The asset allocation model diversifies into about 15 asset classes, so it goes off into commodities and gold for example,’ says Whitney. ‘It is an up-to-date model; you are not just looking at the four [traditional] sectors of cash, equities, fixed income and property. To get passive coverage of all those sectors, you need to search in-depth to find something that fits.
‘That is why we use some ETFs, but we prefer natural ETFs because they hold the underlying assets – if you use derivatives, you have another layer of complexity. We have used synthetics historically but they would be outside the
The portfolios are offered to all clients and 80% or more go into them.
McPherson says: ‘Around 10% of clients use enterprise investment schemes and venture capital trusts. But we are seeing more opportunities for planning with them, so over the next two years we will see an increase. Up to now, I don’t think many clients have been in a position to understand how they can work effectively.’
Total expense ratios for the underlying investments range from 0.55% to 0.65% excluding wrap and the firm’s 1% adviser charge.
After putting a lot of hard work into rebuilding the firm last year and taking a long time out to pass exams in preparation for the RDR, Whitney is looking forward to a full year of business. Symbolically, the firm recently moved to a new larger, brighter office, still in Montpellier, and started recruiting for a paraplanner.
So far, the firm has rebuilt recurring income to about £60,000. ‘This year, we have done £50,000 of business [in the first two months]. Our cost base is covered by our renewals so we are well positioned to expand,’ says Whitney.
McPherson says: ‘Short-term, the aim is to get out seeing clients as much as we can, which is why we want to bring in a solid paraplanner. Initially, we will be seeing existing clients that we need to do reviews with. Then we will be opening up new client relationships, partly through Andy and partly through referrals from existing clients and business contacts.’
One of Whitney’s business tips is ‘stay true to yourself and smile’. Sitting on the leather sofas in their new office, Whitney and McPherson appear to be two of the most laid-back advisers you are ever likely to meet.
‘We have no financial targets,’ says Whitney. ‘There is no pressure on anybody. That is where the whole banking thing went wrong. But by the time we get to the end of 2014, a turnover of £200,000 plus is achievable. If we can get someone else on board, then if they produce a similar amount it starts to get interesting.’
Simon Whitney: curriculum vitae
2000-present Montpellier Asset Management, managing director
- CII/PFS membership
Ploughing other furrows
Both Whitney and McPherson have financial interests in separate, unrelated businesses: Whitney in a hair and beauty company and McPherson in a photography business that includes several celebrities among its clients. They are keen to stress that these businesses do not pose a distraction from their ambitions at Montpellier, however.
‘My focus is on the finance,’ says McPherson. ‘Photography was a hobby and then became a bit more serious, so I set [the business] up so that other people run it and I am not doing all the work. I just manage it and get involved in the exciting stuff. Besides, some of my photography clients have become finance clients. It is an interesting way to get new business.’
Whitney, who has shoulder-length hair and expensive-looking shoes, inherited his interest in the beauty company from his parents. ‘I help with that business and it takes up half a day a week,’ he says. ‘But there is a management team in place, so it runs itself. Hair, beauty and fashion: that is what I have grown up with. It has been running for 40 years.’
Regarding his own style, he says: ‘Long hair is in fashion now, as are big beards. Clients say it looks quite distinguished. We like to be a little bit different. Clients still like to know you have all the systems and processes in place, but we are trying to relax things a little.’
Work and play
Whitney and McPherson say the work-life balance is good but quickly rebut the idea that Montpellier is a ‘lifestyle business’.
‘We are fortunate to have acquired wealth over the years but this is a serious business,’ says Whitney.
‘We put the hours in and make sure the work is done,’ adds McPherson. ‘I am actually a workaholic and work all the time I can.’
Outside work, Whitney has two children aged six and three and spends much of his time restoring a Regency house he bought in Pittville, another historic and well-to-do area of Cheltenham.
‘The house takes up time,’ he says. ‘It is a labour of love but is a family home. I love buying things for the house and sourcing things like the railings for the front, for which I have just been given planning permission. We are having them all recast.’
Back from the brink
It is interesting that a man who loves restoration once faced losing the roof over his head. During the worst days of the A2O debacle, Whitney feared for the future of his business and career.
‘I ended up spending all my savings because I had just bought the house to renovate,’ he says. ‘If a network goes under, you are tarred with the same brush. You have to tell clients what is going on. But we only lost six out of 210 active clients.’
Such an experience highlights the importance of choosing strategic partners carefully, says Whitney. He says he is much happier now that he is directly authorised and, as with his Regency home, starting to restore Montpellier Asset Management to its former glory.
Five top tips
Embrace and update your technology as it saves so much time and will enable you to see more clients.
Take time to catch up with other experts to explore what is currently working for them with their clients.
Make sure your employees’ skill sets do not overlap.
Listen: it’s one of the best ways to understand your clients.
Stay true to yourself and smile.
For more pictures of our day with Simon Whitney, click here.