Wealth management companies will live and die by the strength of their research departments as the industry embarks on its third era, says Ashcourt Rowan Asset Management managing director Harry Burnham.
He believes the profound changes that are currently happening in wealth management reflect an industry that is entering a new period, where financial planning and investment management converge to a greater extent. This is an evolution from pure investment management, which itself emanated from the first era, namely the traditional stockbroking model.
With one eye on the direction of travel for the industry, Burnham says one of the main attractions of joining Ashcourt Rowan was its established in-house financial planning capability. Looking ahead, he anticipates that any business that lacks a strong advice team is at risk of putting itself at a disadvantage.
‘I have seen this for myself and it [relates] very much to listening to clients. What do they want? They want and need advice in this area,’ he says.
Against this changing backdrop, he views Ashcourt’s research department as a means to attract and retain clients, rather than a cost to the business.
‘Our research department is probably our most important sales tool, rather than a cost, as perceived by so many businesses. Deliver top-level research and you have happy clients, employees and the business will roll in,’ he explains.
In Burnham’s view, quality in-house research is one of three things that investment management firms need to prosper in this day and age. Having strong systems and compliance is a second aspect.
Linked to this, he views the third as having the right balance between meeting regulatory obligations but not going so far as stifling the business.
Compliance teams have become even more important to wealth management businesses as the industry adapts to the post-retail distribution review (RDR) world and suitability remains a key focus for the regulator. Ashcourt Rowan was given a skilled persons order, known as a Section 166, by the regulator back in 2012 in relation to suitability.
But Burnham says the company has since overhauled its systems and processes and is all the stronger for having been through the process.
‘I would not say it was a blessing in disguise, but what it did do was give a green light to really get to the core of the business and properly understand the challenges.
‘In fact, because of the regulatory problems Ashcourt had three years ago, we are now at the forefront of the industry because we have spent an enormous amount of time making sure we get it right,’ he says.
The managing director describes suitability and the challenges companies face when it comes to evidencing suitability as an industry-wide issue. This can be attributed to a historic lack of discipline when it comes to recording conversations with clients.
‘I think there is a ground shift as an industry and people are now very much are getting it.’
Burnham’s desire for the company to have a strong research capability stems from the experience he has gathered over the course of an 18-year career.
He joined Williams de Broë in the mid-nineties from Associated Newspapers, where he held a compliance role. He recalls at the time, Williams de Broë was almost ahead of its time in terms of its model, with 90% plus of its book in discretionary fee-paying assets.
‘We hit on a rather novel strategy that the best way win new business was to sell ourselves on performance. We were lucky that we had substantial in-house research capability at Williams de Broë and we concentrated on getting our research correct on funds and direct equities, but also focusing on asset allocation.
‘In my career I had seen it evolve from what was a stockbroking mentality to where I was, which was an institutional manager background.’
In late 2000, Burnham left Williams de Broë for Brewin Dolphin, which he says was itself going through a transition from stockbroking to investment management.
‘I had a wonderful 13 years there where I saw the evolution into what it is today,’ he recalls. ‘At Brewin Dolphin I ran money for them, but what was close to my heart was the research side, so I effectively founded their fund research department, which I ran for many years,’ he says.
In 2004, Burnham took on the management of Brewin Dolphin’s pension fund, which he ran up to last year before his departure for Ashcourt Rowan.
‘There was a lot of pressure. Undoubtedly when you are in a business where there are lots of investment professionals quite rightly looking over my shoulder and saying “Is Harry going to get it right?”, you wanted to get it right and there was no place to hide if you got it wrong,’ he reflects.
A strong regional network is another theme that unites the companies Burnham worked at. This was another draw to join Ashcourt, after a chance meeting with the firm’s chief executive, Jonathan Polin.
With 17 offices across the UK, Burnham is pleased with Ashcourt’s regional presence and the fact it can cater for clients that want to be serviced locally. The company’s recent purchase of UK Wealth Management has provided a welcome boost to Ashcourt Rowan’s presence in the North of England, bringing five regional offices into the stable.
With only one office in Scotland, in St Andrews, and notable absences from Edinburgh and Glasgow, alongside the Channel Islands and Wales, Burnham says these are the only outstanding holes in the firm’s regional network.
Ashcourt Rowan is clearly at an inflection point in its life, with a number of acquisitions under its belt and a relative turnaround under Polin, who joined in September 2011.
The share price has risen to 192.5p since he came on board, a 54% rise, while assets now stand at £5.2 billion, up from £3.7 billion in September of last year.
Around £2.2 billion is currently run on a discretionary basis. Overall, assets have been buoyed by the acquisitions of UK Wealth Management and Generali Portfolio Management over the past year.
On the investment front, the company runs ‘best advice lists’ for securities and funds, with parameters set around eight risk models to ensure consistency. However, the managing director is keen to allow a degree of autonomy for the investment team when it comes to running money.
Under the stewardship of chief investment officer Toni Meadows, Burnham is confident in the firm’s investment capability, having recently broadened out its direct equity research by launching a recommended list for international equities.
Over the past year a typical medium risk portfolio has posted a 15.7% rise and 20.8% over the past three years.
Meadows explains: ‘Our stance is that we think rates will stay lower for longer and the support of additional stimulus will continue in Japan, Europe and perhaps China.
‘Economic growth is muted and does not reflect the extent of support the world has had for such a sustained period. Spare capacity means that global inflationary pressures are low.
‘When the rate cycle turns, the move will be muted because the high stock of debt and weak recovery means that economic behaviour is sensitive to changes in debt servicing costs. This is a new type of normal.
‘In this environment, equities are still attractive despite the expansion in multiples. On a relative basis there are still good risk-adjusted returns to be gained from exposure to credit.
‘We have recently reduced the position in long-dated gilts that we took at the time of the “tapering tantrum” last year as we think that the curve has flattened enough.
‘Just buying the market will not work as well in this mature bull run, but there are opportunities to benefit from themes, such as the mispricing of investments based on the illiquidity premium or the emergence of disruptive technologies.’
Eight months into his role as managing director of the asset management division, Burnham is clearly motivated and enjoying the challenges and opportunities presented by the job.
‘The attraction of joining was finding somewhere with the right scale that is looking to adapt to a world that is changing dramatically at the moment. You need economies of scale in the industry now, but you don’t want to be so large that you don’t have that flexibility. That was the great attraction,’ he says.
‘Of course, Jonathan Polin is a very good manager of this business. It is very much a turnaround situation and is a very different firm compared to what it was three years ago.
‘Within that, when you go around the country, it is amazing that you can find really good people within businesses. That has given us a really good launch pad. It is exciting working with a business that is very much growing and going forward,’ he adds.
The managing director still runs money for a number of clients and is keen to stay client-facing in order to incorporate vital client feedback into the running of the business.
‘I don’t want to sit there gathering dust and managing clients in the same old way. I think you have got to have your eyes absolutely wide open with everything that is going on.’
It is clear the industry is also at a turning point and Burnham says it is important to keep one eye firmly on how wealth management is evolving and be nimble enough to adapt.
‘Who knows what will be happening in three years’ time, but what I do know is it will be different to what is happening today,’ he says.
‘Having that flexibility within the business at this time is key. I am in my mid-forties, I very much want to continue and have no intention of retiring.’