Leaving a comfortable job as London head of one of the best-known wealth managers in the country to set up a new business with no external funding and no clients may be a daunting challenge.
In the black within two years of opening its doors, the firm’s latest accounts show the boutique made a pre-tax profit of £644,000 on turnover of £1.3 million in the year to September 2017. Over the same period, assets under management (AUM) climbed to £250 million: not bad for a company with four people.
The key to its success so far, it appears, is focusing on offering a high level of service to a small number of larger clients. With around 90 clients currently, Mountstone Partners plans to close its doors to new business once it hits 150.
Keen says: ‘We have no aspirations to be the next massive investment manager. We want to keep the firm of a size where the clients that appoint us always know that they’re going to be looked after by the people they saw on day one, not passed off to a junior or new investment manager.
‘Most of the larger firms are becoming generic products. Many of them do exactly the same thing, just in a slightly different way. We found that clients get a bit disenfranchised with that model and want something that’s more personal, more boutique and have a better level of service. One of the tenets we’ve set out to our clients is that we are not going to get too big.’
Watching the rapid growth of a business, and managing the changes which accompany it, is a familiar experience for Keen.
He joined Brooks Macdonald as a trainee in its office back in 1998, seven years after its foundation in 1991. ‘Brooks, when I joined, was seven investment managers in a room in 101 Park Street, it was tiny. I think it was £100 million of assets when I started. It was £3.5 billion when I left.
‘Having seen that growth, we were there at the point Mountstone is at now in terms of being a small boutique, but you can see how it grows.’
While Keen is somewhat critical of what large discretionary fund managers (DFMs) such as Brooks have become, he recognises the role it played in giving him that experience to set up a successful boutique.
‘If I started off working in a bigger firm with say £5-6 billion [in AUM], when I started my career I wouldn’t have had a clue how to start a small business.
‘Working for a small business, you get to see how it evolves and what are the right avenues to take and what are the wrong avenues to take.’
Taking his own career arc as proof of concept, he hired his former colleague and successor as head of Brook’s London office, Charles Dixon, in 2015.
For Dixon, who had also spent his entire 14-year career at Brooks, the reason for teaming up with Keen at his new boutique was the same reason why his colleague left that job in the first place.
Dixon says: ‘It was an independent decision in terms of leaving, but in discussions I had with James when I decided to move, there were very similar reasons, I think, in terms of why we both made the decision to leave the roles we had.
‘I was certainly not of the view I wanted to take a step sideways into an alternate larger firm. I wanted to work in a smaller, team environment and having had the experience of working with [James] previously, and in discussions we had about his vision for Mountstone, it sat well with what I was looking to move to.’
In addition to the four people at the firm, Mountstone also hires external investment consultants to help them run money.
Dixon said they have been more important than he realised before joining, and suggests a lack of third-party input within bigger firms may not always be in clients’ best interests.
He says: ‘Having somebody who works within the industry challenge our views on macroeconomic or global market valuations, I didn’t [originally] put as much weight behind how important that has been. I’d only ever really seen it from an insular perspective in previous environments.’
Despite planning to shut the door when they reach around 150 clients, Keen and Dixon still want to grow their business and have found other ways to generate revenue.
One of which is to unitise their ‘scalable’ investment process (see box), and license it to independent financial advisers (IFAs).
That model works by helping an IFA build an investment process, and a firm itself that is authorised with its own permissions to manage client money. Mountstone will then license its intellectual property to that business.
It has trialled the model with success at affiliated IFA business, Bowmore Asset Management, and is in discussions with other IFAs.
Keen says: ‘The investment process itself is very scalable. It’s a model that’s repeatable and doesn’t need much day-to-day involvement at client level from our perspective. But it does need investment expertise, so by providing that we’re effectively giving an IFA firm an asset allocation function and a stock selection function for them to go out and sell to their clients.’
That idea of how to run client money, and therefore the ability to make money from it, is another reason why the duo decided to leave Brooks, a large DFM where someone with an idea for such a process probably would not be able to do much with it, especially when they are leading five London investment teams managing 40 individuals.
The chance of actually being able to spend time with clients was also a motivator, said Keen. ‘One of the criticisms of bigger firms is you end up with maybe 200-300 relationships, one for every working day. It’s not sustainable. They can’t necessarily afford to give clients more dedicated time with investment managers because of the number they take on.
‘There’s additional responsibilities and various committees you end up being involved with and on various projects and whatever else. Here we just wanted to make it simple and have a clean, efficient solution for clients that’s a bit more in keeping with how it was when we first joined Brooks when it was smaller.’
Their success in a relatively short space of time has drawn admiring looks from other investment managers in the industry, but for anyone thinking of joining a boutique like Mountstone, the duo are cautionary.
Dixon says: ‘We’ve had a lot of conversations and coffees with individuals. The grass is always greener for a lot of people, but it’s the same with when we take on clients. It’s got to be the right fit.’
Expanding on that, Keen adds: ‘A lot of people expect equity from the off and a big income. When you’re working for a small business, you’ve got to prove yourself first and that will come in time.
‘It’s not something that’s on a plate from day one that bigger firms would offer, because we don’t want to take the risk if it doesn’t work. There’s nowhere to hide in a small business.’
It is clear to see why that boutique culture would appeal. Aside from the ability to get back to actually running money and having a proper relationship with a client, setting up your own firm also has other benefits – namely Fifa Fridays, office Olympics and strategy squash meetings.
Keen says with a smile: ‘Squash is our strategy meeting. We’ll wander over at half two and have an impromptu management meeting. Then I’ll beat Charlie at squash and we’ll come back to the office.
‘We obviously take our work very seriously, but that’s the great thing about setting up a boutique. It’s our business,
we can shape it the way we want and make it fun.’