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Profile: inside Thomas Miller's £3bn wealth restructure

Profile: inside Thomas Miller's £3bn wealth restructure

Even for a man who started out conducting drills as an officer in the King’s Own Scottish Borderers, Andrew Herberts says overhauling Thomas Miller Investment’s (TMI) £3 billion wealth division was not a straightforward manoeuvre.

Herberts, TMI’s head of private client investment management, says the acquisition of Broadstone’s £400 million wealth arm in late 2014 necessitated the restructure. The welding together of the businesses had revealed some weaknesses in the TMI proposition, gaps which – although they had not exactly hindered growth – the firm resolved to fix.

‘We did an operational integration and then started on the propositional integration, but probably didn’t take it as far as it needed to go,’ he says.

‘We were in danger of having a situation where, depending on how the client came to the business, the route they’d taken would have dictated the investment solution.’

The original structure of the private client arm featured separate bespoke and managed portfolio fund of funds services, fed by both TMI’s internal financial planning consultants and an external adviser base – a fairly standard investment offering, you might think.

However, there was a growing feeling in TMI that a disconnect was emerging between the two propositions. Each was operated using its own resources and were essentially separate entities living under the same roof.

The division was exacerbated by a substantial imbalance in the proportion of internally referred clients being assigned to the fund of funds models versus those who came from external advisers.


‘There was a danger [before the restructure] that the bespoke service would only be available to externally advised clients, because of CGT limits and trying to meet certain objectives, but that is gone. Now we are a lot more flexible in what we can deliver.’

Some might argue that with 87% of new clients arriving via TMI’s internal planning arm there cannot have been that much of a chasm, but Herberts, recently arrived CEO Hugh Titcomb and TM Wealth Management managing director Matt Phillips felt differently. To address the problem, TMI brought its bespoke (BPS) and model portfolio services (MPS) under the same leadership, but there was still the issue of how to streamline its allocation process.

‘[The restructure] was the logical thing to do,’ says Herberts. ‘Getting that top-down strategic allocation right is absolutely critical, and it means that we are much more consistent in terms of our top down strategic asset allocation.’

The overhaul – the completion of which Wealth Manager revealed in July – was not without casualties. Herberts concedes that the departure of former MPS head Paula Eddery and senior portfolio manager Scott Baikie, among others, means TMI has lost some valuable investment experience, while the subsequent closure of the Edinburgh office ended its presence in Scotland.

But Herberts is confident that he now has the sort of streamlined offering needed to embark on an organic growth run. ‘It is a continuum now,’ he says.


‘The new structure means we will never lose sight of the client’s objective. They still have the same investment options, but how they’ve come into the business is now irrelevant. Now there is no impediment in getting the portfolio the client needs, which is the key difference. It is also a more scalable business.’

While Herberts’ CV may look as though he has worked for almost every investment house in the central belt of Scotland – five firms in 10 years by the time he landed at TMI in 2012 – he has actually been relatively consistent in terms of the people he has worked with.

In particular, he has long histories with Harry Morgan, now a director at Tilney Bestinvest, and Mike Balfour, who retired as TMI CEO in January. It was during Herberts’ stint at Royal Bank of Scotland subsidiary Adam & Company that Morgan, then head of investment management, got a call from Balfour asking him to come and build TMI’s UK platform. Herberts, who had worked under Balfour at Edinburgh Fund Managers a decade earlier, soon followed suit.


‘[They] are two names that don’t really need explaining in the industry,’ he says. ‘I liked what Thomas Miller were doing, as well as being able to work with Harry and Mike.’

Arriving as deputy head of private investment management in 2012, two years later Herberts replaced Morgan as head when the latter left for Tilney Investment Management, and, following the restructure, he now heads private client investment management.

In that time, TMI has grown to £3.1 billion in assets under management, around £1.1 billion of which is run by the private client arm. Within that, annual revenue has been steadily increasing, reaching £9.8 million in the 2015 calendar year, around 90% of which is recurring.

Behind this is Herberts’ bank of tailored and model discretionary portfolio, of which the centrepiece is the firm’s core fund of funds model portfolio suite.

A client’s net worth – along with their assigned risk profile – is the key determinant in how their assets are invested. Minimum thresholds for the MPS and BPS are £250,000 and £750,000 respectively, although these are only guideline figures.

Even if a client has £500,000 to invest, they might not necessarily go straight into a model service, Herberts notes.

‘Sometimes we’ll find there is actually no investment requirement,’ he says. ‘Or, if the client already has CGT arrangements or direct equity holdings, they will go straight into bespoke. We do also outsource some clients’ investments after the consultation, but that is a very small proportion.’


The core fund of fund solutions comprise a mix of active and passive third-party collectives allocated in line with the long-term strategic outlook of TMI’s investment committee. Herberts sits on this alongside CIO Abi Oladimeji, head of collective investment funds Carolyn Gelling and investment director Richard Jarvis, among others.

As Herberts emphasises, TMI’s house view is very much based around strategic investing rather than trying to call market ebbs and flows. ‘If you get long-term allocation wrong for a particular client then it becomes extremely difficult to reach their objective,’ he says.

‘Unless you have an ego the size of a planet, the market will tell you that you are not always right. If you don’t learn that lesson you shouldn’t be in the market.’

For a flavour of how the TMI strategy looks on paper, Herberts refers to the current allocation of the Balanced GBP portfolio, which has outperformed its ARC GBP Balanced PCI benchmark to deliver one and five-year returns of 13.7% and 47.13% respectively.

Within the portfolio, the UK and international equity weights are 30% and 25% respectively; fixed income – government and corporate bonds from across the global specturm – accounts for 35%; and alternatives and cash make up the remaining 10% and 5%.

Within bespoke portfolios, TMI also offers direct access to UK stocks and gilts – ‘you do get some clients who only want to invest in equities’ – as well as strategies which eschew certain sectors and investment vehicles, depending on client specifics.


‘Memories of the financial crisis are still raw,’ Herberts points out. ‘Some clients came into the business in 2009 with bad memories of hedge funds, so we met this with strategies that don’t have any hedge funds or commodities.’

In the face of the regulatory and technological upheaval sweeping the wealth sector, Herberts is confident that even with the reinvigorated proposition there is no need to alter TMI’s personalised approach.

He believes the combination of an overzealous regulator and firms’ readiness to try and stay ahead of legislative change while fighting a margin squeeze could actually retard the industry’s progression.

‘Scalability is a key way to survive,’ he says. ‘But as firms get larger there is a concern over losing choice by going to a more industrialised model, which technology is exacerbating. Services and product become less to do with the client and more to do with the manufacturing process.

‘You can’t legislate for good private client wealth management, so the individuals have to be committed to delivering a good service without the threat of the regulatory body hovering over them.’

TMI outlined its post-Brexit strategy to Wealth Manager in the summer - which was essentially business as usual.

Herberts’ view is that wealth managers should focus on the service they provide and, if done correctly, the rest will fall in behind. From an investment view, he sees the rupture between the UK and EU as potentially throwing a smattering of value trades.

‘There is fiscal stimulus coming through, so there may be relative value in large UK multinationals, predicated on sterling weakness. That said, we shouldn’t expect to latch onto another upward market move. I would be more surprised if our neutral positioning causes me to miss 10% upside rather than 10% downside in the lead-up to Christmas.’


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