Thursday 31 July 2014 was a momentous day in the history of Hargreave Hale.
The date saw Giles Hargreave step down as chief executive of the wealth boutique to focus on the management of his investment funds, handing the reins to joint managing directors Stuart Brookes and Lee Finlayson.
It was the first time the business, founded in 1897 by Marsden Hargreave, would have someone outside the Hargreave clan at its helm.
‘The firm has always been handed down, but Giles’ children aren’t in the business,’ Brookes explains.
Their appointment was not simply due to a lack of Hargreave bloodstock though, with the duo earning their right of succession during a combined 43 years at the company.
Brookes joined the firm in 1994 as financial controller after qualifying as an accountant at the Hargreave family’s auditors. Finlayson has been with the firm even longer, joining in 1991 and working in various back office roles before making investment manager grade in the mid-1990s. He was given responsibility for the firm’s Blackpool headquarters in 2002 and three years later he moved south to take charge of London.
Brookes and Finlayson’s respective skillsets are complementary, they say. ‘Giles oversaw what we did, we both reported to him and he was very keen to have a succession plan,’ Brookes says.
‘It seemed a natural progression to take him off the operational side of the business and it was decided a dual role was best. Both of us have grown up with the business, we’ve had a lot of input and our style is embedded within it.
‘Between us, there is not much about this business we don’t know,’ Finlayson adds.
Since the pair took control, Hargreave Hale appears to have a more dynamic feel. Shortly before the handover the firm hired from J and Brown Shipley for a new office in York. This was followed by the recruitment of a Charles Stanley team at the end of last year to open a Nottingham branch.
These were interspersed with several hires across its regional network, which is set to expand to nine after the business enticed two Brewin managers across in February, to open a branch in Norwich.
Brookes stresses this is not a major cultural shift at Hargreave Hale however, pointing out that contract negotiations for many of the recruits began under Giles’ watch. ‘From the outside it looks like we’ve become predatory since Lee and I took over, but it’s just coincidental timing with the strategy of the business. In the last three years we decided we wanted to diversify and build the private client business.’
Finlayson sees York as waving a major flag to the investment community that Hargreave Hale is a decent place to ply your trade. ‘York was the driver, it gave us the press coverage and put us out on the market place a bit more. While we are not the type of firm that wants our name on every bus shelter, we want people to know who we are from both a client and business perspective.’
This is a rare burst of rhetoric from the firm’s new bosses who, like their predecessor, come across as reserved and not always entirely comfortable in the spotlight. One gets the impression Brookes and Finlayson do not want to mess with a formula that has been carefully honed over the last 117 years.
In this time the firm, which has £4.3 billion in funds under management, has amassed around 16,000 clients, the majority of which operate on the stockbroker’s execution-only and advisory platforms.
A total of 4,500 fall within its discretionary arm, supervised by 70 CF30 qualified professionals, who each look after 40-45 clients directly.
‘Our niche still focuses on core stockbroking values and we still offer a very bespoke service. We build relationships over a period of years and have been very successful at this,’ Finlayson says.
Traditional bespoke wealth management services have come under regulatory pressure of late on demands wealth managers modernise to better serve clients. In 2011, the then Financial Services Authority wrote a letter to a number of wealth firm chief executives warning them to have the right checks in place to ensure services were ‘suitable’.
While Hargreave Hale talks up its traditional ‘old-fashioned’ values, behind the scenes it has made sure it is regulation-proofed by investing heavily in its systems. ‘There is a lot more pressure coming from the regulator and it does provide you with challenges,’ says Brookes.
‘A lot of our investment has been around suitability and we have created a department to focus on this. We have built systems and put management structures in place to allow our investment managers to do things in an old-fashioned way, with a modern twist. We have provided them with more technical support and they can use our systems to make their life as easy as possible.’
A tougher regulatory climate has seen a number of firms switch to model portfolio services and centralise processes around core buy lists. Finlayson believes this is a flawed concept.
‘Rather than have a buy list we have a “not recommended” list as we don’t believe focused buy lists give people the freedom to own what they want,’ he says.
‘I don’t think regulation pushes people into corners. Yes, you do have to follow the rules – you can go down the easy cost-effective route and build an managed portfolio system around a buy list, or you can do enough research and make sure people go into the things that are right for them.’
Hargreaves charges clients with assets of less than £750,000 a 0.5% annual charge and those above this threshold 0.25%. ‘We think this is a fairer price to charge, the total expense ratio (TER) for a typical managed account is 0.6% and we don’t think that is expensive.’
The luxury of having a relatively small shareholder base and being unlisted means Hargreave Hale is not under the short-term performance pressure of some of its rivals. Investec is the biggest shareholder, with 35% and the remainder is shared between staff.
The firm is also happy to keep certain divisions alive for relationship building, even if they are not profitable. Its advisory arm is a prime example of this.
‘One or two firms have closed their advisory business to focus on the managed side where they can earn a fee,’ Finlayson says. ‘Advisory is not profitable but it’s a good way to build relationships with potential clients who could move into other parts of the business.
‘The small account could become the one that grows into the big one. We have a number of good relationships that started out in a small way. If you do business the right way,the profit will follow.’
And follow it has. In 2014 the firm registered a profit of £4.7 million on the back of revenue of £32 million. This year it is targeting revenue of £35 million.
One thing Brookes and Finlayson would like to change is over-reliance on Citywire A-rated Giles Hargreave, whose small cap process continues to play a fundamental role in its bespoke service.
Given his track record, it is easy to see why the firm has leaned heavily on its former chief. In the 10 years to the end of January 2015, the Marlborough Special Situations fund has returned 225.4% versus a sector average of 134%. This run has played a key role in helping the firm more than double private client assets to £1.7 billion in the last two years.
The firm is now casting the recruitment net a little wider to broaden its range of expertise.
‘In the past, a lot of the managers we have brought in have been small cap specialists,’ Brookes says. ‘We are now looking at managers who don’t have an existing bias to small caps and can invest in large caps.’
In a world where wealth firms are increasingly being forced to modernise to meet a growing set of demands, it is comforting to see one that is determined not to lose the old-fashioned wealth principles from a bygone era or be shoehorned by regulation. It is easy to picture it continuing in the same vein for the next 117 years.
‘We are very comfortable with the way the business is run and have no desire to sell or float it,’ Brookes says.
‘There are lots of opportunities and threats to the business and we need to understand where the market is and keep ahead of things.’
Finlayson adds: ‘There is lots of choice in the market and in this country you have more choice than anywhere else in the world. The sector is important to the economy and it is a case of being in the right place at the right time to take advantage of those opportunities when they come.’