Given the recent direction of political polling, Graeme Clark, head of private clients at Courtiers, may be feeling fairly happy with life.
Gary Reynolds, Courtiers chief investment officer and co-founder, describes him as ‘the only socialist in wealth management’ although given the 10 minutes of good-humoured back-and-forth that follows, one suspects this says more about the healthy state of Courtiers’ inter-office banter than it does about Clark’s views on historical inevitability or dialectical materialism.
For the record, it’s hard to imagine him raising a red banner or leading a rousing chorus of the Internationale, although in his views about client equality and their equal entitlement to a fair and honest service he is fairly militant.
Those views – shared by his employer – have led the company to take some innovative and original steps, such as becoming the first organisation in Britain approved under Ucits III to run 100% derivative portfolios, and becoming one of the early movers away from commission to fees in the advisory industry.
While the firm recently celebrated its 30th anniversary, the structure and direction of the business have changed quite dramatically in the 10 years since Clark joined: dramatically enough that he says it is only now beginning to taper off from the sharp end of the growth curve, as the clock counts down toward the retail distribution review (RDR).
Much of his time during the period was spent building links with IFAs who have struck partnerships with the company as they head toward an eventual full retirement with the introduction of RDR rules.
This has meant much of Clark’s working life has been spent managing relationships with advisers and transitioning clients, introducing the Courtiers proposition, and at least some of the time, ensuring handovers of long-built and closely guarded relationships pass smoothly.
‘There is less growth in the pipeline,’ he admits. ‘It is still out there, but it will be less obvious. And there is still a huge amount we have yet to do to tap the potential of the business that we already have, because we have been managing [change].
‘For the first time, I think I will be able to focus on the business with less distraction – half my job has been getting on with people and ensuring everything worked smoothly – and focus on the opportunities that are already there within the business.
‘We have five really good advisers and will be taking on more, in addition to taking on more technical resources and beefing up company marketing. And there is a huge amount of untapped potential in client referral origination, as well as moving up client size.’
He adds that there may well be further advisers who decide the efficiencies of scale to work as an owner-principal of a small business are no longer appealing as they adjust to the new regulatory regime.
But the big secular driver of the past few years is largely spent, he admits.
The strategy has paid dividends, however. The firm has partnered directly with three advisers and a further 10 appointed representatives, two thirds of whom are heading for phased retirement from 2013.
That has delivered almost 30% compound annual growth in revenue and assets under influence since 2004 – including through the market bottom of 2008/09 – to a March figure of £250 million under management and a further £150 million under influence, primarily in the historical mainstay of corporate pension advice.
Last year fees, which are still transitioning from respective advisers historical models to an endpoint of a 1% annual management charge and approximately another 20 basis points of custody costs, delivered £5.36 million in recurring income – around 90% of the company’s overall income.
‘It hasn’t all been plain sailing,’ says Clark. ‘At times it has been a challenge, for them and us, to hand over clients and relationships that they have built up over many years.
‘[A lot of advisers] want an exit strategy but wanted to stay on the same side as their clients. They have been in the business 30 or 40 years and have excellent relationships with their clients.
‘We have offered a controlled process with repeatable income, all of the administration comes centrally, and we will handle compliance. A lot of businesses are going to try to [work under] RDR and find that they can’t.
‘The model we have used is to select the people we believe we can work in partnership with, and who we think will work well in partnership with us. [The process] could have been faster through an introducer, and we have still had to kiss a lot of frogs. But the slowly, slowly approach has paid off.
‘It is a bit like how John Moulton approaches private equity, he treated people right and people ask for his business. In the end, it meant people wanted to work with him. When you get that fit right, it will work for both sides of the relationship.’
Born in 1975 in Basingstoke to an ‘upper-working, lower-middle’ class family, Clark left school to work for 18 months at Lloyds bank as he built up money to fund his university education.
He took a degree in archaeology and Latin at Reading before beginning his career at NatWest, moving on to a position with Prudential’s pension business, where he became adviser-qualified.
After an ill-starred interlude with a mortgage broker as Britain’s credit bubble began to well and truly inflate – ‘There was no relationship building and we weren’t dealing with high end clients. I was a bit worried about the lending market when [the company] was signing off 125% loan-to-value deals with Northern Rock.’
He joined Courtiers in 2002 as a technical assistant and paraplanner, before taking on direct client responsibilities in 2004.
He works closely with the company’s personable and engaging head of investment Reynolds a former Wealth Manager coverstar, cheerleading for the firm’s Ucits III, largely synthetic investment process, which offers risk-rated long/short model portfolios blended and balanced to meet client risk profiles.
Both credit the FSA’s ‘enthusiastic’ support for their application for authorisation, once they had explained their methodology and desired outcomes, which was to run capital with a minimum of cost and maximum liquidity.
‘In the investment team we have three CFA charterholders and one good maths degree from Warwick [university], which is one of the most respected departments in the country,’ says Reynolds. ‘You need to be able to do the maths, but once you have that [the modelling] is fairly straightforward.
‘We can go long via an [index] call or short via a put and we have less tracking error than an ETF, with greater liquidity. It is a wonderfully liquid market.
‘If we put on a swap [for instance], we don’t part with cash. We will put it on cash deposit so it is effectively collateralised, and will only use single or double A-rated [depositary] counterparties.’ Beta within the portfolio is capped at 0.8%.
In terms of investment strategy, Reynolds is enthusiastic about the potential of US equity, pointing to the ‘pretty fundamental’ appeal of a free cashflow yield of 8% versus a Treasury yield hovering around 1.5%. For obvious reasons he has moderated this fundamental bullishness from taking on full-on risk exposure however, and the asset allocation model is currently balanced 60% defensive equity to 40% fixed income.
‘The US faces an industrial renaissance. They have turned a corner on energy, which will have a huge impact on their trade deficit, and will be something like 80% self-sufficient by 2020 or 2030,’ Clark says.