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Wealth Manager: The UK's first turnkey asset manager is unlocking adviser assets

Wealth Manager: The UK's first turnkey asset manager is unlocking adviser assets

Frontiers have a history of breeding innovation. Israel, for example, has in its short history become famous for producing a strain of hard bitten, suntanned speculative adventurers whose experience making the desert bloom has led them to develop many of the world’s less salubrious corners.

The country still has some way to go to match the unquestioned inventive pre-eminence of the US in the latter half of the nineteenth century however, a period in which the national population tripled but the cumulative wealth of the nation increased by a factor of 13, as a generation pushed westwards.

The phrase ‘know-how’ was first recorded in the US in 1857, and gosh, they certainly did.

The output of tinkering was so prodigious that the head of the US Patent Office, Charles Duell, resigned his office in 1899, declaring that ‘everything that can be invented has been invented’. Ultimately it was a short-sighted statement but one we might excuse, given his office had, in 50 years, processed the electric light, elevator, escalator, telephone, typewriter, fountain pen, pneumatic tyre, air brake, cash register, air conditioner and safety pin, among many other innovations we still take for granted.

Craig Burgess, founder and director of Evidence Based Investment (EBI), finds himself at the forefront of a different kind of brave new world, as a generation of advisers realised they were at risk of obsolescence if they did not change their businesses, and fast.

Discretionary managers might protest they have very successfully been occupying this ground for many years, but in truth their searching has led them into almost entirely uncharted territory. One to which Burgess is providing a rapidly growing route map and surveying ground previously labelled only Here Be Monsters.

‘They know that they need to do this stuff,’ he says of his adviser client base. ‘But they don’t know how. If you are rebalancing [client portfolios] and you have 0.9% dispersion because you are going through your clients and calling them by telephone, that is a big loss over the long term. I meet [advisers] who haven’t changed their models in five years. This is basic stuff. But they need help.’

Burgess began life as an adviser, and his business Blackstone Wealth Management is still ticking over as a going concern. But it is Evidence Based Investment that fires his enthusiasm and now occupies most of his time.

 

Evidence Based Investment is the UK’s first turnkey asset management provider (Tamp). Developed from an American model, instead of providing a traditional third-party discretionary service the company provides all the technological plug-ins to run EBI-developed models on a range of the most popular platforms, and assistance with all the challenges you would expect among those coming to the discipline of fund management for the first time.

The Tamp model has proved remarkably successful in the US, where it originated in 1974, allowing small businesses to essentially outsource all but their non-core functions, from asset allocation models to compliance.

As of 2010, the top 10 providers who overwhelmingly dominate the market ran $255 billion, according to research from US trade title Advisor Perspectives.

The business initially launched as Evidence Based Investment Solutions, a loose group of advisers with a shared interest in passive funds and asset allocation. When it came to drawing up a single model the group failed to find common ground however, and Burgess, who chaired the meetings, instead decided to commercialise the concept independently.

The flat fee of £180 a month is economical enough that the smallest adviser client runs less than £3 million, and is surely good value for money for the largest, at £50 million. Crucially, that money is levied from the adviser, rather than the client, offering VAT efficiencies versus outsourcing.

‘It makes my life so much easier because I don’t have to look at funds every month,’ one of Burgess’ clients, Matthew Walne of Santorini Financial Planning, told Wealth Manager’s sister title New Model Adviser last year.

‘It’s a huge time saver and all my clients like it because it closely matches their attitude to risk rather than having three or four portfolios, which they may only just fit into.’

In both spirit and practice the service is a long way from the slick packages provided by the 7IMs, Brewin Dolphins and Quilters of this world, instead promoting a DIY ethos of tinkering and shared experience.

A seminar organised by the company at the end of 2012, for instance, was filled with 30-odd enthusiastic advisers from all corners of the UK, gathered to listen, talk and offer feedback on their experiences of rebalancing – which seems to be something of a stumbling block for many. 

 

The overall atmosphere of discovery, self-help and improvised solutions to common problems would surely have been familiar to many homesteaders and prospectors.

The shared ethos is a key part of the appeal says Burgess, versus effectively handing over long-standing clients to a London-based wealth management sales person in an expensive suit. 

‘A lot of these people are working from garden sheds,’ says Burgess. ‘The association with our brand can provide much needed credibility. [But] my background as an adviser is a big help when I meet people. I come from the same cultural background, and have been through the same professional journey that many of them are doing now.

‘This gap in the market should be being filled by the networks, but they don’t have the credibility. They have just become a vehicle for asset aggregators. It is an advantage [to me], because advisers will automatically ask themselves “who do I trust in this space?”.’ 

The general philosophy of spirited apprenticeship does have its limitations. ‘Oh, all that discretionary stuff,’ Burgess says at one point in response to a question about the methodology the company uses to determine its asset allocation models, with a distinct air of inverse snobbery.

While many advisers are quite rightly cynical about the interest discretionary managers have suddenly begun showing in their clients in recent years, it might seem a little dismissive in someone marketing a discretionary-equivalent service. 

But watching him in action in front of an audience of his peers, it is clear the business is as much sustained by Burgess’s enthusiasm for discovery and problem solving as it is by the unusual opportunity.

EBI is not his first independent business venture, having launched Independent Transfer Services, a pension transfer business, in 1999. Legislative changes eventually made the pension transfer business less attractive however, and it was closed in 2004.

He was also involved with a franchise operation called The Divorce Bureau, set up to generate leads with divorcees through radio advertising and connections with solicitors. It was wound down in 2007 because the radio advertising wasn’t attracting the right kind of client.

Much of the challenge in designing and launching the business has been the software architecture he says, with the asset allocation drawing on a large pool of published literature on model portfolio theory.

 

Convincing platform providers to work with him was relatively easy once they saw the potential to consolidate assets, producing the plug-ins to work with advisers’ back office software suites less so.

‘It is a very economical model for the platforms.’ Many advisers having begun using platform-based templates since their launch almost 10 years ago, he adds that in many ways EBI is a ‘logical progression’ for them.  

The next stage in the development of the business is winning discretionary powers – immediately after meeting Wealth Manager he was due in Canary Wharf to discuss the progress of his application, which has taken longer than it typically would due to the FSA’s having never previously certified a Tamp.

While the company is not seeking to replicate the traditional arms-length discretionary relationship, Burgess believes it will require limited and specific discretionary powers to expand on its current services. The next big project – provisionally named Optibal – will allow the company to ensure that clients’ allocations do not drift away from the 21 in-house models, a particular challenge when they are risk-blended to produce an optimal asset balance.

Over the distant horizon, he believes the architecture he has assembled has potential as a direct-to-consumer service, although he emphasises this is currently little more than a thought.

‘We are having to ask for a HGV licence when all we really need is to drive a minivan,’ says Burgess. ‘It is a level of empowerment that will allow us to move allocations with markets, not to do any of the traditional work of a discretionary fund manager.

‘One of the biggest challenges for advisers at the moment is investing money into the same template. If you are seeking client authorisation for every move or fund change it becomes nigh-on impossible to keep the allocation consistent as the market moves. [With discretionary permissions] we will be able to rebalance daily, and are talking with [platform providers] Wealth Time and Parmenion about the technology to allow us to do it.’

Combining this with the passive-only portfolio costs and platform fee discounts that will come with scale, Burgess is confident he can bring down the adviser cost to around 12 basis points versus a current, traditional discretionary threshold entry point of around 30 basis points - a cost at which no discretionary could hope to profitably match.

‘It’s going to absolutely kill them,’ he says.

 


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