Wealth and asset management businesses are complicated beasts. And the ‘laddish’ culture from the days of majority male stockbroking firms is still rearing its ugly head.
Despite the efforts of many in the financial services industry to address issues around diversity, harassment and inappropriate behaviour, stories such as the ones coming from Henderson Rowe are, unfortunately, not as rare as they should be.
It recently emerged that the boutique wealth firm’s CEO, Charles Aram, was leaving the company after complaints of racist and sexist language were levelled against him. Sources recounted alleged incidents that include Aram and former CEO Giles Rowe making racist comments about minority groups, as well as engaging in inappropriate behaviour.
Is what happened at Henderson Rowe indicative of a wider problem within financial services? I think so. It says a lot that the chairman of Henderson Rowe’s parent company, Rayliant, told Wealth Manager that some people they spoke to regarding the complaints thought it was merely ‘bantering’.
Therein lies the problem. The ‘banter’ and ‘boys’ club’ excuses are outdated, and although it is encouraging that people were able to speak up at Henderson Rowe, there are many companies where they still dare not raise their voices. The time for change is long overdue, and companies have to do more.
Wealth Manager revealed last week that Aram was leaving the company after allegations of inappropriate behaviour and language surfaced.
There were a number of allegations against Aram and the way Henderson Rowe conducted its business. Aram, who returned to Henderson Rowe last year to sell the company to Asian fund management firm Rayliant after previously quitting the firm in 2015, has been accused of using racist and sexist language in the office.
A number of sources have also said that a knife was left on the desk of an employee who complained about Aram. Although Rayliant investigated the incident, the evidence proved inconclusive, with no suggestion that Aram was involved.
Rayliant chairman Jason Hsu confirmed that Aram left the business following the complaints and said: ‘We were alerted to the inappropriate language. When we saw a formal complaint, we went in and looked at it immediately. We spoke to people who were involved, and we concluded three things: one is [that] there is quite a bit of distracting bantering that goes on – that’s one thing we want to address.
‘There are definitely awkward jokes that are in poor taste. We spoke to people about it. Some think it’s just bantering, but we were very clear some things are bantering and some things are just in poor taste.’
He added that they concluded clear-cut inappropriate language was used, which the management team confronted Aram about.
‘To his credit, he said: “Jason, I am really embarrassed. I don’t know why I said something like that”. It was an enormous lapse in his judgement. He acknowledged that given that he’s made such a large mistake publicly, he doesn’t feel like he is the kind of person to take the firm forward, to align Henderson Rowe’s culture with Rayliant.’
When contacted for comment, Aram said: ‘There have been complaints at Henderson Rowe regarding inappropriate conduct and an unfriendly workplace. We have made huge progress in improving the investment processes and introducing a new culture and the work has been intensive.
‘Both Rayliant and I have been deeply troubled by the allegations. Rayliant and I have agreed that a new leader could better support the firm’s desired culture, and as such, we believe that the best path forward is for me to step down as CEO of Henderson Rowe. I remain a believer in the firm’s bright future and will do my very best to ensure a successful transition.’
Following Aram’s exit, the company will be forming an executive committee to be headed by Rayliant managing director and chief operating officer Mike Bowers on an interim basis. It will also include head of research Artur Baluszynski and head of operations Ana Cristina Diaz Diaz.
On top of the complaints regarding racism and sexism in the office, Wealth Manager also learned that there was an internal investigation into allegations that the firm was churning client portfolios to increase revenue prior to its acquisition.
In fact, this investigation delayed the acquisition by a few months, as the Rayliant team waited until it was concluded, Hsu said.
It was alleged that portfolio managers at Henderson Rowe were being told by management to make unnecessary trades to increase the commission they were paid by clients.
Hsu confirmed an independent auditor was brought in to investigate unexplained activity, but said they did not find any evidence of systematic churning.
He added: ‘Even though we received a clean bill of health from the auditor, Henderson Rowe decided that there were some accounts, even though it is not churning, which from a dispersion perspective had seen more trading than the average account. So they proactively went ahead and spoke to clients to explain the situation, to ensure that there is no potential liability. We were happy to see them step up and be willing to do that.’
The company identified 15 specific incidents between 2012 and 2018, with incomplete documentation, totalling about £13,300, which was returned to clients as redress.
A number of sources told Wealth Manager that costs for clients at times reached 5-6% because of churning. However, Rayliant said they have found no evidence of this.
Despite investigations, it is understood that Rayliant did not uncover any portfolios with charges of 5% or 6%, and the two highest cost accounts were 4.7% and 4%, which occurred in 2012 (see boxout, right, for Henderson Rowe’s charges).
Hsu added that when the conversation to acquire Henderson Rowe began, the management told him about the investigation. He said: ‘The genesis behind the investigation was there was a complaint filed by a departing employee.
‘[We said] until we see an independent third-party audit of your trades and make sure they are in alignment with your investment philosophy, until we have evidence of it, we won’t move ahead with it. We spoke with executives there. We also wanted to assess if there was a culture where the client manager would churn and harm clients.’
He said the company was also looking into moving to an all-in fixed fee model of charging to move away from commission, so it would not ‘accidentally cause an incentive’ to trade more.
What did Rayliant say on culture?
Speaking to Wealth Manager, Hsu was adamant that Rayliant is taking this ‘very seriously’. He said that the culture at Rayliant and Henderson Rowe is very different. A number of times Hsu added that maybe it was also the difference between the two countries’ cultures, as well as the difference between an institutional firm and an old brokerage.
He said: ‘There is a difference in culture. We wanted to make sure that there was increased alignment around things we call core values.’
He said that Rayliant had conducted sensitivity training and culture training at Henderson Rowe following the acquisition, and viewed the fact that people were empowered to speak up and complain as a positive.
Hsu also said that he did not want to be unfair to the remaining people at the company.
He added: ‘I’m hoping we can make lemonade out of lemons. Judgement lapsed, and it was very embarrassing. It’s probably within the wealth industry – a lot of the bantering can be very insensitive. We don’t stand for that, we don’t tolerate that and firms need to do more to train and coach people, and people need to be empowered to escalate things.’
The FCA on culture
The Financial Conduct Authority (FCA) said firms’ culture is a priority and it is ‘widely accepted as a key root cause of the major conduct failings that have occurred within the industry in recent history’.
After publishing a discussion paper on transforming culture in financial services, the regulator’s executive director of supervision – retail and authorisations, Jonathan Davidson, said: ‘Culture may not be easily measurable, but it is manageable. So firms can and should take responsibility for ensuring their culture is healthy for both their employees and customers, which can complement and support their business strategy.
‘As a regulator, we have long gone beyond having the mindset that simply complying with rules is enough. However, we don’t believe a one-size-fits-all culture is the right way to go. So we want to promote a discussion and consensus on the essential features of a healthy culture and how firms, regulators, employees and customers can help deliver that culture.’
Henderson Rowe in numbers (last accounts to June 2017)
|June 2017 (£)||June 2016 (£)|
|Turnover||6.4 mil||5.5 mil|
|Adminitrative expenses||5.5 mil||4.6 mil|
|Cash at bank & in hand||1.3 mil||1.1 mil|
|Avg number of employees||24||23|
|Highest paid director||440,000||462,000|
|Interim paid dividends||270,000||265,000|