The wealth management game is changing and it is not just the rules, but the players too.
The last few years have seen a myriad of acquisitions, takeovers, buyouts and mergers. All of this has left a number of wealth managers feeling that their futures are uncertain.
This was certainly how Alex Sumner, a Wealth Manager Top 30 Under 30 alumnus, and Gareth Deacon felt when Canaccord Genuity Group acquired Hargreave Hale, where they then worked in its Worcester office, in 2017.
And it was what would eventually lead them to move over to specialist tax efficient investments firm Blackfinch Investments to set up a managed portfolio service (MPS) for the company.
Recalling hearing the news that Hargreave Hale was being sold, Deacon says: ‘We weren’t sure how things were going to change. It was one of the things that really pushed us to look at our other options and we wanted to take control of our own destiny rather than waiting to see what would happen over the next couple of years.’
However, in truth, it was much more than the acquisition that spurred Sumner and Deacon to consider other opportunities.
‘Rather than purely focusing on Canaccord being the catalyst, I think it was a lot of the challenges that we saw facing the traditional wealth management and stockbroking industry and the shifting value chain towards the power of the IFA [independent financial adviser],’ says Sumner (pictured above right).
He was increasingly finding that a lot of the pair's business leads in the private client stockbroking world were drying up.
‘Quite rightly, Mr and Mrs Smith were going to an IFA and getting full holistic financial planning and the IFA was then directing the flow of business to us as investment managers,’ he says.
‘Looking forward, we firmly believe that the environment we are in is the way it should be done. So, our expertise is in purely managing the money and investments, and above us you’ve got the financial adviser or financial planner, implementing a proper plan for that client, assessing suitability regularly and reviewing that for the client.
'We did not feel that was a role for an investment manager to do. So we have got those clear divisions of expertise which we firmly believe in.’
The two identified this trend gathering momentum a few years ago while they were still at Hargreave Hale and actually started to look at developing an IFA proposition for the firm.
Sumner says the pair were actively engaging with the board at Hargreave Hale, telling the top brass that they needed an intermediated proposition, which the company did not have at the time, as that was now the key driver of growth.
To be fair to Hargreave Hale, he says that they were given the freedom to explore the possibility of having an IFA offering, and the pair began to make more contacts among third-party advisers.
However, the writing was likely on the wall from the start, as Deacon notes that in hindsight Hargreave Hale's executive committee probably knew that things were moving ahead with Canaccord Genuity Group at that point.
But what this experience did for Sumner and Deacon was serve as proof of concept and that they were calling the trend right.
‘So that proved the theory that we had that we really should be focusing ― and bearing in mind that we both have about 30 years of a career left ahead of us ― our attention on servicing IFAs, rather than focusing on what we believe is the slightly outdated traditional stockbroking model,’ Sumner says.
This is the mindset the pair were in when they began their conversation with Richard Cook, the chief executive officer of Blackfinch Investments, based in neighbouring Gloucester.
At the time, the firm, which has £300 million of assets under advice and management, did not have an MPS service, as it mainly specialised in tax efficient products, such as IHT, EIS and VCT investments.
However, what really attracted Sumner was the fact that Blackfinch already had a lot of contacts in the intermediary market, as it only distributed through financial advisers.
‘The opportunity came when Gareth and I asked "where could we develop this?" and what a great fit a wealth management offering would be for Blackfinch to complement the tax efficient offering.’
This turned out to be rather serendipitous as part of Cook’s business plan for 2018 was to expand Blackfinch’s proposition to include an MPS.
The company, which was established in 1992, is profitable, reporting pre-tax profits of £1.1 million in the 12 months to the end of October 2017 on revenue of £3 million.
However, Cook was keen to diversify its offering and deliver a service that could be relevant to a lot more of IFAs’ books of business then they previously had been able to touch purely with the tax incentivised investments.
Cook says: ‘We never stand still. By drawing on collective expertise and always looking to the future, we are able to constantly evolve and improve our services.’
Deacon adds: ‘We went to him and essentially gave him the solution to the problem he was looking to solve.’
Sumner and Deacon joined Blackfinch at the end of February 2018. It was not a move taken lightly as Deacon had been at Hargreave Hale since 2006 and Sumner since 2009.
‘It was a big decision for us to take, but it reiterates our faith in what we believe is the future of the industry. Leaving behind a combined 23 years of client banks that we had at Hargreave Hale was just a testament to our belief in what we could build here,’ says Deacon.
Upon arriving at Blackfinch, they straight away set about building the MPS which they started offering to the firm's clients in July.
The range comprises five actively managed portfolios ranging from risk levels three to seven. The service levies an annual management charge of 35 basis points and the portfolios invest in open-ended collectives.
Since launch the service has attracted £30 million of assets.
‘We are really pleased with that because, to be honest, we weren’t expecting anything like that at the first phase of launch,’ Sumner says.
Although he is quick to admit that the figure is quite small when compared to their peer group, the sharp sell-off seen in the fourth quarter has not exactly been conducive to encouraging clients to put money into the stock market.
Blackfinch’s management are backing them strongly and the firm has recently doubled its sales and distribution team headcount to 22.
Although Sumner and Deacon run the day-to-day management of the MPS themselves, they are also supported by the wide investment team at Blackfinch, which has 96 members of staff in total.
‘What is important as well, and quite different from the world we came from, is that Gareth and I can focus fully on the investment management and the day-to-day running of the investments rather than having to balance that with your suitability tasks and your client acquisition tasks that your typical stockbroker has to deal with.’
Although leaving the only firm either of them had ever known to build something new has been a challenge, Sumner and Deacon believe that one year on they know that they definitely made the right call.