HOW TO BUILD A CENTRALISED INVESTMENT PROPOSITION

ADVISER KNOWHOW THE WEEKLY TV PROGRAMME FOR ADVISERS BY ADVISERS

A centralised investment proposition can benefit an expanding firm, but what pitfalls should you avoid?

1 Have a clear objective

2 Consider outsourcing tools

3 Techniques to avoid shoehorning clients

4 Bring your advisers up to speed

KEY QUESTIONS

ADVISER KNOWHOW EPISODE 76 2 JULY 2014 HOW TO BUILD A CENTRALISED INVESTMENT PROPOSITION

ADVISER KNOWHOW EPISODE 76 2 JULY 2014 HOW TO BUILD A CENTRALISED INVESTMENT PROPOSITION

KEY POINTS

KEY NOTES FOR THIS WEEK’S EPISODE, WHICH FEATURES AN INTERVIEW WITH LEE WATERS OF BARWELLS SOLICITORS.

1 3

2 4

HAVE A CLEAR OBJECTIVE:

¬ Whether it’s business expansion or another factor, have a clear reason for the change

¬ Consider guiding principles rather than an identikit outlook

¬ Don’t have ‘consistently beating the markets’ as your main drive

TECHNIQUES TO AVOID SHOEHORNING CLIENTS:

¬ Consider avoiding remuneration and/or incentives in relation to performance

¬ Not every client will suit a CIP

¬ When fact-finding, continue to consider all alternatives if independent

CONSIDER OUTSOURCING TOOLS:

¬ Review and test a number of tools in the marketplace

¬ Consider building your proposition in conjunction with a third party

BRING YOUR ADVISERS UP TO SPEED:

¬ Expect internal admin to increase

¬ Watch your T&Cs, particularly the wording of your compliance

¬ Perform regular file checks

ADVISER KNOWHOW EPISODE 76 2 JULY 2014 HOW TO BUILD A CENTRALISED INVESTMENT PROPOSITION

PROGRAMME TRANSCRIPT

“We were planning an expansion of our business and we were going to bring new advisers into the business.”Scott Mackintosh, Edinburgh Investment Consultants

Max Skjonsberg, New Model Adviser®

What are the pitfalls advisers should avoid when setting up a centralised investment proposition? Let’s hear what some of them have to say.

Do advisers have different approaches to investment?

Scott Mackintosh, Edinburgh Investment ConsultantsI think every adviser is different to be fair. We took a position about four years ago to introduce a model portfolio process and one of the reasons for that was that we were planning an expansion of our business and we were going to bring new advisers into the business. So, I think the key for us was making sure that we didn’t have five, six, seven different advisers having different approaches with clients all over the country.

Damien Rylett, Brunel Capital PartnersWe don’t have different approaches; we all adopt the same approach. We’ve got a centralised investment proposition that’s been built in conjunction with a third party. So, most, if not all of our clients will go through that.

Does your firm have a consistent view on how to beat the market?

Scott Mackintosh, Edinburgh Investment ConsultantsThe realistic view should be that as long as we’re outperforming cash and inflation, then we’re providing, you know, a healthy return for our clients. If, as a

by-product of asset allocation and the correct fund choice and portfolio choice we exceed that, then good news for everybody.

Damien Rylett, Brunel Capital PartnersWe have a set of guiding principles which are belief in the future, patience and disciple and then we have three, what we call portfolio practices. I have to remember what they are now. It’s asset allocation, diversification and rebalancing. We don’t believe it’s possible to consistently beat the market so, we don’t try to.

What risk profiling tools do you use?

Scott Mackintosh, Edinburgh Investment ConsultantsWe are in the process of converting onto Dynamic Planner which, having reviewed quite a number of tools in the marketplace, we just felt that they have a fairly comprehensive offering.

Damien Rylett, Brunel Capital PartnersFinametrica. We then map directly from the asset allocations in Finametrica across to our portfolios. We make full use of the whole Finametrica process which includes their mapping guides and their risk return guides to help clients understand how the asset allocation that we’re recommending have performed over the last 40 years and I know that the last 40 years isn’t necessarily a guide to what’s going to happening future, but it’s the only thing we’ve got to go on.

With me in the studio I have Lee Waters from Barwells in East Sussex. So Lee, you implemented a centralised investment proposition in 2012. Can you tell me a little bit about the process?

Lee Waters, Barwell SolicitorsYes, of course, it was from a starting point, we were concerned that traditionally we’d been very bespoke in our approach and that with the recent FSA paper that came out at the time, it gave us the opportunity to say, right we can take some of bespoke knowledge that we’ve used, but try and formulate it in a way that can make our proposition a little bit more cost-effective to the client, a bit more profitable to us and also, a little bit more robust and repeatable. When you’ve got more than one adviser in a firm, there is a danger sometimes that different advisers can end up with different results. So, we felt that it was better to have a centralised proposition to enable us to be more robust really going forwards.

Okay Lee. So, you mentioned several advantages, but what are the pitfalls you have to avoid?

I think the biggest pitfall with any investment proposition is shoehorning. I mean, there’s a distinct danger that advisers can become fixated by the proposition and think that that’s really the only route that’s viable for them and especially being independent, you’ve got to consider all options. So, we had to introduce a process to ensure that when

ADVISER KNOWHOW EPISODE 76 2 JULY 2014 HOW TO BUILD A CENTRALISED INVESTMENT PROPOSITION

fact finding, we continued to consider all alternatives. We have a number of what most people would consider lower risk clients, who aren’t always necessarily suitable for the proposition. So, again, there was a danger that you didn’t want to end up putting those into a proposition and it wasn’t ultimately suitable for them.

That’s how you avoid shoehorning?

That’s really how we avoid shoehorning. We also made the conscious decision to not incentivise our advisers to use a central investment proposition. So, I know a lot of firms maybe put a financial incentive behind it or have some sort of vested interest. So, we had to manage conflict of interest and also we took away any sort of remuneration structures from our proposition.

You’re talking a lot about the client, but how have you worked to ensure that all advisers at the company are on the same page and understand how the centralised investment proposition or the CIP, how it works?

We have to revisit our compliance manual and rewrite that section of the compliance manual so everyone was aware and followed the same process. Through T&C, again, we’ve had to make amendments to file checks; we’ve increased the number of file checks for central investment proposition cases just to ensure that everyone is using the correct procedures essentially. So, again

it’s created greater volume of perhaps back office work, not necessarily at the client facing side, that has improved the efficiency and improved the profitability, but the back office behind it has increased dramatically.

Okay Lee, thank you very much.

You can download the cribsheet for this week’s edition at citywire.co.uk/adviserknowhow or bnymellonam.co.uk/adviserknowhow or you can find the link and add your views @AdviserKnowHow on Twitter.

“We make full use of the whole Finametrica process which includes their mapping guides and their risk return guides.”Damien Rylett, Brunel Capital Partners

ADVISER KNOWHOW EPISODE 76 2 JULY 2014 HOW TO BUILD A CENTRALISED INVESTMENT PROPOSITION

Produced in association with BNY Mellon, Adviser KnowHow is a new groundbreaking programme, created specifically to help you and your business. Every week we speak directly to your peers in the industry to understand how they have addressed some of the key issues that advisers face every day of their working lives.

Get involved and add your views on twitter: @Adviserknowhow

ADVISER KNOWHOW A PROGRAMME FOR ADVISERS BY ADVISERS

ADVISER KNOWHOW EPISODE 76 2 JULY 2014 HOW TO BUILD A CENTRALISED INVESTMENT PROPOSITION

BNY Mellon is a leading investment management and investment services company, with US$1.6 trillion assets under management and more than 47,000 employees worldwide*.

The BNY Mellon asset management model encompasses the investment skills of world class specialist asset managers, including those from Insight, Newton, Standish, The Boston Company Asset Management and Walter Scott ensuring our clients benefit from market leading experts in every asset class.

The multi-boutique structure encourages an entrepreneurial, focused approach to investment, ensuring our asset managers are ahead of market trends and at the forefront of investment management.

ABOUT BNY MELLON

Clear, independent thinking from some of the world’s sharpest investment minds

Important Information

TRANSCRIPT Past performance is not a guide to future performanceThe value of investments and the income from can fall as well as rise so you may get back less than you originally invested. This document is issued in collaboration with Citywire.For Professional Clients only. This is not intended as investment advice. Any views and opinions contained in this document are those of the individual as at the date of issue, are subject to change, do not represent the views of BNY Mellon Investment Management EMEA Limited (BNYMIM EMEA, formerly named BNY Mellon Asset Management International Limited) and should not be taken as investment advice. BNYMIM EMEA and its affiliates are not responsible for any subsequent investment advice given based on the information supplied. This document may not be used for the purpose of an offer or solicitation in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or not authorised. Unless otherwise noted, all references to total assets under management (AUM) (which are approximate), provided by The Bank of New York Mellon Corporation, are as of 31 March 2014*. AUM for The Boston Company Asset Management, EACM Advisors, Mellon Capital Management Corporation and Standish Mellon Asset Management Company LLC includes assets managed by those individual firms’ officers as associated persons, dual officers or employees of The Dreyfus Corporation. In addition, AUM / OUM for the following firms may include assets managed by them as non-discretionary investment manager for, or by the individual firms’ officers as dual officers or employees of, The Bank of New York Mellon: The Boston Company Asset Management, LLC, The Dreyfus Corporation and its BNY Mellon Cash Investment Strategies division, Mellon Capital Management Corporation, Newton Capital Management Limited (part of The Newton Group), Standish Mellon Asset Management Company LLC, and CentreSquare. AUM includes BNY Mellon Wealth Management, Ankura Capital and external data. This document should not be published in hard copy, electronic form, via the web or in any other medium accessible to the public, unless authorised by BNYMIM EMEA to do so. To help us continually improve our service and in the interest of security, we may monitor and/or record your telephone calls with us. This document is issued in the UK and in mainland Europe (excluding Germany) by BNYMIM EMEA, BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1118580. Authorised and regulated by the Financial Conduct Authority. BNYMIM EMEA and any other BNY Mellon entity mentioned are all ultimately owned by The Bank of New York Mellon Corporation.

VIDEO Past performance is not a guide to future performanceThe value of investments and the income from can fall as well as rise so you may get back less than you originally invested. This document is issued in collaboration with Citywire.For Professional Clients only. This is not intended as investment advice. Any views and opinions contained therein are those of the individual as at the date of issue, are subject to change, do not represent the views of BNY Mellon Investment Management EMEA Limited (BNYMIM EMEA, formerly named BNY Mellon Asset Management International Limited) and should not be taken as investment advice. BNYMIM EMEA and its affiliates are not responsible for any subsequent investment advice given based on the information supplied. This video may not be used for the purpose of an offer or solicitation in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or not authorised. This video is issued in the UK and in mainland Europe (excluding Germany) by BNYMIM EMEA, BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1118580. Authorised and regulated by the Financial Conduct Authority. Issued as at 6/5/2014 CP12691 6-8-2014 (3M)

Contact BNY Mellon: tel: 0500 66 00 00 email: brokersupport@bnymellon.com web: www.bnymellomim.co.uk

* As at 31 March 2014