This month Manson Financial Services' managing director Harris Frazer explains to Chris Salih why he believes asset allocation and attitude to risk are two of the fundamentals of investment
Harris Frazer says his strategy of outsourcing large investments to wealth management service Brooks Macdonald has helped his business in a number of ways: it has been well-received by clients and he believes the group's expertise across all asset classes ensures his clients have a diversified portfolio that can perform across market conditions.
Frazer also makes extensive use of fund supermarkets, particularly Fidelity FundsNetwork, in managing his clients' investments. He appreciates the ability to review available funds, switch easily, plus the convenience, simplicity, and cost. He remains unconvinced about wraps and is yet to see how they can help his business.
Frazer explains his views on the industry, how he has structured his business and the solutions he has found for clients.
How do you determine your clients' risk profile?
An adviser has to look at what loss a client is prepared to accept from an investment. A guy of 40 may have a certain attitude to risk, but in 15 years that attitude is likely to have changed. Sometimes clients don't know what they want from an investment so it is our job to paint pictures and guide them towards the best decision.
How do you decide which investments are suitable for each type of client?
We do this by understanding a client's attitude to risk and deciding what level is suitable for them. The majority of clients see themselves as balanced investors but they do not appreciate what that means in investment terms. They do not accept the risks associated with being a balanced investor. Here at Mansons we have a team who check the risk and return for different investments. One particular problem we come across is young people who don't complete forms on what they expect from their investments. Often, they want to make money from a cautious investment approach but say that at no point do they want their investments to lose them money. Over the shorter-term this is unlikely. This naivety is a challenge.
How do you manage your clients' investment expectations?
We outsource to our wealth management partner Brooks Macdonald. When I took over at Manson's two-and-a-half years ago taking money was easy, managing expectation was significantly harder. When markets went south and clients began to re-evaluate asset allocation and research, people began going into bonds and holding cash and there were some very difficult conversations taking place.
I cannot overstate how well received our wealth management service has been. If two people have £100,000 and are targeting growth and income investment, but with different expectations, how can a one-size-fits-all approach suit both of them? Brooks Macdonald is of the same opinion as Manson's that selecting a client's investment portfolio by ticking boxes doesn't work.
Brooks Macdonald looks at clients' needs individually and as a result no two portfolios are the same. Each customer has their own fund manager. The team will look at the portfolios on a weekly basis. We outsourced these decisions to Brooks Macdonald because we felt the group could do a better job for our clients than we can. It has dedicated research teams, professional fund management and is not restricted to an asset class; it can buy direct equities, collectives, gilts, corporate bonds, structured cash products or hedge funds. It has both the expertise and the track record to do all these things.
How do you decide on asset allocation?
If it were an investment of £150,000-plus that would generally be outsourced to Brooks Macdonald. If it were smaller, say £50,000, we would handle it. We like to recommend clients hold a cash reserve. We also look into their time scales, what's on the horizon, whether a client needs access to their investment and also their experience in the market. All of this is critical in determining the correct asset allocation.
Do you use multi-manager? If so, which type of client do you use it for? And how do you select each multi-manager?
The sophisticated investor is the usual choice for our multi-manager solutions. In terms of selecting a multi-manager we would look at their choice of funds, research capability and market conditions. I wouldn't ignore past performance, but I don't totally subscribe to it as a means of selecting investments. In the past it was the case, if not the rule, that you follow the fund manager, but nowadays managers change so often that doing that is no longer a viable solution.
To what extent do you adjust investment recommendations for each client?
For investment or pension clients we usually do a six-month update, whether it is a meeting face-to-face or a talk over the phone. This is not the case for the group pension scheme holders. It is possible for us to talk to three, four or five directors of pension plans, but talking individually to around 150 pension holders from a company is impossible. It is simply not cost effective on a one-on-one basis.
How do you decide which investments to put into a pension or life wrapper? Do you prefer those life companies that offer external funds?
We're talking about asset allocation and attitude to risk again. They are two of the fundamentals of the business. With regards to life companies, I definitely prefer those with external funds because on a whole they are more attractive and offer a greater range of options.
Which life offices do you use? Why?
On the pensions side we tend to use well established, household names like Clerical Medical, Standard Life, Norwich Union and L&G. On the investment side we like Skandia, Axa, L&G and Scottish Widows.
Which fund supermarkets do you use? How do you use them?
I am a big fan of Fidelity's FundsNetwork, they run an extremely useful website, have good staff and an excellent range of funds. I use it for all sorts of things such as reviewing available funds, easy switching. I find its convenience, simplicity, reporting, cost and its level of sophistication very helpful. They only feature I would not use a fund supermarket for is white labelling.
Have you used 'wrap' solutions for any of your clients? If so, did clients readily accept this method?
I have not used wraps simply because I have honestly never been convinced in the wrap proposition. I have been told by advisers that it has been successful in other countries but they have never taken off in the UK.
Has the adoption of 'managed solutions' (fund supermarkets, multi-manager, wrap platforms, structured products) helped your business in terms of administration or reduced costs?
It has not noticeably made a difference in these areas of the business
How has the approach to investment changed over the past few years?
I feel it has changed quite radically. Previously the approach was dominated by the product but it is now controlled by the service. In the product orientated market people were being told to put their money in all sorts of investments and were getting burnt. No one could have anticipated how the market would have changed as the advice given was relevant at the time. Outsourcing to Brooks Macdonald reinforces our point that we are offering a quality based service to our clients that is selling confidence not just selling. My aim is to build long-term relationships with clients.
Do you still recommend single strategy funds? If so, for which clients?
We have a reserve of cash so occasionally we might recommend them, but generally we try not to. Most people have the wrong expectation from their investment. They simply want a fund that performs like magic, not a well balanced portfolio.
How do you think the investment market will change?
The market is now far more cautious in its approach. Each decision is more widely considered. With profits and distribution funds are great examples of how the market can change quickly, so this cautious approach is a valid one.
Managing client expectations is difficult - many want top performance with no risk of losing money.
For clients with £150,000+ the group outsources to wealth management group Brooks Macdonald.
Brooks Macdonald has expertise across asset classes, including direct equities, collectives, gilts, corporate bonds, structured products and hedge funds.
The group uses fund supermarket FundsNetwork for reviewing funds and switching.
The group generally does not recommend single strategy funds, preferring an outsourced solution.
The approach to investment has changed significantly over the past few years from one dominated by the product to one dominated by service.
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