‘Most advisers have Frankenstein systems,’ says Mike Roberts, managing director of PortfolioMetrix UK, in the middle of an exposition about the company’s service. ‘They will have an asset allocation tool, cash modelling, a platform, a DFM and then front of office. I can tell you from experience how hard it is to get all those things to talk to one another.’
In a buyers’ market for off-the-peg discretionary management, self-funded start-ups begin at an inherent disadvantage. A low-to-zero marketing budget, no regional representation and a lack of the heritage branding many still consider synonymous with private client businesses continue to present barriers to entry.
In the case of Roberts and co-founder Brandon Zietsman, the necessity of overcoming this handicap has very much mothered invention: packaging their Wealth Explorer service as not just a plug-and-play portfolio, but as a full-spectrum suitability, portfolio modelling and reporting tool.
‘It is unusual for third party investment firms offering an “outsourced” service to provide many, if any, of the features found in Wealth Explorer,’ the company’s website – correctly – notes. Rather than the heraldic branding of better-established peers, the word ‘suitability’ appears frequently on its pages.
More than most competitors, the company has sought to connect the dots on a series of issues faced by advisers and address them not just as problems to be overcome, but as constraints that can be used to deliver a more cohesive and comprehensive package of services.
Psychometric risk profiling; integrated asset allocation and cashflow modelling; document and client report design and transmission tools; and portfolio integration are all offered out of the box.
This is designed to deliver an investment solution, and the comprehensiveness of the service means the company can reasonably claim to be fully tailored and model-free. (A sceptic might point out that it could effectively be considered as 12,004 possible individual models, but with that sort of granularity, few are likely to feel short-changed).
The company runs £500 million overall, £150 million on behalf of UK advisers. The balance is largely South African which, to be fair, would have looked a bit different in sterling terms before the rand/GBP cross dropped 35% in 2015.
The company has already begun to win some warm reviews.
‘PortfolioMetrix has very good software called Wealth Explorer, which shows the client exactly what they are getting in terms of funds, expected returns and time horizons,’ said Andrew Reeves of Wellingborough-based IFA Investment Coach, explaining to Wealth Manager’s sister title New Model Adviser in 2013 why he had signed up.
‘Rather than pulling out dusty brochures, we prefer to show clients live what their portfolio could look like. I can’t imagine needing another DFM,’ he added, describing the underlying tool set as ‘very powerful’.
The decision to structure and market the company’s investment services as a bundle has required some pricing decisions that might have raised investors’ eyebrows had the firm taken outside funding. Primarily, its all-in management fee is low at 0.35% in order to directly compete with pure asset managers for a range of services that other companies have built successful single-line businesses around.
‘I would never describe it as a subsidy, but yes, we do have to give [adviser clients] the whole package in order for the system to work,’ says Roberts. ‘A famous Henry Ford quote comes to mind: “if I had asked people what they wanted, they would have said faster horses”.
‘We have lots and lots of competition, something like 200 or 300 competitors. Lots of banks and advisers have it the wrong way round, to my mind. They are effectively saying that if you are a small client, then we will seek out your approval when we make a change to your portfolio, but if you’re very rich, we will take these decisions for you.
‘If you are dealing with the average man on the street, they don’t have any opinion or remote interest in what funds they hold or how they are invested – they just want someone qualified to do it.’
The company was launched in 2010 in South Africa, where the two co-founders met, Roberts as a private client adviser and part-time systems troubleshooter at Barclays Wealth, and Zietsman (who now serves as overall chief executive) as chief investment officer at Barclays subsidiary ABSA.
The two developed the service locally in order to control costs – which has led to a frequent misapprehension that it is a South African interloper – before arriving in the UK in 2012. It is currently fostering plans for European permissions.
Roberts looks genuinely mystified when asked about set-up costs.
‘I really don’t know. That’s not evasiveness, it’s because the primary “cost” was salary sacrifice and we were both doing contract work in order to keep the lights on. And we have mostly recruited graduates, so we don’t have huge up-front staffing costs and didn’t pay huge fees to head-hunters,’ he says.
The company, and its heavy emphasis on suitability, long-term portfolio management issues and repeatable processes, has its roots in a project he initiated at Barclays, on systems designed to balance adviser autonomy with regulatory requirements.
‘How do you empower bankers and advisers without them all running off in their own directions? How do you get them pointing the same way while allowing them to build suitable client portfolios? Do you want everyone to do what they want? And then how do you ensure that you get the same result for a client who saw John on Monday as the one who sees James on Friday?
‘The second thing was customisation versus scalability. You need to solve all that before a client and an adviser can devise an investment profile to give to a [discretionary manager] to come up with an asset allocation. Doing it the traditional way – a scalable proposition – just doesn’t work.
‘I was running money as an adviser and as an institutional manager, running portfolios up to £75 million, but also doing the software design as a thing on the side. I had previously designed risk management solutions and had a background in aerospace design.
‘The insight I gained from that was that I would much rather do 100 things once to find a solution, than do the same thing over and over 100 times: I like solving problems, but hate to do things that can be automated.’
He suggests that for all the laser-like attention paid to suitability in recent years, there remain numerous areas of ambiguity in current regulation. ‘The COB [conduct of business] rules, as written, describe advisers as professional clients. If something goes wrong [with an investment portfolio] then that means the [end] client has no recourse to the ombudsman [or] compensation. It’s a complete regulation fail.
‘The question has been put to the [Financial Conduct Authority]. Under an agent-as-client system the [end] client never actually grants discretionary authorisation over how their [fund] units are arranged.’
Three years on from launch, the company’s core GBP-denominated balanced asset allocation has returned an annualised 7% on volatility just over 9%, beating all but three competitors in a universe of the 20 largest UK balanced multi-asset funds.