Independent, British and happy to be boring – according
to its chief executive that is why Rathbone Brothers has maintained
a solid performance through the financial crisis. Andy Pomfret
talks with Richard Hemming about double-digit retail growth and
guiding clients back towards healthy gains.
Go deeper with GlobalData
Rathbone Brothers’ chief executive Andy Pomfret says the
financial crisis has worked out well for his group, led by its
discretionary retail funds management operations, which now has
£12.2bn ($18.7bn) assets under management.
In the 12 months to December, Rathbone
Brothers’ retail business grew 12%, of which 7% was organic growth,
drawn from new clients or more funds coming in from its existing
fund managers. It does not include funds that have joined during
that period, from other organisations.
Pomfret says the business has benefited because
it does not have the negative associations that competitors do,
referring specifically to Coutts & Co, owned by Royal Bank of
Scotland.
“Most clients are feeling worse off and poorer,
but of them are with us for the long-term, meaning 20 years to 30
years,” he says. “The other thing in our favour over the past
couple of years is that we are seen as independent. We are quoted,
our history goes back to 1742, and we are British-based. It is
boring but appealing to clients ill at ease elsewhere in the
financial services sector.”
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By GlobalDataThe adviser’s positive performance in 2009 is
another factor keeping customers happy.
“We’ve outperformed the APCIMS’ (The
Association of Private Client Investment Managers and Stockbrokers)
by 3% in the past year… But these measures are meaningless when
you have 30,000 clients whose portfolios are all individually
managed,” he says.
The FTSE APCIMS Private Investor index includes
three types of model portfolio: income, balanced and growth.
Pomfret refers to the balanced portfolio that combines equities,
fixed income products, property and cash.
In 2009, the FTSE APCIMS Balanced index
returned almost 17%, but the prior year its performance was dismal,
declining about 17%.
Pomfret is adamant that clients see through the
issues of short-term performance and focus on the connection that
they have with the actual manager of their money at Rathbone
Brothers. He has 150 fund managers whose focus is to grow Rathbone
Brothers’ business, as well as their client’s wealth. Its team fund
managers are rewarded in three standard ways: on salary, profit
share and reward for new business.
Well placed
Diversified investment managers have
emerged stronger in the wake of the financial crisis as financial
advisers seek to offload the responsibility for investing their
clients’ money. They exist to take over an individual’s entire
portfolio and invest it into different asset classes and, on that
basis, into different managed funds or securities.
Rathbone Brothers is one of the bigger players
in the field. It was listed by Canaccord Wealth Management last
year as one of the three largest discretionary managers for private
clients, alongside Coutts & Co and Brewin Dolphin. Pomfret
explains that when a client approaches Rathbone Brothers’ funds
management operations, the first thing one of its managers does is
work out the appropriate investment allocation for that client. It
is at this stage that they discuss the risk clients are willing to
take, and any investment preferences they might have.
“Typical clients want a balance of income and
capital growth, but some might want an ethical bias, and we have an
ethical investment team for that,” says Pomfret.
Pomfret emphasises that when clients invest
with Rathbone Brothers’ retail funds management operation, it does
not mean they are investing in Rathbone Brothers products.
“We provide services, not products,” he
says.
According to Pomfret, of the £12.2bn under
management, £200m is invested in Rathbone Brothers’ unit trust
stable (which in turn has £900m under management).
The distinction is important. Many individuals
fear that if managers invest their money in discretionary funds
management operations, they invest in their own products, reaping
more fees in the process.
The bulk of money is invested in other funds,
although Pomfret points out that the majority is held in direct
securities. He highlights that Rathbone Brothers acts as a broker
as well as a fund manager.
Rathbone Brothers’ fee structure operates with
discretionary funds management representing another layer of fees
that investors pay on top of the charges for advice and those of
the underlying funds and securities their wealth is invested
in.
The income from clients in 2009 was 0.95%,
which compares to the 1.25% Brewin Dolphin charged during the same
period, according to Pomfret.
“Nearly every client pays us a fee, but they
also pay us commission if we choose to deal for them,” says
Pomfret. This understates the fact that as a discretionary fund
manager, it will almost certainly have to deal for clients.
When it comes to the issue of charging for
banking services, he is apologetic. This is because unlike two
years ago, overnight banking rates have dropped to 0.5%, which
means that Rathbone Brothers cannot take its usual spread on the
difference between wholesale and retail rates. Instead it must
simply charge its fee and give the customer nothing in return.
“We’re always charging fees, always charging
commission and always paying low rates of interest,” he says.
Solid and boring is suiting Rathbone Brothers
well.
