[This article was first pubished in our quarterly magazine, ETF Report UK]
There are tens of thousands of qualified financial planners in the UK. So how could we possibly boil that number down to just 10 "top advisers"?
Very simply: those that focus on holistic financial advice and put their clients first; those that are educated in the use and application of active funds and passive funds, or blend the two; and those that know about or use ETFs directly. At ETF Report UK, assets under management matters little to us—having a loyal client base, being highly qualified and having a strong conviction in the merits of holistic planning is what really counts.
At ETF Report UK, there is a long road ahead of us to educate UK-based financial planners about the pros and cons of ETFs, and encourage them to consider these tools as part of their client recommendations. The regulator advises independent advisers in the world of the retail distribution review (RDR) to consider the whole of the market, and ETFs are a valid and growing part of that market.
That doesn't mean we aren't aware of the risks—and there are plenty of risks to consider when it comes to investing in ETFs —but the advisers listed here have discovered that ETFs can be a useful, low-cost and transparent addition to their practice.
Ultimately there may not be one right way to be a financial planner, but we believe these 10 individuals have got it pretty much perfect, and should serve as an inspiration to their peers.
Athena Wealth Planning takes an interesting approach of segmenting clients into those that are "DFM-able"—those with large enough assets to be looked after by a discretionary fund manager—and those of smaller worth, who receive the luxury of hand-picked portfolios by Carrie Churchouse and business partner Colin Enright.
In those in-house portfolios, the two chartered financial planners blend passive and active funds, and for other clients, advocate the use of DFMs—such as Seven Investment Management, Vestra Wealth and Heartwood Investment Management—that use ETFs in their allocation.
"If we have a portfolio of £150,000 or so, we have something between six to eight multi-asset funds blended in the portfolio," said Churchouse.
Clients at Athena undergo an initial discussion of about 40 minutes to establish the so-called soft facts, said Churchouse, before a "discovery meeting, to put meat on the bones." The team then charges a flat fee to put together a report and recommendations for the client. After that, Athena uses a waterfall charging system, depending on the size of the portfolio, and a 1% ongoing fee thereafter.
"There is no such thing as a typical client," said Churchouse, "but a lot of them are successful individuals in their own right, directors of companies, and, believe it or not, a couple of lottery winners."
She notes that her clients who have hit the jackpot are particularly young but "very grounded" and have made wise decisions not to blow all their capital. Churchouse jokes that she has not been inspired, however, to start buying a lottery ticket.
Both Churchouse and Enright hail from RBS, and Churchouse says her team has a "fantastic wealth of experience." When it comes to being a good financial planner, Churchouse notes three recommended qualities are honesty, integrity and a good eye for detail.
"We were lucky to bring £30 million of assets with us, and now we are growing for the future," she told ETF Report UK. The firm was only launched in October last year and has already grown to around £51 million.
Mike Deverell's firm adds to the relatively small number of independent financial advisers that not only advises on clients' assets but invests those assets into in-house multi-asset portfolios. After receiving its discretionary permissions in 2008 and learning its lessons from the financial crash of 2008, Deverell's firm realised that "joined-up thinking" was key to the company's success.
Focusing mostly on tax and pensions, the firm does not just use ETFs. In fact, it also uses actively managed mutual funds and passive index trackers, depending on the client's needs.
"Our philosophy on active and passive is we don't really mind; it's whichever fund fits the job," he said.
Deverell also swims against the tide by using passive funds for emerging markets—usually considered inefficient, where active managers can shine—but the adviser said he could not find evidence of consistent active outperformance. He moves away from so-called star active managers and takes time and effort to understand the team's approach, how they select stocks and whether they have a good track record.
ETFs have recently come in handy to trade volatility—buying in and selling out to gain profit when the VIX index spikes. Although he has traded successfully in the short term, he would not generally encourage investors to try this at home.
Equilibrium has also been traditionally fee-based, years before the RDR, and charges an annual fee of 1.5% for portfolios below £1 million, and 1% above that level. There are no hidden charges at Equilibrium—that number includes transaction charges, tax and financial planning and investment management.
When it comes to explaining process and fund selection to clients, Deverell doesn't shy away from the basics. One of his recent projects has been to ensure clients fully understand how the FTSE 100 index works—for example, the fact that it is concentrated in energy stocks.
"It's always important to understand how an index is composed," he said.
Kristopher Heck's background was the perfect base to build ETF-focused portfolios. He started as a strategist at BlackRock's ETF arm in 2000, and was previously an ETF analyst at Thompson Financial, where he worked out how clients could minimise capital gains and understood the products. The CIO spent a decade at iShares, before founding Tanager Wealth in 2012 to cater to fellow U.S. expats and taxpayers.
Of his experience, which spans almost two decades, he says: "I have seen the best and worst practices in the financial advisory space, from both the US and the UK. I have had the privilege of being able to learn through lots of other people's mistakes, and hopefully avoid them at Tanager."
Heck recognises the importance of holistic financial planning, and not pushing overly technical or complex language onto clients. Ultimately, he understands that his clients want to feel like they are in a "safe pair of hands."
His time in the industry has also seen the ETF market grow at a phenomenal pace in Europe, from around 20 funds to over 2,000, and the uptake they have had amongst retail investors and his peers. He is a fan of their low-cost, efficient nature, their transparency and their liquidity as well as the fact he can specifically target a certain market exposure for his clients.
One lamentation, however, is the short track records with smart beta ETFs and the lack of software for his peers to conduct analysis on alternatively weighted funds, whether they be growth or value or low volatility. Heck also has called for more innovation in the fixed income and commodity space, and was glad to see the launch of the SPDR Convertible Bond UCITS ETF this year.
"I think ETFs will continue to grow within the financial advisory space, and I think the future is very bright for them,&q uot; he told ETF Report UK.
It seems that 2008—the year of the credit crunch—was a common year for planners to move to passive funds and ETFs, as they are transparent and low-cost vehicles. It was certainly a turning point for James King, partner and head of the private client department at Price Bailey. He started using ETFs in 2008 "to enable us to access investments markets around the world at a good price."
"We buy all our ETFs via our platform Praemium; it works pretty well, and we have been doing so since 2009," King added.
Price Bailey has partly gathered a healthy amount of assets under management through its own in-house and risk-rated model portfolios, which use a combination of ETFs, index funds and active funds.
King was keen to emphasise that the firm's investment philosophy is very much driven by asset allocation, as that is the major driver of returns, and is key when it comes to each client's needs.
"We choose funds—ETFs and active funds—based on cost and access to the areas we want to fit with our asset allocation criteria," he said.
The funds are picked by an investment research committee and are 'fairly simple' for clients to understand, like the FTSE 100.
"We explain that they are rules-based and that due to the construction and discipline of the index, the fund costs are far cheaper than for active managers," he said.
This decision has been part of why Price Bailey has not opted for arguably more complex strategies like commodities.
"We used commodities for a while but we never really got the results we wanted, particularly where we were using a broad basket of commodities including oil," he said. "Just because the spot price goes up doesn't mean the ETF does!"
As for the future, King envisages steady growth, looking after high net worth clients. His firm saw 8% growth last year alone.
When it comes to innovation in the European ETF industry, King called for the use of less jargon and complication.
"The people that speak on the subject sometimes make things more complicated than it needs to be," he said.
Equity ETFs tracking the FTSE 100 or the S&P 500 tend to be the mainstay among passive fund users. But Andrew Merricks, head of investments at Skerritts Wealth Management, has moved away from plain old vanilla.
His firm creates passive-only, discretionary portfolios for certain clients, and is not afraid to target specific exposures. This includes European banks, an Amundi S&P Global Luxury ETF and a db X-trackers private equity ETF. Spanish banks are the one place where Merricks has not found the right ETF.
"Before, people used investment trusts. And now there are so many more ETFs, there is usually something that caters to what we're looking for," he said.
Similarly, the firm has held on to a db X-trackers health care equities ETF for around four years, proving that sector ETFs are not always short term, tactical plays.
"We hold them as long as the idea is justifiable," he said. "Yes, it is quite a rare approach [to buy and hold these funds] but that's why we like to do it. We don't put our portfolios together by accident; we look for the 'best of.' That's where having access to ETF providers is so helpful. It's about having as many tools in the box as possible."
The funds are reviewed quarterly, but Merricks said the team can move at any time.
"We invested in China A-shares through ETF Securities, and we didn't wait until the end of the quarter before moving when those markets started kicking off," he added.
But are there now too many products?
"Product choice has to be a good thing," said Merricks. "There are far too many basic trackers—that's down to the providers if they want to offer them, and down to investors if they want to use them."
Merricks concluded that it's important not to just use ETFs in the 'bog standard way.' Going short and leveraged, he says, can be useful, and he has recently invested in a short emerging market equity fund.
"We couldn't find anything like that on the active side. You might get absolute returns and long/short strategies, but it's what the active manager wants to provide you, rather than what we want to provide our clients," he said.
Piercefield Oliver was formed in April 2014, after the merger of two businesses. It has a heavy focus on holistic financial planning, and differs from many in this list as it does not pick investments, but outsources to management firms.
Founding partner Louise Oliver, alongside partner Stephen Willis, says they add value to clients through focusing on their lifelong objectives, their fears and ambitions and work with them throughout big changes like divorce and inheritance, leaving the picking of ETFs and active funds to Seven Investment Management (7IM).
"It can be a very long process, gathering client information, seeing whether we are a good fit and can we work together as a team, finding out about their family," she said. "We do a family tree and we assess their bucket list: What do they want to achieve and what's stopping them from doing it?"
The firm assesses the information at least once a year with the client.
"Most clients are happy for a steady carry-on with 5-6% returns per year. They want to know how that will impact their lives. Of the time we spend with them in review, it will be 80% planning and 20% investment," said Oliver.
The next step is risk profiling, provided by FinaMetrica, to match the client with a model portfolio. After looking at tax wrappers like ISAs and unit trusts, it is only then that Oliver gets to the investment solution. She uses 7IM's platform for clients of up to £1 million, and the provider's discretionary service for portfolios of a higher worth. Piercefield Oliver charges a tapered fee of 1% ad valorem for portfolios up to £1 million and 0.5% thereafter.
"We see ourselves as the gatekeepers for the investment solutions. We don't hang our hat on actives or passives; we blend the two," said Oliver.
Oliver in particular noted 7IM's so-called smart passive approach, which does not track an index by market capitalisation but might equally weight securities instead.
"Smart passives are evident across all of our portfolios, which reduces overall risk," she said. "We say to clients: 'Remember the crash not so long ago; if you had had a market cap-weighted tracker it would have been concentrated in financials.'"
All too often, financial advisers presume a passive fund does not require the same level of analysis as an active fund, as there is not a fund manager 'face' to grill at a meeting. But the reverse is true. ETFs are transparent and therefore, arguably, easier to unpick. Andrew Pereira, managing director at Quadrant Group, is a clear winner for his level of detail when it comes to due diligence and fund selection.
In fact, Pereira and his team stop at nothing to get their questions answered. They'll look at a long list of factors, spread across a 12 page questionnaire that is sent to fund managers, including: firm background, reputation, financial stability, potential conflicts of interest, employee policy, board of directors, depositary, auditor custodian reputation, as well as registrar and administrator's reputation.
The analysis continues at product level: structure risks, size, when it was created, liquidity risks, where it is listed, historic bid/offer spreads, market makers, investor concentration, largest holdings, currency risk, securities lending and index replication.
"Our client security always comes first," said Pereira.
Set up in 1994, the firm has since grown to around 150 clients, and has seen various stages of change in terms of how their service is delivered, which has involved building a central investment proposition around holistic advice and in-house model portfolios of passive funds.
"ETFs can be the ideal animal," he told ETF Report UK, in terms of their tax efficiency and security.
One concern that represents that of many of his peers is the question of maintaining independence in the face of a staunch conviction in the benefit of passive funds.
"We are independent and want to remain so, as we believe it adds value for our clients and partners," he said.
As for the future, Quadrant has a five-year business plan to grow the firm and its number of clients, but plans to do this in a structured and measured way, so that its quality of work behind the scenes is not compromised.
To say Keith Robertson's approach is 'risk averse' could be seen as an understatement. The chartered financial planner has not invested in equities via exchange traded funds since the first quarter of 2009—the last time, he says, the market was at or below fair value. And the entry point, says Robertson, is the only factor that will determine whether you end up with real, long term returns.
But Robertson's approach also shows a strong conviction and investment philosophy, and something that is often lacking amongst his peers—patience.
"If the overall strategy is based on always trying to buy assets at or below long term fair value, life becomes simpler and safer," he said. "There is no need to sell, except if either the client needs liquidity or, crucially, another asset class becomes available below fair value."
Robertson veers away from so-called voodoo magic, which involves taking a view on markets and coming up with an asset allocation that should fit the client's risk profile.
Robertson's preferred valuation metric is Tobin's q, which is the ratio between a physical asset's market value and its replacement value, first brought about in 1968.
"Equities now look to be well above fair value and are therefore much riskier," he said. "I can't guess tops and bottoms, because markets never fail to surprise. One can only try to judge whether it is rational to buy at any particular moment."
Without equities to make up a return, the adviser looks for alternative assets, like index-linked gilts and ground rents funds, which can deliver an "astonishingly stable" return of around 5%.
However, although Robertson firmly believes the equity premium has not been enough to justify further delving into risk-on assets right now, he always gives his clients the choice as to what to do with their capital.
"It's their money and they want to sleep at night," he said. "I will always phone them to say when equities, or any other asset class, look to be below fair value and worth buying."
Robertson says the minimum client account size does not matter to him, as the last few clients he has taken on have more been about building a relationship than portfolio size.
Stephen Walters, founder of advisory firm Dexterity, has been a loyal fan of ETFs for years. Not only does he recommend them, but he set about to study all the ETFs on the London Stock Exchange and whittle them down to around 500 suitable instruments for his typical client: a retail investor who is starting to manage their own money, with an appetite for data, education and guidance.
This vision of the future brought about WhichETF.co.uk, a website providing these tools for clients to pick their own funds and run their own money for a monthly fee. Walters plots three dozen indices daily; and against them he charts the 50 day and the 200 day moving averages, which allows investors to focus on smoothed out performance rather than day to day price fluctuations. Whenever any index slips to the 50-day MA or to the 200-day MA, the independent adviser notifies his clients. Every weekend, he also sends subscribers an email with general useful data and articles.
In his own words, Walters said: "Among many motives for the trend are lower cost, distrust of financial experts, the pleasure of autonomy, a sense of creativity, privacy, pride in relating responsibly to money."
Walters is not at risk of being blind-sided by providers; he does his own research. This means he has an open mind when it comes to synthetically replicated ETFs, and does not instantly swear off a fund that veers away from the market cap index.
The ETF focus came about in the spring of 2009, when Walters realised the industry was on the brink of big changes and he needed a 'survival plan.'
But Walters is the first to tell his peers that the road has not been easy. Speaking at our annual Inside ETFs Europe conference in June, he told the audience that this business model of advocating for ETFs has been like 'pushing water uphill,' and has taken more years to develop than he anticipated as most clients would still be comfortable and familiar with traditional active funds.
He said: "[…] my sense of timing was premature. So if you're now considering an ETF service in your own practice, you may feel relieved to arrive in the wings with a little time still to prepare."
Some advisers were earlier entrants into the passive funds world than others. Andrew Whiteley, director at Provisio Wealth Management, was one of them. Whiteley started using commission free and low cost solutions well ahead of his peers and the implementation of RDR. The IFA of 27 years had had enough of active management and outsourcing in 2008, and decided to embrace his 'cynical side' and switch to passive funds.
He told ETF Report UK: "[…] when it came to selecting the funds to populate the portfolios, it just made a lot of sense for us to buy the asset classes we wanted rather than to shoehorn in a fund manager."
But he's not all about ETFs and will use the odd active fund if he views it as a sensible choice, like in fixed income, where he tends to invest in the Kames High Yield Bond fund.
Whiteley's firm has a 1% upfront charge plus an ongoing annual charge of 1%, saving around 75 basis points on portfolio management costs compared to his active fund days, despite having increased his charge to clients. He also creates his own bands of risk in which he monitors his model portfolios, instead of outsourcing this task to another firm.
Not only does he run an advisory service, he also runs Assetfirst, a discretionary wealth manager service for other IFAs, which saw 25% asset growth last year to £320 million. The platform friendly portfolios and asset allocation are similar to Provisio, and enable a wider span of his peers to engage with a low cost and efficient way to manage their clients' capital for a minimum amount of £50,000. He charges a monthly fee for Assetfirst, based on the number of registered individuals at the firm.
Whiteley praises the choice of ETFs on offer, and says he would like to see more smart beta strategies in the fixed income sector—the only asset class where he still uses an active manager. The adviser recently introduced First Trust's AlphaDex ETFs into his portfolios and has been pleased with their reduced volatility and improved performance.