Adviser Profile: Mark Dean Wealth Management

The UK general election last month had the country guessing as to who would seize power – with most of the polls getting it wrong. However, the result meant immense relief for independent financial adviser Dean Mullaly of Mark Dean Wealth Management (MDWM), who specialises in services for non-domiciles (non-doms) and UK domiciliaries.

Managing director Mullaly co-founded the practice in 2010 in London, and the firm has grown to £36.5 million across 36 clients.

Non-dom Brigade

Traditionally, non-doms have been given a free pass from the Tories, but Labour wants to abolish non-dom rules that allow wealthy foreigners to evade paying tax on overseas income. UK-domiciled citizens are required to pay UK tax on all their worldwide income. Wealthy non-doms are the bread and butter of Mullaly's business: "A Labour win would have meant disaster," he said.

Mullaly co-founded the firm shortly after leaving HSBC International in Canary Wharf where he had been a senior adviser to ultra high net worth (UHNW) clients. He had a “light bulb moment” after attending a finance conference, where one of the speakers said advisers need to specialise to stand out from the crowd.

"This had an effect on me. At HSBC I dealt with clients that had Jersey or Isle of Man accounts, and was also financial adviser to the board of directors at HSBC.

“I learnt a lot more international stuff, [I was] always focused on non-doms, dealing with offshore accounts for UHNW clients,” he said.

Prior to HSBC, Mullaly worked at Citibank where he helped establish an international offering for its CitiGold business, which caters to wealthy, upper-class investors. Fast forward to 2010 - he co-founded MDWM with Mark Davies, a non-dom tax adviser whose work is published in Tolley's Tax Guide, after a chance meeting at a tax conference, and bought him out in November 2011.

MDWM advises on a range of investments from offshore bonds to mutual funds and exchange-traded funds (ETFs). Approximately 20 percent of his clients are British while the rest come from as far afield as Iraq, India, Russia and Pakistan - but virtually all are UK residents.

A typical client for Mullaly might be an Indian national who comes to the UK just a few times a year and wants to run through their investments, or a German citizen who has lived in the UK for decades but still has property and investments in the country where they were born.

RDR Universe

Mullaly pays £199.99 a month to use Financial Express Analytics (FE Analytics), an online financial planning tool for advisory firms, wealth managers and investment professionals, to create an "RDR (Retail Distribution Review) Universe".

"Since RDR we have to consider all different types of vehicles under the banner of investment products - like ETFs, investment trusts, OEICs (open-ended investment companies).

"When looking for funds, FE Analytics searches all those areas, comparing one against the other. We can only compare on past performance [and analytics]. None of us have that amazing crystal ball," he said.

"Essentially I don't have a centralized investment policy, we are completely individual; every client has an individual portfolio,” he added.

MDWM's clients need advice on how to invest in products like ETFs or offshore bonds, while ensuring they do not break any non-dom rules.

How MDWM Uses ETFs

Two ETFs his clients are invested in are the iShares Global Water UCITS ETF (ticker IH20), which offers exposure to the 50 largest companies globally that are involved in the water business; and the iShares UK Property UCITS ETF (ticker IUKP), which provides exposure to real estate investment trusts and listed real estate companies in the UK. Mullaly finds that ETFs in property and commodities beat fund managers over the long term.

"[There are] times where ETFs are better; in a rising market you want to be in ETFs. It's cheaper – an active manager is unlikely to get all the calls right to outperform that market. But if the market falls, ETFs fall," says Mullaly.

There is no initial charge for clients investing in ETFs, although MDWM charges a flat 0.5 percent management fee on all monies invested. Physically replicated ETFs are easier for Mullaly to explain to his clients than their synthetic counterparts. Some cautious Eastern clients shun ETFs altogether, preferring traditional investments like property.

"If something does blow up, where's your security [with synthetic ETFs]? You don't own stocks, only the derivative in that stock.

Mixing Active And Passive

He favours a blended approach to active and passive management, arguing that 100 percent actively managed portfolios are "missing a trick" on potential savings costs and even outperformance, but that ETFs can miss out on some upside performance associated with active management.

"I think as advisers learn more about them [ETFs] and become more familiar, [their usage] will increase as well,” he said.

His biggest pet peeve with ETFs is quite simple – they often have incomprehensible names, peppered with numbers and abbreviations.

"ETFs should be much clearer. Popular ETFs – you can see exactly what they are straight away. It's that simple for me, I'm short on time," he said.

The Future Of Non-Doms

"People I speak to since the election have said "your business must be dead now with the attack on non-doms", but it's the complete opposite,” said Mullaly. “There is so much concern about them, it has raised their profile. I don't think there are many [IFAs] in the UK like me."

Mullaly's clients are keenly aware of the pressure the UK government is under to clamp down on non-dom rules, and are pondering what new restrictions will look like.

"Some referrals are coming to me asking similar questions; I do think we will see certain curbs from government,” he said.

Currently, even a British citizen born and bred in the UK is eligible to be a non-dom if their father was born overseas, thus avoiding paying tax on their offshore investments. Mullaly anticipates this rule will be eventually scrapped. Nevertheless, the wealthy elite will still need advice.

"We always target for about another £5 million [AUM] each year, last year was £7.5 million. We will probably be up another £25-30 million [in five years' time]."