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How your peers invest clients’ money: Finesco Financial Services Ltd - Published in Professional Advisor 25th March 2015

Published in Professional Adviser on 25 Mar 2015

To read the Article Published in Professional Adviser Online please click here

In the first of a new series exploring firms’ investment processes, Brendan Llewellyn uncovers Glasgow-based IFA Finesco Financial Services’ approach…

A quick bit about Finesco

Established in 1984, Finesco has a team of six advisers with paraplanner support and a long-standing relationship with a firm of tax consultants in the Algarve – euroFINESCO s.a. – which advises on taxation and fiscal residence. This profile is based on an interview with managing director Jim Dowds.

What is Finesco’s general investment approach?

Creating and managing investment portfolios is an essential part of the Finesco client service, founded on a rigorous client approach designed to establish the best possible understanding of their terms of reference and attitudes to risk and capital loss.

Essentially, Finesco operates an in-house approach where the solution may either be based on model portfolios or fully bespoke, depending on client needs. Reflecting the belief that an advisory practice must add value to its client’s financial well-being, there is a leaning towards active funds in portfolio construction.

Is there a single approach or does it vary depending on client needs?

The basic approach is common to all clients. But in some cases the clients are younger (perhaps children or even grandchildren of original clients, so in those cases the objective may be to help build capital resources).

The actual investment solution will involve model portfolios or, for clients with more complex requirements or a deeper investment history with existing investments or property to take account of, the portfolio is more likely to be fully bespoke.

What variation, if any, is there between different advisers in the practice?

All advisers follow a defined process. Advisers have at least ten years’ experience, and most have much more, so they are fully able to interpret client requirements and ensure that the investment solutions map accurately to the client’s needs and attitudes.

How did the proposition develop?

The practice has been running since 1984 and the approach to investments has evolved over time. Thirty years ago, a much simpler approach involving a very small number of funds would be used for most clients.

The availability of better technology has allowed easier access to a much broader investment universe along with more sophisticated fund comparison.

What approach is taken to risk assessment?

There is a three-part approach to the client planning process.

First, the adviser holds an open discussion with the client, where broad goals are covered – including needs for capital growth or income flows. The conversation allows the experienced adviser to take a view on the client’s attitude to risk and capacity for loss, with the latter given more emphasis for most. From this, the client’s terms of reference are drawn up and the initial relationship is established.

Step two: the client is asked to characterise their views on risk from a prepared list of options.

The third step is a risk questionnaire, and Finesco uses the eValue version. The adviser then assesses all three steps, looks for inconsistencies requiring attention and ensures that the client’s time scales both for capital overall and for individual elements (retirement, for example) and ensures that this is reflected in the plan.

The final ‘score’ is then mapped to an appropriate asset allocation. For clients with simpler requirements, a set of pre-populated model portfolios are used, as provided by FE.

Where the client has wider pre-existing investments, which may include property, business assets, etc. Then a portfolio would be built, selected from a universe pre-screened by FE (about 120) are screened, though Finesco may draw from wider sources to supplement a portfolio.

Who manages the proposition?

The management team, including an in-house fund manager, advisers, and paraplanners within Finesco, meet regularly to review various key performance indicators and share experience with fund houses, managers and external sources, including FE.

How is success measured and benchmarked?

Ultimately, success is related back to the clients’ objectives. In addition, all portfolios are run with defined benchmarks, which are a combination of asset class and fund universe measures.

How often is the proposition reviewed, and what do these reviews consist of?

Finesco uses and reacts to the FE critical alert service, flagging up performance, style changes or manager movements. They also use their own research capability and direct information either to adjust client exposures or to engage with FE. Future changes to the proposition are more likely to be at the level of details, covering which sources are used for which aspect of the proposition build and delivery.

What advantages to clients and the business arise from Finesco’s choice of investment proposition?

Clients benefit from close personal professional attention and are confident that the plans they have in place via Finesco are created with only their needs in mind. At the same time, the business benefits because relatively few other sources of this type of service are available to clients of the practice.

What are the main challenges in operating the proposition?

This is a mature advisory practice with a stable team of advisers and an excellent record in client retention. It has strong professional connections and, while recruitment of new advisers is always a challenge, the main day-to-day challenge is in ensuring that client portfolios continue to reflect their requirements and that changes in the economy and investment markets are suitably reflected in the portfolios.

The requirement, as Dowds said, is “to ensure solutions are not just compliance-correct, but client-correct”. Essentially, this is an in-sourced investment proposition, where the practice feels fully accountable for the client outcomes. Inevitably this means that the business resources must be continuously focussed on the matter of client investments.