Boutique firms flourish despite slump

More clients of private banks such as Coutts and Credit Suisse are defecting to smaller firms, advisers report, citing frustrations with the performance of their investment portfolios.

So, as equity markets slump further, boutique firms are experiencing a surge in new business – with clients moving assets in the hope they will see some improvement in returns.

“We have certainly seen an inflow in new business this year,” claims David Rosier, chairman of the boutique firm Thurleigh Investment Managers.

Rosier reports that the firm’s managed assets have jumped from £140m at the close of last year to £165m in spite of the market
downturn.

The drawback of using smaller firms is that they tend to have less expertise in tax planning and do not usually offer more esoteric investments such as hedge funds and structured
products.

The draw, however, is the relationship: managers dedicate more time to catering for investors and are less likely to cross-sell “in-house” products that might be unsuitable.

“A lot of the larger private banks look for scale,” says Mick Gilligan, head of research at the smaller advisory firm Killick & Co. “They offer a lot of structured products and what they call ‘solutions’ for clients. They try to put clients in a certain box, so investors can end up with similar portfolios.”

At Rowan, a small firm based in Bath, advisers are assigned to manage the portfolios of fewer than 100
clients each. Cerno Capital, a new London-based advisory firm, has just 40 clients.

Thurleigh Investment Managers, the boutique firm set up five years ago by ex-private bankers from Goldman Sachs and Merrill Lynch Investment Management, conducts business with just under 60 families.

At bigger firms, the number of clients per adviser usually ranges from 150 to 250, according to analysts.

“Finances are very personal and people want to know their adviser has their best interests at heart. Within a large organisation, this is difficult and you can often just be a ‘number’ unless you happen to be wealthy enough to merit individual attention,” points out Tim Cockerill, an adviser with Rowan.

There is not much difference in pricing, however. Private banks tend to earn revenues from management fees, stockbroking fees of £25 to £50 per transaction and commissions earned for selling select products. While the way charges are assessed differ, smaller firms still aim to earn similar revenues.

Thurleigh Investment Managers charges a yearly fee of 1.25 per cent for less than £10m in assets and sets a minimum fee of £25,000. This means an investment of at least £2m is required. On average, fees charged by the firm Cerno are also 1.25 per cent.

Another advantage is that boutique firm managers can have more experience, according to James Spence, managing partner at Cerno Capital.

“Sometimes, your relationship manager at a large investment bank has been in the army or in private banking all of his life – he’s not necessarily an investment professional,” he says.

Smaller firms also offer a wider selection of funds from a range of investment houses which differ from the “mechanistic” product line-up in place at some larger banks. Cerno’s Spence says the firm offers no structured products to clients, citing their poor reputation in the wake of the collapse of Lehman Brothers, the US investment bank.

Cerno’s approach is to first attempt to understand clients’ fiscal and tax positions and later tailor a portfolio of 15 to 20 funds to suit their long-term requirements. Turnover is discouraged.

The OEI MAC fund – which is invested in hedge fund guru Crispin Odey’s master fund called Odey European and also trades currencies – and the Winton Futures Fund are two popular choices that have returned more than 15 per cent from the year’s start until the close of November.