The Big Interview: How 7IM’s boss ‘lucked out’ on his path to industry leader

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Seven Investment Management chief executive Tom Sheridan explains why seven seasoned industry executives quit their plush posts at previous employers to establish the firm back in 2001. “We gave our lords and masters our ideas on how to run the business and they said ‘no’.”

Over sumptuous fish at Bread Street Kitchen near St. Paul’s, we talk about his experiences and industry trends. Sheridan joined the financial services industry straight out of university in 1975 with Prudential Bache, then one of America’s largest stockbroking firms. In the bearish 1980s he was sent to Australia to help the firm through a rough patch.

He turned the business around but it came at a price: having to cut 200 jobs. “I often tell people it is something someone running a business should do once in their life to make sure you don’t ever have to do it again.”

At the start of the 1990s he was parachuted to London to run the international division and was soon tapped to lead Barclays Stockbrokers. The firm had a roughly 20 per cent market share of stock brokerage and, in 1997, Sheridan recognised the opportunity in demutualisation. “We saw that the number of shareholders would double in nine months,” he says. All but Halifax used Barclays as their stockbroker.

In 2001, the idea behind 7IM took hold, beginning with asset management. Sheridan says: “At launch we had our own software developer. We decided we needed to marry investment management to technology. Back then, if you wanted a discretionary portfolio, you got a few funds, gilts and stocks, and the broker was paid a commission.”

But it is not just technology that distinguishes 7IM; it is ethics and culture. From the start, the business has worked with advisers, not product sellers. “We have always worked with IFAs who wrote plans. We want to provide something useful,” he says.

The proposition adapted so that both client and adviser could see the account holdings. It also added non-7IM products following adviser feedback. Some like the functionality and want to use the platform without 7IM as the asset manager. “We selectively say ‘yes’ to that question,” Sheridan says.

On the criteria used to asses whether 7IM will work with a firm, he points out the fact it is not trying to be a mass-market platform. Three criteria are used: the firms need to be planners, they need to deal with larger-than-average account sizes, and the two businesses need to like each other. The conversation shifts to model portfolios. 7IM has invested heavily in its capabilities here. “Scalability of the platform in the model portfolio world is quite important,” Sheridan says. On average, a customer is invested in 2.5 tax wrappers, with one model
portfolio per tax wrapper. “Quite quickly, you get up to over 100 trades per year.”

We have always worked with IFAs who wrote plans. We want to provide something useful

So, why model portfolios and not multi-asset funds? Sheridan’s conclusions are similar to what we hear from advisers: “It’s a style preference. Advisers want to show things happening in the account, and in a multi-asset fund the changes aren’t visible.”

When I press him on whether multi-asset funds can be more tax-efficient and cost-effective for clients, he acknowledges that trading costs can be a concern on some platforms. But 7IM does not charge for trades, so this is a non-issue for the firm.

It has made a big play to digitalise engagement. “Most clients on platform are baby boomers and half are retired. If you follow the logic…” I finish his sentence: “You’ll run out of customers.” He nods. I have scored a point, of sorts. It wants to appeal to the people who will inherit the money –  and the next generation will access information and transact in different ways.

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Meanwhile, Sheridan points out many IFAs have a segment of their book that they do not know what to do with. With this in mind, 7IM is building a direct-to-consumer proposition for the B2B2C market. It inherited a lot of orphans and had to issue different terms of business. “So we are already direct-to-consumer whether we like it or not. We have half a billion direct without any marketing,” he says.

Last year, Caledonia bought a majority stake in 7IM. It is investing heavily in the business’s technology, with an additional £2.5m per year to integrate the functionality to suit clients that are advised, direct or both.

“The consolidators have come full circle,” says Sheridan. Many of the life company-owned platforms used to have tied sales- forces, then got rid of them and are now are swallowing up independent firms. “This will change the nature of the market,” he says.

And what about vertically integrated advisory businesses? He says: “We do business with a few of them. We get access to a larger set of clients but at lower margins.”

I ask Sheridan what he would do if he were entering the industry today. Would he set out on a similar path? “I lucked out. I do something that I like. There are ideas we’ve not yet been able to deliver but now we are in a position where we can influence what happens.”

Heather Hopkins is head of Platforum. Se can be reached at heather@platforum.co.uk