Russell Cooper, managing director of iimia Wealth Management, answers questions from Simon Hildrey.
Q: How was iimia established and how has it developed? A:
A:iimia was established as a private client investment manager. It was created from the merger of the investment management arms of the law firms Michelmores and Foot Anstey as they were looking to grow their investment operations. At the same time, Mike Phillips and Duncan Abbott had left Christows after the acquisition by Evolution and were looking to set up an investment manager, so they took on the management of iimia. iimia recruited Nick Greenwood to manage an investment trust, and later on the Accelerated fund was launched.
In 2003, iimia acquired the IFA firm Eveleigh and Huckle. This was followed in 2004 by the purchase of Compton House from Shoosmiths in Northampton. In the same year, iimia bought Solace Associates from Tollers Solicitors. iimia spent 2005 integrating these private client investment managers and IFAs as well as a financial planning business in Exeter. In August we announced the acquisition of the south-west IFA firm John K Miln and Company. We want to make further acquisitions and are still looking at IFA firms.
Q: What services do you offer? A:
A:We offer discretionary and advisory management services and financial planning. Most of our clients use us for discretionary management rather than advisory services. We also have a corporate services division that provides employee benefits services. This is a growth area and includes group pension schemes. There is, of course, the fund management team as well.
Q: Are acquisitions the best way to expand an intermediary firm? A:
A:We have a strategy of expanding iimia through both acquisitions and organic growth, and they are equally important. The advantage of acquisitions is that they help us to get to where we want to be more quickly than through organic growth. But once we have acquired a business, we seek to grow it organically. Acquisitions do provide an IFA with the benefits of economies of scale but there are potentially greater risks involved.
We have had one bad experience with an acquisition. This taught us to be even more selective when buying a company and not to compromise on our values. When we target a company we find out if they are interested in a merger and whether there are mutual interests. It is not a question of trying to buy a business in a certain location but finding the right company to buy.
Q: Will there be further consolidation in the IFA industry? A:
A:I am not sure there needs to be consolidation in the IFA market but I think it probably will happen. Some senior managers and owners of IFA firms are probably looking to sell their businesses to provide an exit from the industry. We have had approaches from IFA firms seeking to be taken over.
Scale and resources are important for IFA firms but some one and two-man bands are successful businesses and will continue to be successful.
Q: How do you select funds for clients’ portfolios? A:
A:In managing portfolios for private clients we use iimia’s multi-manager funds as the core holdings. The rest of the portfolios comprise specialist funds.
We believe multi-manager funds can meet the objectives of most clients without using bespoke portfolios. iimia’s funds of funds provide diversification cost efficiently. We benefit from the fact that Nick Greenwood, Richard Scott and Daniel Lockyer and the rest of the fund management team see more than 250 fund managers a year. Their research flows into our discretionary management team.
Through Nick and the rest of the team, we get access to information that other IFAs would love to have. Therefore we are comfortable holding our own funds in client portfolios. The funds of funds and multi-asset class funds will be strengthened through the proposed acquisition of MitonOptimal. Portfolios include hedge funds, commodities and exchange traded funds as well as equities and bonds.
Q: What about the high charges on multi-manager funds? A:
A:There has been criticism of fund of funds charges but we have minimised costs by using a mix of investment trusts and open-ended funds. We buy institutional share classes where we can, which reduces charges further. We also have a low base annual management charge with an additional fee if we outperform a cash-based benchmark.
Q: Have clients been trying to change their portfolios during the recent market volatility? A:
A:Generally, clients have not reacted to the volatility. We talk to clients about the importance of long-term investing and diversification in their portfolios. We send clients a quarterly investment review but we also issued a review in August that included our views on what was happening in the markets.
Q: How do you attract clients? A:
A:We do some external marketing. A key way in which we build our client base is referrals from law and accountancy firms. Gaining clients from professional firms is a natural process for us, given that iimia grew out of two law firms. We offer some tax planning but we refer clients to lawyers and accountants when they need to draft a will and for more complex tax advice.
We are helped in this process by the fact that we charge clients fees for our advice. Professional firms would feel less comfortable in recommending us if we relied on product commissions.
Q: Do clients ever say they do not want to pay fees? A:
A:We do not meet opposition from clients when we say we charge fees. We explain the fees at an early stage. It is important that clients understand the benefits they receive from advice so they are happy to pay fees. We offset commission against the fee. Clients are used to paying a fee because they have been referred by lawyers and accountants.
Q: Will the FSA’s Distribution Review have a big impact on the IFA industry? A:
A:Generally, we welcome the review, and it will make a significant difference. There is one proposal we potentially have an issue with. We have strong compliance, training and development and believe we have well-qualified advisers. But not all our advisers have chartered status. Therefore we may need to divide our business into professional financial planners and general financial advisers.
Q: Will the industry continue to shrink? A:
A:There has been a shrinking of the IFA market and there may be a further short-term reduction after the implementation of the Distribution Review. But there is also a flow of younger people and graduates into the industry. The IFA industry has become more professional, although there is still further to go. For example, there still appear to be IFAs who want to receive 7% commission for selling insurance bonds. To be professional, IFAs have to be able to demonstrate the value they can offer clients.
IIMIA WEALTH MANAGEMENT was established in 2001 and has offices in Exeter, Bournemouth, Northampton, Falmouth and Plymouth. It has 25 financial advisors and two discretionary managers. The iimia group has more than £850m under management and advice.