Commercial focus helps build private client base

Charles Bailey, managing director of Jelf Private Clients, answers questions from Simon Hildrey.

Q: What is the structure of the Jelf Group?

A: There are four arms. There is a general insurance arm that has moved into the top 10 in the UK since the acquisition of the Goss Group at the end of March. The private medical insurance group is in the top four in the UK and we have the relatively new commercial lending business.

We also have the financial services arm, which is split into two. On one side is the section dealing with companies through the employee benefits team, on the other is a private client arm providing advice on investment management, tax planning and wealth management. There are 18 advisers in the private client team but the acquisition of the Goss Group has taken this to more than 30.

Q: What type of clients do you have?

A: The focus is on commercial clients. They range from self-employed individuals to those providing healthcare for FTSE 100 companies. Clients are referred to the private client team from the commercial departments.

Therefore, many of the clients we have are directors of small and medium-sized companies. They may want to preserve their wealth in case something happens to their business. Many want to extract money from their businesses in a tax-efficient manner.

On the investment management side, a lot of work is carried out in drawing up asset allocation and constructing portfolios for pensions for high net worth individuals. Many clients come to us with six or seven pension providers with managed funds that have not performed as they had hoped. We may move them into Sipps [self-invested personal pensions] or Ssass [small self-administered schemes].

We are stepping up the marketing of the investment management services that we provide to private clients. As part of a commercial firm, we maybe feel we need to raise the profile of investment. We offer clients a choice of fees or commissions.

Q: What is your approach to investment management?

A: Investment management is conducted as part of the financial planning for clients. We are not discretionary managers and all the portfolios are run on an advisory basis.

The first step we take is to do a risk assessment of the client. Our clients answer a risk questionnaire and from this we draw up the asset allocation. This is based on the clients’ objectives and risk profile.

The next step is to select the funds for the portfolio. We have outsourced fund selection to Ireland-based Independent Research Consultancy for the past three years. It meets fund managers, writes reports on them and then sends us a list of their preferred funds.

We prefer advisers to focus on client management rather than tracking fund manager moves. We use the list constructed by Independent Research Consultancy to put together portfolios for private clients based on asset allocation and their investment objective.

The asset allocation is done more on a strategic basis than tactical views on which markets represent short-term value. We see working with Independent Research Consultancy as a major advantage for the Jelf Group.

The fourth stage is to choose the most appropriate wrapper for the client. This may be a Pep, Isa, pension, unit trust, investment trust or investment bond. The tax implications of investment decisions form an important part of the overall financial planning for the client.

This involves capital gains tax, but for older clients, for example, it also looks at the effect of increased income on their age allowance entitlement. We feel we have the technical expertise on the tax side. Our business development director, Brian Lawless, was formerly managing director of Sun Life Technical Services, for example.

Q: How important is the asset allocation to investment returns?

A: It is often said that asset allocation contributes more than 90% of the variation in portfolio returns. We believe, however, that fund selection is becoming more important because of the low interest rate, inflation and return environment that we are in.

I would say the contribution from asset allocation may fall from 90% to around 80%, with fund selection making up the rest. If you can expect average returns from funds of around 7% to 9% then we are looking to select funds at the top end of this scale or just above it.

Q: How often are funds changed in the portfolios?

A: We normally change funds within client portfolios at the annual review meeting. This is mainly because we like to make alterations after discussions with the clients so we ensure it meets their objectives and risk profile.

We also want to explain any recommendations we make. The exception to this is if Independent Research Consultancy has serious concerns about a fund and we can replace them in all of our clients’ portfolios.

Q: What asset classes do you include in portfolios?

A: We regard cash as a separate asset class outside portfolios. Many wealthy clients like a lot of cash. Within portfolios, we include equities, bonds and commercial property. We have not incorporated hedge funds.

Some clients want to hold direct stocks in portfolios. We outsource the management of direct equities to a stockbroker, or the client may manage some themselves.

Q: Are all clients put in bespoke portfolios?

A: All the high net worth clients are placed into bespoke portfolios that we construct with Independent Research Consultancy. For clients with less than 50,000 in assets, we are looking at using multimanager funds.

Q: You have made a number of acquisitions recently, including Goss Group and A Wills. What is the benefit of acquisitions?

A: It provides scale and greater resources, which is very important. We are growing the business both organically and through acquisitions.

An acquisition like A Wills, for example, which has a strong reputation in financial services, enables us to cross-sell from our other businesses. With the Goss Group, we can use best practices from both firms to improve the overall operation.

One of the biggest challenges that we face is recruiting good-quality advisers. Many advisers are settled at their existing firms and there are a limited number of good-quality people in the industry.

We are looking to establish a graduate training programme. This has the advantage of introducing graduates to the Jelf culture and having the right staff in place at the right time.

Jelf Group advises corporate and private clients. It has more than 24,000 corporate and individual clients and employs more than 380 staff in 15 offices. It is listed on the Alternative Investment Market and has made several acquisitions recently, including the Goss Group and A Wills.