Independence is key to long-term relationships

Patrick Connolly, John Scott & Partners research and investment manager, is questioned by Helen Burnett.

John Scott & Partners is a national firm of independent financial planners, investment managers and employee benefits consultants. The firm, established in 1964, offers a tailored service to high net worth individuals and corporate clients.

Patrick Connolly is research and investment manager at the firm.

Q: How is John Scott & Partners structured?

A: The principal shareholder of John Scott & Partners is Palamon Capital Partners, which purchased the company in the summer of 2003. It bought it with a view to building up the premier IFA brand in the UK, and that is what we are aiming to achieve.

Q: How would you describe your investment management service?

A: Our investment management service is an add-on to our financial planning service. As part of that we offer a discretionary management service, run from our head office in Marlow. The investment approach we use is different from other companies, as ours is constructed to look at the correlation between different asset classes. Our approach is very much about managing risk rather than just looking at return. Our portfolios are more underweight in equities than other firms, and are also more heavily weighted towards Japan, the Far East and emerging markets because they are less correlated. We think that what we have is the best asset allocation model available. What we try to do is blend funds together in order to manage risk. Our clients are what we describe as high net worth clients, typically with a minimum investment of 100,000.

Q: You say that you have more of an underweight position in equities than some other firms. In which asset classes are you overweight compared with other groups?

A: We are overweight in fixed interest and commercial property. The reason is that other companies tend to be more bullish on equities and use models based on past performance when working with their asset allocation models. The models we use pay more attention to the correlation between different asset classes.

Q: How does your service differ for private and mass-market clients?

A: We do not have any mass-market clients. We are a fee-based organisation and look to build up a long-term relationship with our clients rather than sell them products and never be seen again.

Q: Do you consider yourselves to be whole-of-market?

A: Absolutely. We are entirely independent in every shape and form. We do not even have a commission bias dictating which products we can and cannot sell. We draw a distinction between financial planning and selling products. Being fee-based means we do not actually have to sell anything. A commission-based adviser earns a living if they sell products. For us, it makes no difference at all.

Q: What are the advantages of being whole-of-market following depolarisation?

A: For some companies there are advantages and for some there are not. Some companies are more suited to a multi-tie approach. We operate by providing a complete service to clients and we cannot do that without access to all the products and all the providers that are out there.

Q: How do you research investment opportunities for your clients?

A: We have an investment management team who see 300 investment managers a year, with four people in Marlow and two in Glasgow.

Q: Do you offer funds from any fund supermarket ranges?

A: We have our own wrap platform, which offers Peps, Isas, Sipps and offshore bonds. We have complete freedom regarding the funds we want to use, whether onshore or offshore. We are entirely in control of the service clients are to receive, which is very much a part of the business plan. We would rather be totally in control of our destiny than have to rely on other people for that.

Q: Do you favour an advisory or discretionary approach to portfolio management?

A: We offer an advisory approach to financial planning where discretionary planning is one approach we might look at. In terms of cost, it does generally end up cheaper in discretionary rather than advisory because we have 600m under management in discretionary and the charges can be lower. Discretionary management allows us to keep fully on top of what the clients are doing, and it is very cost-effective as well.

Q: Have you had to make any changes to the service you offer because of depolarisation?

A: Absolutely not, other than the fact that we have to issue our terms of business and the menu, which goes through our typical fee per hour charges. It gives us the opportunity to explain how we are different from other providers.

Q: Which types of products are your clients most interested in at the moment?

A: We are not product sellers, we are financial planners, so we do not get clients who are interested in any particular product.

Q: What has the acquisition of financial advisers Holden Meehan and Aitchison & Colegrave meant to the business?

A: John Scott & Partners has always had a good-quality company in place. The acquisition of Holden Meehan and Aitchison & Colegrave has added to that. What we have also gained is a presence in Scotland, which we did not have previously. This allows us to deal with clients on a UK-wide basis. Both firms are akin to us anyway – they both deal with high net worth individuals and are looking to build long-term relationships with their clients.

Q: What proportion of your client base is interested in pursuing socially responsible investment opportunities?

A: Holden Meehan has traditionally been very strong in the world of SRI and that is something we are looking to pick up. It is something we will be pressing home more than in the past. I would expect that the number of SRI clients will increase going forward. Our proportion of SRI clients is still very small, as it was only a proportion of the Holden Meehan business.

Q: Do you have any more plans to grow the business this year through acquisitions or otherwise?

A: No. We are planning to grow the business but we plan to grow it organically. We are not looking to take on vast numbers of advisers. In terms of acquisitions, you can never say never, but going forward it is not in our plan to purchase any more companies in the short or medium term.

Q: Which distribution model do you think will see the most success now that depolarisation has come into effect?

A: I think what will happen is some companies will adapt to their model and survive and others will not. There will be a mix across the board.