With a confusing array of investment service providers competing for business, Paul Zoltowski aims to help by explaining the strengths of investment boutiques.
The number of ‘boutique’ private client managers has grown rapidly in the last 10 years and it’s no surprise as to why.
Boutiques have a number of advantages over larger firms, including not only leaner cost bases and greater discipline, but also they have the flexibility to deliver a truly personal experience across all three elements of their proposition: advice, investment management and service.
Additionally, it is likely they are privately owned so the owners and managers will have a personal interest in the company itself and those managing the money will hold the same investments as the clients they manage.
Some boutique managers may position themselves as specialist investment firms, for example, focusing on particular asset classes, such as fixed interest. However, whilst wealth managers may be investment specialists, other firms, of which Church House is one, have developed their investment strategies with specific client needs in mind.
While it may be true that larger wealth management companies might benefit from economies of scale in client base, compliance and technology, the cost advantages they gain often don’t translate into better client outcomes or improved service. We believe the boutique model offers an attractive alternative to large firms and should be a factor that investors examine when making investment decisions.
The personal touch
Investment management boutiques are often set up with the investor in mind. A focus on fulfilling individuals’ investment needs is crucial. Indeed, that is the genesis of Church House, and the funds we subsequently set up, to provide for our ‘founding clients’ investment needs.
Investors putting their hard-earned cash aside for retirement don’t want to take too many undue risks or face potentially losing it all. And because boutique firms are generally closer to their client base, it can be argued that mitigating risk becomes a core focus. Added to this, because boutiques firms are smaller and closer knit, relationship managers and investment managers will effectively sit together as part of one team.
As a result, clients will be able to speak to their investment manager frequently. The investment manager and relationship manager have a direct relationship with the client. This means they see their needs being addressed but can also understand how they are being catered for. Understanding the drivers of a fund’s performance, upcoming potential risks and reasons behind a fund’s repositioning through conversations with the investment team is an important component in offering a high-quality service level to clients.
This strengthens the personal connection across all parts of the service, from advice through to underlying investment management. More often than not at larger firms, clients will rarely meet on a one-to-one basis with the person directly managing the funds in which they are invested.
Wealth management boutiques will often know their investors like the back of their hands: their tolerance for risk, their investment goals, their tax position, how many dependents they have, etc. The personal touch is highly underrated in the digital age. Being able to pick up the phone to an investment manager who knows and understands your personal circumstances is largely the reserve of boutiques.
Larger firms dealing with a considerably higher volume of clients are unlikely to have this advantage to such depth.
Boutiques often have simple, horizontal organisational structures without several layers of management and often outsource some of the back-office functions in order to maintain focus on client service and investment management. This allows them to make quick decisions without bureaucratic restraints that may impede action and implementation at larger firms.
Whereas larger firms tend to have lengthy processes in decision making, boutiques can often be more creative and individual in their approach, avoiding the herd mentality.
This can give them a distinct advantage – the investment managers can react more nimbly to changing market conditions and the relationship managers can inform the investment managers of their clients’ changing needs so that they can react accordingly.
Personal interest and accessibility
Many boutique firms are employee-owned and so staff will have a vested interest in the success of the firm. This not only encourages good practice but also incentivises good staff to stay for the long-haul. And this is important. Key personnel themselves often have a significant portion of theirs and their family’s personal wealth invested in the portfolios they manage, which helps align their interests with their clients. This ownership structure can result in superior client service and adviser continuity.
Staff tenure is vitally important. Not only is good for staff morale but investors can rely on their relationship manager and investment manager’s ability to maintain the consistent execution of a successful investment strategy over the longer-term.
In it for the long term
At the investment level - boutiques tend to be “asset managers” rather than “asset gatherers”. From a strategic perspective, the focus for boutiques is sustainable growth rather than building shareholder value. Smaller funds retain the nimbleness to take concentrated positions, construct high-conviction portfolios, and move in and out of positions without moving the market for those securities.
At a client level – boutiques tend to have a close, collegiate culture that encourages people to stay with the firm. This in turn means clients will partner with their relationship manager throughout their financial journey, bringing consistency, a sense of partnership and deep trust, akin to friendship – albeit with objectivity.
The contents of this article are for information purposes only and do not constitute advice or a personal recommendation. Investors are advised to seek professional advice before entering into any investment decisions. Please also note the value of investments and the income you get from them may fall as well as rise and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.