Sydney-based Stanford Brown was named the inaugural winner of the Licensee Managed Account category at the IMAP Managed Account Awards. Jonathan Hoyle talks to Jayson Forrest about the firm’s approach to managed accounts.

With a pedigree stretching back 30 years, Stanford Brown does a great job flying under the radar, despite its long track record of advice excellence.

Today, the North Sydney-based business operates under its own licence through The Lunar Group, with a staff of around 50 looking after 600 or so high-net-worth clients across three main business lines: private wealth, corporate benefits consulting and mortgage lending.

Two years ago, Stanford Brown reached a significant milestone as it crossed $1 billion in funds under management, which prompted the business to reconsider how it managed its clients’ investments.

“It was at this time we came to the conclusion that the way we were running our clients’ money was neither in their best interests or our best interests,” says Stanford Brown chief executive officer, Jonathan Hoyle.

“The traditional way of managing clients’ money is clunky, it’s reactive, it’s slow and it’s administratively inefficient. We had been searching for a better solution for a while and with managed accounts, we realised that a superior solution for managing clients’ funds had finally arrived.”

The result: Stanford Brown made the decision in early 2016 to implement a managed account solution, with Netwealth selected as the group’s platform provider towards the back-end of that year. It also partnered with Morningstar and Zenith for their research capabilities.

And so, Stanford Brown’s Lunar Managed Account was born, launching in early 2017 and comprising of five multi-sector models - ranging from conservative (with 30 per cent growth assets) to high growth (with 95 per cent growth assets).

“Within that managed account we can buy managed funds, ETFs, individual shares, hybrids, unlisted and listed funds, as well as cash and term deposits,” Jonathan says.

The benefits are threefold

According to Jonathan, it didn’t take long for the business to see the benefits of launching its managed account, which were threefold:

1. A better outcome for clients.

“We saw how effective our managed account was in providing clients with a better outcome,” Jonathan says. “It was a more equitable solution. Every client now gets their portfolio changed at the same time. So, it’s a far more proactive way of managing clients’ money, because you are not having to wait four or five months for your next client review to implement any changes. Instead, advisers can implement changes at the click of a switch. It’s that easy.”

Jonathan adds that a managed accounts solution also enhances the professionalism of a business.

“The traditional advice model is too reliant on the whims and behavioural biases of an individual adviser. Instead, with managed accounts, you are getting the clinical efficiency that comes with having a professional, independent money management investment committee.”

2. A better outcome for the advice practice.

Jonathan notes that running money via a managed account is a far more efficient process, and results in far fewer errors and lost dividend payments.

3. A better outcome for advisers.

“And finally, managed accounts free up an adviser’s time to truly focus on the advice process and enable them to have deeper conversations with clients about what’s really important to them, rather than having incredibly dull and zero value-added conversations about what type of equities to buy.”

 

Investment committee

Despite the considerable advantages its managed account solution has provided to its clients and the Stanford Brown business, Jonathan warns that the biggest expense for any business setting up its own discretionary portfolios is building a quality investment committee. He says practices shouldn’t underestimate the cost involved in doing that.

At Stanford Brown, six members make up its investment committee, which meets formally every month. The committee comprises the group’s highly experienced chief investment officer, Ashely Owen CFA, an analyst, three senior Stanford Brown advisers, including Jonathan, and Dr Don Stammer as an external and independent member of the committee.

 

Fewer, shorter, shallower

Stanford Brown’s typical client is someone in their late 50s and who is approaching the end of their working life. Having created the bulk of their wealth, their focus is on wealth preservation. It’s unsurprising then that the firm’s investment philosophy revolves around client wealth preservation.

“The preservation of capital is paramount to us,” Jonathan says. “We have a saying - ‘Fewer, Shorter, Shallower’. This saying is fundamental to our client value proposition. So, in good times, we try and keep up with the markets but we might not. But when times are rough, we will outperform the markets, and we expect to outperform significantly.

“During these rough times, our client portfolios will have fewer drawdowns, they will last for less time and they will be of shallower duration.”

And while Jonathan concedes that client longevity risk is a critical factor in the planning process, he believes a far bigger risk for clients is running out of capital in retirement.

“Once you stop receiving a regular income from employment, there is a significant drawdown in your portfolio following a major bear market. You simply don’t have the opportunity to make that money back,” he says. “So, the preservation of capital is of paramount importance to all retirees and that’s a view we take seriously as part of our investment philosophy at Stanford Brown.”

 

Communicate the journey

Of the 600 high-net-worth clients Stanford Brown services, one-third of these clients currently have their money run via the managed account. This equates to approximately $500 million of client funds in the managed account.

“In fact, three-quarters of our clients have some part of their portfolio run via the managed account, with the remaining 25 per cent of clients tailored to their own specific needs,” Jonathan says.

However, he admits this would not have been possible without effectively communicating the benefits of working in a discretionary environment with the firm’s clients. In fact, Jonathan believes effective client and adviser communication is absolutely necessary for any business wanting to implement a managed accounts service.

At Stanford Brown, the communication process begins with the monthly meeting of the investment committee. Following the meeting, the company’s chief investment officer, Ashley Owen, runs a one-hour presentation for all the advisers, explaining his view of the markets and any changes that the investment committee has made to their clients’ portfolios.

In addition to this, clients regularly receive three forms of communication.

Firstly, there is a weekly client update, called TW3 - ‘That Was The Week That Was’ - which is a more light-heated look at what’s going on in the markets and what types of global events are affecting client portfolios.

Secondly, clients receive a deeper investment piece each month, which complements the more in-depth quarterly update that reviews Stanford Brown’s portfolios, including benchmark performance, and lists any changes that the investment committee has made.

But is this communication overload for clients?

“Absolutely not,” says Jonathan. “The response we’ve had from clients has been overwhelming. They value our communication and the reasons why we make decisions on their portfolios. They prefer the way in which their money is now managed and it’s keeping them engaged with the portfolio management process.”

However, Jonathan concedes that initially, for some of Stanford Brown’s clients, the move from having them sign off on all investment changes to discretionary portfolio management was quite a significant change.

His advice to other firms contemplating rolling out a managed accounts solution is to take a lot of time in educating clients, and to also appreciate that managed accounts are not suitable for ever type of client.

But it’s not just clients who need to be taken on this brave new journey. Jonathan adds it is equally important for a practice to engage with its advisers when introducing a managed accounts structure into a business.

“Initially, some of our advisers were concerned about managed accounts, particularly those advisers who had an investment bias and who had more interest in the markets. They were concerned that their jobs were being outsourced to an investment committee.

“But now that we are closing in on two years into the execution of our managed account, the response from our advisers has been fantastic. It has freed up their time to talk about what really matters with their clients. Their client conversations are much richer and deeper, enabling them to build much better relationships with their clients.”

Jonathan is particularly pleased with the increase in the number of clients that advisers can now efficiently manage, because of the significant drop in preparation time for review meetings.

 

Awarding excellence

In awarding Stanford Brown the top gong for Licensee Managed Account at the IMAP Managed Account Awards, judges were impressed by: the company’s investment committee structure and resourcing; the way in which the investment portfolios reflected the advice firm’s investment philosophy; how the managed account service fitted with Stanford Brown’s client value proposition; and its approach to client and adviser communications about portfolio management and portfolio changes.

To say Jonathan was delighted with the win is an understatement.

“We were thrilled to win this award. It’s a great honour to be the inaugural award winner and it’s particularly gratifying knowing that we were judged alongside other high calibre finalists,” he says.

“In the end, the continued success of our managed account all comes down to trust and efficiency. Our clients trust us to make discretionary decisions on their behalf and our advisers enjoy their time being freed up to do what they do best – advise.”

“It’s been a win-win for all concerned.”

Finalists

IMAP congratulates all the finalists in the Licensee Managed Accounts category.

• Crystal Wealth
• Paradigm Group
• Stanford Brown/The Lunar Group
• Viridian Advisory
• WLM Financial Services