InvestmentsMay 23 2016

Ex-banking bosses launch DFM service

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Ex-banking bosses launch DFM service

Former executives at Goldman Sachs and JP Morgan have launched an online discretionary fund management service which aims to counteract criticism over the industry’s lack of fee transparency.

Netwealth Investments, which officially launched today (23 May), is the brainchild of Charlotte Ransom and Thomas Salter, who came up with the business idea a year ago.

While the investment manager will be able to service consumers directly, the two founders also plan to partner with advisers to offer its services to “asset-rich and time-poor” clients.

Rather than targeting the mass market, the company aims to tap into the wealth management client base, such as those customers serviced by Rathbones, St James’s Place and Brewin Dolphin.

Speaking to FTAdviser, chief operating officer Mr Salter, who was previously a managing director at JP Morgan, suggested many of the current DFM players in the market create an “illusion of bespoke” by tinkering with ready-packaged portfolios.

Rather than offering bespoke portfolios, however, he explained Netwealth offers a bespoke service instead, where the client can tailor the service according to their requirements.

Mr Salter also said the firm plans to stand apart from some traditional DFM players by ensuring the service is transparent with its management fees.

DFMs have frequently come under fire for being opaque when it comes to cost, and firms have faced increased pressure from regulators following the Retail Distribution Review to make their prices clearer.

The Netwealth founder said improvements to fee transparency are “long overdue” and argued asset management businesses are moving quicker than wealth managers when it comes to ensuring the overall fees are completely clear.

“If people understand what they are paying for, it will help to drive fees down,” he said.

Netwealth offers seven model portfolios, which use digital investment tools paired with access to the company’s own professional advisers in case clients want human interaction.

Minimum InvestmentFee
£50,0000.65%
£250,0000.50%
£500,0000.35%

Mr Salter explained the minimum investment entry threshold was chosen to be above direct to consumers (D2C) offerings like Nutmeg, but below the rate offered by traditional wealth managers.

Clients can also benefit from economies of scale by inviting up to eight family members to invest their cash in order to create one consolidated account, Mr Salter added.

The 18-strong team includes Gerard Lyons, who previously worked as chief economic adviser for former London mayor Boris Johnson, and former UBS Asset Management executive director Iain Barnes who has been appointed head of portfolio management.

The company has raised over £6.5m of investment through ‘angel investing’, with big names like Jupiter’s Edward Bonham Carter getting involved.

According to Mr Salter, this was one of the largest rounds of angel investing - where investors provide financial backing for start-up firms - in the past five years.

Adviser View

Blair Cann, senior partner at M Thurlow & Co, said: “I reject any suggestion that it is automatically beneficial to outsource the choice of investments for each client to DFMs.

“As a certified financial planner and having been in the industry for over 50 years, I believe it is my responsibility to produce an individual portfolio for each of my clients and nothing in the proposals outlined has affected my thoughts on the matter.”

Mr Cann suggested the fees look quite pricey and pointed to the Financial Conduct Authority’s recent emphasis on due diligence for advisers’ activities.

He said: “Anyone who uses the new service and is under the impression that if things go wrong they can rely on the fact that they have outsourced the investment process to avoid any comeback may well be being rather optimistic.”

katherine.denham@ft.com