DFM looks to buy advice businesses for growth

DFM looks to buy advice businesses for growth

Netwealth, the discretionary fund manager backed by a roll-call of City luminaries, is looking to buy a small number of advice firms.

The company is also hoping to start winning investment mandates from advice businesses which it does not own.

Netwealth was co-founded by former Goldman Sachs banker Charlotte Ransom, and lists among its shareholders Edward Bonham Carter, a former Jupiter chief executive, Harvey McGrath, a former chairman of Prudential, and Bruce Carnegie Brown, chairman of Lloyds of London.

Ransom said: “In the second half of last year, advice firms began to realise, I think, that Netwealth is a business that is going to be around for a long-time, and they can see the benefit to their clients of our use of technology.

"We were not seeking firms, but they came to us as they might be looking to retire and they thought we would be a good home for their clients and their staff.

"Our set-up understands advice, and understands the service model, and I think we could naturally assimilate a more traditional business into what we do.”

Ransom said Netwealth would only buy a small number of firms and was “not an aggregator”. She added that in many cases her firm may not be the largest bidder for the companies they acquire.

According to Ransom in the second half of 2020 a number of advice firms added Netwealth’s discretionary portfolios to their panels. 

Ransom said: “If you had asked me three years ago, I would have said having advice firms as clients was not something that was on our radar, but it is something that is complementary to what we do now, and complementary to what advisers do now, as they focus on financial planning.

"I think the way we invest offers something different to the other DFMs that might be on their panels.”

Around three-quarters of Netwealth’s clients are part of what the firm calls a "network".

This allows family members or groups to combine their assets into a bigger pot and so each is charged a lower fee, while being able to invest separately and keep the content of their portfolios confidential from each other.

Ransom said this would help to encourage younger clients and those with smaller pools of assets into the business, as the minimum portfolio size for someone who joins as part of a network is £5,000, which means that a client in their 20s or 30s can join alongside their parents or grandparents whose portfolios are much larger, with all of them paying the same fee. 

The firm uses active asset allocation, but passive investment products to construct portfolios.

Gerard Lyons, former chief economist at Standard Chartered and economic adviser to Boris Johnson when the latter was Mayor of London, is a shareholder in the business and also works as its chief economic strategist.