A Guide to Investment Committees #1 – Transcript

Brendon Vade
Hello, and welcome to this first episode in a great new series that we’ll be covering in this podcast in everything about investment committees. I am joined today by Jacquie Fernley is the CIO at Mason Stevens and Andrew Height, Managing Director at Height Capital. Good morning, or good afternoon. Sorry, this low off the mark here. Good afternoon, Jacquie. And Andrew, how are you?

Jacqueline Fernley
Great. Thank you, Brandon, lovely to be here.

Andrew Height
Thank you for having us.

Brendon Vade
Not a problem at all. Look, I’m very keen to get stuck in here, we’re going to be talking about the initial stages of setting up an investment committee. And for advisors who sort of considering this as a part of taking their own practice. Maybe they’ve come across the term, they’ve heard of other people who are doing it, maybe there’s some way down the journey and want to get the most value out of this component of their business. And they’re gonna be tuning in to hear from the experience of others. And so we really appreciate your sharing your time today. Andrew, I might start with you if I can. Do you mind just giving me a quick background? on yourself and your business?

Andrew Height
Thanks. Brilliant. Yes. So high capital was started seven years ago, on the basis of strive to provide holistic advice for clients in a you know, range between between $1 million and $5 million in net worth. And we build a strategy around, or I’ll build a model around the, what we call the three pillars of wealth, which is savings capacity of a client and utilization of that savings capacity into a wealth strategy, and looking at how we compound that return based on their risk objectives, and then how they’re gonna use that money. So the drawdown strategy in behind that. And that still feels part of our most of our strategy, or most of our business model today. And we still do that on a daily basis with clients. And I guess the the main part of this, of this point is that our wealth strategy is talked about, you know, what is your objectives? And how do we implement those strategies to get the return that you require to live a prosperous and free and financial life into into retirement or pre retirement and achieve those objectives you’re looking to do?

Brendon Vade
Excellent. Excellent. And, and tell me a little bit about about your business? How many? How many stuff roughly?

Andrew Height
Yeah, what is sitting? Yep. So we’re sitting at 10 staff, we have about 100 D clients, the business client bases are changed a little bit. Obviously, that was our objective of having that client base. But I guess I can, my background came from boutique financial planning firms. I worked at one of the first fee for service independent firms in Australia, when I first started in this industry, and we, we grew that business up, and I exited started this business, on my own with sort of a very basic model around that, that core, we advise, our clients are either self funded, all of them are self funded retirees, and some some pretty smart business operators. We also have an accounting, a very small accounting arm that helps with those business clients that allows us to deliver the service that we want to deliver to them on a daily basis. Excellent. Excellent.

Brendon Vade
Thank you. And Jackie?

Jacqueline Fernley
Yes, thanks again, for having me. Mason Stevens is a platform that we’re a platform that focuses on Managed Accounts, the whole business is set up to support and grow wealth practices and scale them. So a managed account, in our view, that process is a little bit difficult and arduous insofar as transforming a wealth practice, into a wealth practice that focuses on managed account solutions and can be a little bit daunting. But the benefits of scaling a wealth practice in a really compliant manner, are worth it. And so we our whole business philosophy, and our partnership approach is focused on supporting wealth practices on that journey, and then growing with them over time. Excellent.

Brendon Vade
And you provide expertise on the in the investment space, and you’re you sit on investment committees, I believe consulting investment committees. Tell us a little bit more about that work.

Jacqueline Fernley
That’s right. I’m the Chief Investment Officer and my role within the business is that support function. We work with many of our advice practices, in a varied approach, some wealth practices come to us already with a wonderful asset consultant that’s working with them, or they might come to us and require more support, and will so we face the client where they’re at and can wrap our services around them. And so we have everything that a wealth practice may require, in terms of being able to transition onto a managed account, platform and changed good business practices and process to supporting the advice thereafter once that trust transition has occurred. So I have a big team around me and we can essentially manage capital in multi asset portfolios through any implementation that may be required.

Brendon Vade
Excellent. And to be clear for our audience, Jackie, you don’t sit on Andrews committee. But maybe you know, by the end of this conversation, he’ll want you on there.

Jacqueline Fernley
That’s right. I don’t sit on Andrews Committee. He has two wonderful external independents, but Andrew and I chat regularly. And I often will pop into investment committees as required. And as I said, Andrew is a great advocate of Mason Stevens and works with us closely. Anyway,

Andrew Height
Aaron has a very good point there, like the ability to soundboard against Jackie and the investment specialists at Mason Stevens has allowed me to develop a more knowledgeable and more skill set in our team and our Investment Committee. And that’s I think that’s the best that we’ve found with using Mason Stephens is probably class them as the implementers. They’ve given us the structure and the infrastructure to implement the MDI that, yeah, and then the ability to soundboard. Well, we need to honestly, if we have to, is always there. And it’s been very helpful for us over a period of time. Excellent.

Brendon Vade
Excellent. Andrew, I’m curious for the you Was there a time where you sort of had the light bulb go off and go, you know, what we really need to do we really need to set up an investment committee. Was this something that you started, when you went out and set up on your own? Or is this?

Andrew Height
Yeah, it was, I’ve actually had to crack through the Investment Committee, and I’ll talk you through the failed and the good or the bad. So yes, I always thought as sort of a sole practicing firm, originally, the need for external concern contributors was really needed of the ECD, good old or you’re kidding yourself to a certain degree you can’t be over, you can’t be overall areas that you need to be over. So originally, we started with, we started with a group of people I knew from the industry across many different specify specific asset classes. And it didn’t really work because we had too many people too specialized, that then didn’t actually have the knowledge over the overarching knowledge to then come down the view of, well, what, why do I need to vote on adding a stock to the portfolio, I’m here to talk about property. And so we had this whole had this sort of it was going okay, but it was really, it was like bogged in the mud, we were moving forward, but we’re moving forward really slowly. So that’s our first attempt, I kept one of them out of that, but she was more of a specialist in financial planning. So she, her and I had worked together for nearly 16 or 15 years at that point in time. And so she stayed on, and then we cleaned the decks and so wet more of a more well rounded people that were more client focused and client directed. So people that understood that when you’re advising clients, what it feels like importance of the strategy in the diversification and, and then sourced, if we need a discussion on property, or we want to give with more confidence around the property strategy. We’ll go and source that externally. And similar to what we talked about before, Jackie, the utilization of our Jackie, have you seen this fund fund manager and what’s he doing, and brushing up pasture just gives us the ability to make sure that the overarching strategy is still working, but the capabilities in the team, we are here to focus on our clients and not get caught in the in the ring role. On top of that, we’ve also then from that second, on the second one, we’ve gone down to four key members. Three of them are independent. So two international specialists, specialists, and they re own international portfolio. And then we have another lady that’s our fixed interest specialists, and she runs and she was presented advisor. So she’s got a lot of knowledge about that client, and I use her as my bit of a sniff test. Yeah. Does it make sense to do these transaction because the some things down great, but the marginal difference APR for a client is sometimes not worth the actual cost of doing it. So she’s very important and she’s our chair in that part of it. And then what we also did in the second one is we had, they are all members of the VESA community, but then we gave them isolated slaves of portfolios to build from So one group looks after the fixed interest. One group looks after the Australian equities and property, Australian property and the other group looks after the international portfolio because of their spinning wheels in the mud kind of experience we had in the first and the last Should have our board, we decided that it was really good to maybe give them the keys to the Ferrari, and let them actually implement and let them not control them. And a lot of research was done around this. Well, my point of view, and those of good racers report found, which was Richard, in essence portfolio, where he talks about this and then need to split up roles in not just in this part, but also across your firm. And one of his main points is let the professionals execute what they’re meant to do, and make sure that you’re referencing back to the Investment Policy and the investment strategy that you’ve set them. And don’t get them tied down into process, this lead brandy and let them operate.

Brendon Vade
Yeah. Okay. So I mean, you’ve sounded like, you won’t really jumped in the deep end, you bet you, you found the rebel ahead of that you want to do work with and it didn’t quite get the results. I mean, if you think it might be helpful, just to sort of zoom out and back it up just a little bit. As far as getting started, because you covered on off on a bunch of things there. And I understand why because I imagined that, yeah, if you if you know, the expertise you like, it’s a makes a lot of sense to sort of go great, let’s, let’s get these guys let’s bring them in, and that’ll work. But I can see Jackie sort of smiling as if she has seen all of this before, and is about to help us with what maybe a more sensible way to maybe get started in that initial first steps. You know, what are the first big questions, the big things that you need to do? Now that Andrew has graciously said is, you know, we call it a false start, Andrew, is that, uh, yeah,

Andrew Height
right. Past that, and then correct recreation. Yeah. Nice.

Jacqueline Fernley
Yeah. Andrews story is, is a well trodden path. And there are reasons why I exist in my team exists, but also other the ecosystem of asset consultants that sit around this business exist, then they’re there. No, it’s not about Andrew, it is the fact that you don’t know what you don’t know till you live it. And the reality is, the lived experience informs the decisions you make thereafter. And the benefit Andrew had was, he sat around the table, he worked out, it didn’t work. And he pivoted, and now he’s got the right ingredients. So how do you get it right? The first time is really about the rules of engagement. And making sure that the people sitting are in that room, know what they’re doing, how they’re doing it, the delegated authority is in place. And so you can run an efficient meeting, and get the right outcomes if you do the hard work in the beginning. And unfortunately, the hard work in the beginning. It’s around the purpose and scope of that investment committee. What does it exist to do in what way and then you can implement? So what I mean by that is, first and foremost, you need an Investment Committee Charter. So that Investment Committee Charter determines exactly what mandates are being run, by whom and how. And so you build that out in the first instance. And that might sound daunting. We have templated, strategy, Investment Committee charters, that we work with clients with, to actually ask them the questions and sort of templated through. And because we can ask the right questions, because we’ve done this before, it kind of takes you through that journey. And once you’ve got your Investment Committee Charter and your investment philosophy built out, you then can understand what you need in your investment committee setting. So when I talk about investment philosophy, it’s how do you run that capital? What do you believe around how to invest now often, we can template that too, and then nuance for each client. But a lot of Australian wealth practices, really talk to protecting capital first, and then growing at second, using a multi asset approach, diversification. They’re all standard tools in the toolkit, you just really need to eke out exactly what that means for that wealth of practice. So someone like Andrew and and Hyde capital utilizes quite a number of direct investments. So Andrew has got direct equity in direct international equity, property, etc. So he’s delivering to his client base, quite a bespoke curated solution, whereas many other advisors might actually run 100% Multi managed fund multi asset portfolio that really doesn’t have much of a tilt from a dynamic asset allocation. I’m not Pooh poohing either. Both are valid, that before you go too far, you’ve really need to understand what what is it that is my value proposition to my end client, what am I selling. And, you know, today as a financial planner and an advisor, the most important thing, and we know this is the relationship that you’re actually providing and growing with your client, the strategic advice that’s being delivered, which will set that client up for the long term. And then the investment pace can be managed in that investment committee. Once you’ve got the framework and the structures set in place,

Andrew Height
that’s a really good point, I think, Jackie, about the understanding of exactly what you want to deliver, because it takes a lot of time. If you are not structured properly, it takes a long time to define that, but then actually to run it and implement it a tax a substantial amount of resources on top of that, to deliver it as well.

Brendon Vade
So I want to hear you both saying is that you, you really need to get a grip, before anyone else can come and help you. You really need to answer for yourself. Well, you know, what, what you want to do as a practice what you want to deliver to your clients, and get a bit of a sense around what the boundaries of that are. So if it is, you know, say a more passive approach is that is that you might include a satellite, or you never going to do that, or do you use, you know, maybe private markets or something and just make sure that you’ve got a clear philosophy about whatever that is. And equally, if it’s something you know, more bespoke, like perhaps Andrews practice, where you’re going down the direct path that you got to be clear about what that’s aiming to deliver as well. And if you can build all of that into your investments will see in your, in your Investment Committee Charter, then great, you sort of you’re on the starting blocks, you’re ready to go.

Jacqueline Fernley
That’s exactly right. And that part that it requires sometimes to get all those stakeholders in a room, I often find myself whiteboarding in a boardroom with all the key stakeholders in that world practice, just to facilitate a conversation and get the buy in, they’ll they’ll be advisors sitting around a room, especially in a traditional wealth practice, who all have different Macbooks, who have different ways in which they actually offer up a solution to their end client. And we need to sort of facilitate that conversation to get them all on the same page, and work out the typical 8020 rule, you can deliver up a suite of portfolios that actually cater for 80% of the clients. And then the spoke other solutions around that to get to the 100. But it’s really about working that out, getting your investment philosophy and process and all your governance set in place. And then you can work out, who do you need in the room? You’ve got to do unfortunately, that pre work to then be able to develop an IC thereafter. Because that includes how do we make a decision? Who gets to vote on what, where’s the delegated authority, that we have this list of questions that we go through. And it sort of takes an advice practice through that journey, because we’ve done it many times. And what we’re trying to do is get you through that process with the least amount of hurdles, and the least amount of mistakes, so that your end goal is getting into a managed account solution and an investment committee that’s working right the first time.

Andrew Height
Yeah. So I think it’s a really important step from a practicing point of view, to actually go through that process. Because it’s actually kind of like a key definitive process that as a team, your team should know. And what we’ve found is that we’re because we’ve gone through the NBA process, our teams a lot more structured around knowing how we’re implementing the portfolios, while we’re implementing them, that they sit, the team actually sits on the committee and have a vote I, the whole team sits there and listens to the the external presenters come in and talk about what they’re saying how to see. And so that when they do go to the clients, they actually got some context of why things are happening as they are. But the call comes back to where it is. By having a really structured and understanding a good understanding of that policy. We find it really easy to earn an easy sell, because we’ve worked out worked through all the steps and questions that we potentially could have from a client actually have the clear descriptive nature of how we manage it.

Brendon Vade
Yeah, sure. So that’s really interesting, Andrew, so you’ve got you’ve got your whole team, sitting in on all the committee meetings, and how many committee meetings do you do per year? Yeah,

Andrew Height
we do for a quarter. We don’t have the whole team, we have three other members. So the the main advisor that’s with us, the associate advisor, and then we have a guy that does our white manages the portfolios from a trading perspective. So he does all the implementation across the whole firm. Yeah, Okay, gotcha. And both all three of them sit in just so that there are over the across the strategies and how we’re implementing it from their point of view. And then obviously, the other theory behind it is to give them the education or the knowledge to allow them to actually step up onto the committee at some point, and take on some of these responsibilities that, that we find ourselves.

Jacqueline Fernley
And I’d also add to that, Brendon, that’s fairly standard. So we would have one or two internal voting members, sometimes more, but it’s generally one or two. But we would have observer right sitting across the key stakeholders within the business so that they feel confident in order to know what’s going on, to be able to share that with their end client will often record the investment committee so that it’s, it’s there and available for though, for the broader business. And as Andrew said, Eat, it’s really very much a learning experience for the broader business to be knowledgeable on on what’s actually happening in markets and give them the confidence and the trust that the portfolios are being managed, appropriately.

Andrew Height
Very transparent. So yeah, we record investment, we mean, so we can be transparent. It’s good from a point of view, like, oh, you know, we were talking last week about x with one of our members and our Can we go back to that point in time in our investment committee and get the graph that he was showing on the screen? So it’s really interactive, from that point of view, to allow us to drive discussions for our clients and staff members around it.

Brendon Vade
Yeah. I mean, we’re talking around this issue, but I know it’s a it’s a big one and a big consideration for for businesses to think about when they’re going down this path. It’s the question of who, right, who sits on the committee, who has various levels of interactions? I’m going to assume that we’re just talking about sort of voting people at this stage and maybe externals. Jackie, I’d love to hear your thoughts on how you go about determining who should be sitting on a committee.

Jacqueline Fernley
always tricky. And there’s always politics. But what I like to do is really use A skills matrix, because there’s nothing better than being really clear about what do you bring to the conversation? What are your skills? And what role are you playing, because that, that, again, that just forces the issue. And, you know, I find myself regularly in, in the middle. And there’s nothing better than making the whole thing transparent, just like a board. And I see is run like a board. And so you need to make sure that you’ve got the right skills in the room. And so internally, and generally, the advice business, the, the lot the the advisors are selling out, are essentially their role is to provide that strategic advice to be out in market, acquiring clients, and then focusing their attention on that client relationship and client retention. And they’re selling in a in a managed account solution or an MDR, and SMA, they’re essentially attaching each client to each portfolio that is managed within the Investment Committee setting. So most of the time, those advisors aren’t well equipped to sit in an investment committee. It’s unusual that they are, but at the same time, we need one or two voices from the business to ensure that we remain within mandate and remain relevant to that client, the client base, and when I say they’re not equipped, that’s not a derogatory comment. That’s just the reality of mastering markets. And being across markets takes a lot of time. And often, it’s quite technical. And so it’s very difficult to run a practice or wealth practice to build the client base to do the strategic advice and be across all the technical requirements from a strategic advice perspective. And the across markets, and all the different implementations. If anyone can actually do all of it really well. Who are you because I think you’re a genius, right? Yeah, it’s very difficult. So you have to pull in the skills for specialists to a degree and also have enough someone in the room that can talk across OS, the asset consult the asset classes and has sufficient knowledge to put the pieces together. Because it’s quite complicated

Brendon Vade
and and rooted in the SERP like being on your first experience, having someone to be able to sort of sit across those different components is something maybe that wasn’t gelling to kick off. But you sort of you’re now in a much better spot. Is that?

Andrew Height
What Yeah, I think the wording? Yeah, I think the the experience that we’ve hired is originally, the lots of lack of noise, but the focus on all the information needed consume and understand to get an outcome is really important. That was probably the first initial realization on that, that board structure, I think the other thing, we actually also changed and we’ve been delighted this into it, is actually give everyone sleeves of asset classes or specialization areas, so that the portfolios have been really well managed by that specialty. And that was the first sort of point of call, from our point of view, about giving these members sleeves to look after and responsibilities around that. And my theory on that is that back then then led by the sword die by the sword. So if they’d been engaged to run it as an international portfolio manager, and they’re not performing well, your asset allocation views at the top don’t matter, because I’m engaging you to run that into international portfolios. So here are the breakdown and tasks and the roles everyone plays in our group has been really defined a lot. And then it’s, it’s evolved in the last 12 months, a lot more because of the, the decision around, I don’t want to be stuck in the mud, I want to keep moving. And I want to be dynamic. And if I’m going to run direct portfolios, we need to be dynamic in our investment approach to allow us to get the right returns for clients. And that that meant that we we went from having a, you know, a democratic process to being slaved based decision based, they present the opportunity to get more of an asset allocation towards their portfolio. And the committee at the top makes a decision, because of the reasons they’ve presented. But at the end of the day, they’ve got 20% in the international portfolio, that’s their way that’s their portfolio weight. And that’s the way they don’t work towards if they’ve got 40%. That’s what they’ll work towards. And they’ll as I said, they’ll live ball. So double. So coming back to Jackie’s row, we’ve split those points Jackie made out before, we split those two roles about advisor and the Investment Committee out internally a little bit. So the advisors really responsible for the daily management of the client. So they look after the three pillars of wealth that we talked about that look about the clients need for cash and liquidity and liability expectations. They look after the risk profiling and make sure the clients in the right model. And then the investment committee itself and the members of the committee and the investment managers. They’re in charge of what makes up the Aussie equity waiting for that client. What makes up the fixed interest waiting for that client? Why are we how are we creating the returns? What weightings are we putting into core value and growth models in each asset class or each risk profile. And we work through that and we’ve managed that as a single entity strategy on its own. And then we leave the advisors to really do the day to day management of those those clients on a cash requirement and what they need. And then we leave the portfolio man to a third party, which is really is working really well from our point of view, because, as Jackie pointed out before the advisors role is to create the relationship, manage the relationship, deliver the service to the client, so they are comfortable with what what the way they’re financially and there’s financial freedom is their core objective, leave the investment management side to the guys to really work that part of their, that their job is to find opportunities that create returns for clients.

Brendon Vade
Interesting. And looking, you know, I’m conscious of we’re talking sort of here in the context of an MDA implementation for for you enter. And it’s it’s obviously a licensing requirement that you need an investment committee to run an NDA. But

Andrew Height
when I first started, so when I first started, I didn’t have I didn’t have a NDA in place. I originally want one just for the sounding board that I needed across the firm. Oh, good. Yeah, I’m

Brendon Vade
so curious about that element as well. You know, if, if you’re a practice that doesn’t have doesn’t have a desire necessarily to go down the SMA or MDA path. Do you think that changes how an investment committee should function? You know, what are the sort of considerations if, if that’s not really somebody’s headspace, at this point, would you say it’s, it’s all pretty much the same? Or would would there be tweaks to how you go about setting something up,

Andrew Height
I think it comes back to that Investment Committee Charter, or your investment charter doesn’t have to be Committee to the committee out of it. Because I looked at all in our firms that David has the a one blog looks of Morningstar, the model Morningstar model, and that’s his investment decision. And that’s the only wait. So if you look back to your charter, I think the the dilemma will be, if you’re just running a dimensional model or a Vanguard model, then maybe it’s okay, having no external input, you’re still going to have to source some form of research around your asset allocation. Yep, I find that heavy externals, it changes the conversation, it creates such good context about, you know, some of our committee ones in America environment. And his knowledge and process of what he’s seeing over there substantially changes the view of what we’re expecting to see in America. You know, one guy’s in Perth, so he sees a lot more, he meets with a lot more mining executives than we do, because of the knowledge base he’s got. So having that real diversity and content coming back to us that is real, live data, no Wi Fi or morning stars and long scripts to write a 15 page report just provides a real context. Now, obviously, we don’t use mason Stevens, nor Jackie on our investment committee, but then to utilize Mason Stevens in bulk or their investment, slave servers for research, access to data, access to the analyst side of things. It just gives us context to are really like the stock ideas that are like, if 80% of advisors use the Morningstar, and it’s in their model will that means it’s going to be held by a large amount of people. But is there any other research out that I should be utilizing to make a decision, and it’s about finding those pillars that help you deliver that, that access to the data is probably the key that I find the benefit of having externals being involved in our approach.

Brendon Vade
Jackie, curious about your thoughts for, you know, for those who aren’t necessarily implementing var and MDA, and some of the differences around the chart are and that’s something

Jacqueline Fernley
Yeah, first and foremost, if you’re within a traditional wealth practice, and you’re using a Morningstar portfolio, or a lonsec, or whomever, there’s nothing wrong with that at all. But the one thing you’ll, what you essentially need to do is your that you’re then attaching one, one client by one client to a managed account, or a solution that works for that individual client. And that, again, nothing wrong with it. But then you’re, you’re you’re competing for clients in a manner where it’s then very difficult, difficult to differentiate your wealth practice from the one who’s doing exactly the same thing. And so, in order to differentiate and to consider a range of solutions, or a more scaled offering, running model, or running an MDR. And SMA is quite valuable in that context. But it isn’t necessarily the be all and end all. But I think from a scale and compliance perspective, it’s it’s the most profitable way to run a wealth practice is probably the key thing to note there. But having said that, the quality of the conversation that you as a wealth as an advisor can have, when your world is informed by broader than just you sitting in a room or a small team sitting in a room, the caliber and the quality of the conversation just increases, which is what Andrews just talked to. And so in order to actually grow your business, and differentiate in my mind, the MDA or the SMA solution was quite compelling. From that perspective. The alternative as well is being in a larger organization where there’s an internal Investment Committee, and an inverse internal research team who are offering up a paper portfolio, that’s often also the case. But what happens in that environment is that that wealth manager or that advisor doesn’t have discretion. And so whenever there’s a change in that portfolio, that advisor needs to wring each client individually that can take and I’ve seen it myself, three to six months, sometimes longer for those conversations, those SOPs or are always to be written in order to affect that change. The decisions for that advisor, who do I ring first, all of that, I mean, it’s, it’s fraught

Andrew Height
back to those dark days Jackie’s motto is just

Jacqueline Fernley
Broadway conflicts, it’s it’s hard,

Andrew Height
it’s difficult. You know, that’s one of the reasons why we implemented an MDA per se, we were a non discretionary operating business three years ago. And the need for consolidation of this trading bit as we got, it was okay when we had 40 clients, and we could email them all and they’d be all really interactive. But as you incrementally get a little bit bigger, a little bit bigger, a little bit bigger, the ones that actually lose out are your smaller clients, because they’re the last in the list to be called. So we’ve sort of changed their mindset and said, well, the MDA fits those more clients each better, they get a better calm so that they that fits, that fits their needs and balances. Now, we still have those big clients that want to be in the conversation around why and how you’re doing it. But the NDA just means that we actually make a decision, it’s implemented, instead of two or three weeks time, by the time we’ve seen authority to proceed to come back from a client. And I’ll give a great example, right? In the model, we traded Macquarie $226, I think it was, we then went out to the rest of the clients. But Tom actually got the ATBS, back, the share price had fallen from 262 20. From to 181 70. Yeah, no one’s doing any more. So we’ve missed that opportunity to trim you missed opportunities to trim and take profits at the right times without using the MDA. Because as your book gets bigger, and the tail gets longer, you really, it’s really hard to work.

Brendon Vade
Yeah. So I guess what I hear you saying is that there’s a logical progression to this, you start with, you start with something maybe simpler, something a little bit more basic. But then as you bring in external walls, and you get a better quality conversation, you get more robustness around the process. And then, you know, you have the, the logical next step might be how do we get this? Yeah, how do we get this the good news out to clients faster? Right?

Andrew Height
Yeah, I’ll give you a good example of it. Good example, that Brendan is, we didn’t international managed funds, said, debt apps were bad doing international managed funds, but running a direct portfolio internally. With the inclusion of the external, international marriage specialists, were actually realizing that, hey, we could be more tangible with moving from value to growth, we could be more tangible as already more core assets for a longer period of time, and the managers do. And so we’ve transitioned with that knowledge base, we’ve been able to transition some of our portfolio away from the managers and tour direct portfolio and trying to understand why we’re putting in your apples and your Microsoft’s and, and long term structural changes, globally is one of the areas of workflow where a bank will then beneficially be able to do with the inclusion of external consultants.

Brendon Vade
Excellent. I’m curious, you know, we talked about the investment philosophy to start off with, do you see, maybe, Jack, in your experience? Do you see that once an investment philosophy is is finally articulated by a practice? Do you see that that sort of changes over time or evolves through the work of the investment committees? Or is that something that sort of stays foundational, and then the continues to support them? Well, what do you see the role? Will the interplay between sort of the firm’s investment philosophy and the Investment Committee?

Jacqueline Fernley
I think the philosophy is probably if it’s done well, in the first instance doesn’t really change. It’s quite a timeless piece of work, does change and iterate is the investment process. As you’d live in breed, investing those portfolios and the nuances of them, you then find out what are the things that we missed in the in the conversation? Because you’re you get case studies all the time? How do we make this decision? How do we size this this position? How do we work through when to sell or manage fund whilst we can help or a stop for that perspective, but whilst we can help iron out a lot early, the reality is that there’s always things that come through where I can’t I generally see an investment process document somewhat live until you’ve stretched it. And you’ve actually lived it for a little while. And then you keep that you do adjust. But beyond that, these policies and processes should actually be quite robust in the first instance and then they eat or write and then you might need to change it for a new world, but I tend to think that really what you then do is find a noose you potentially need a new mandate or a new solution because all of a sudden you’ve grown your business and then all of a sudden you’re wanting to do impact portfolios, or you want to go after the charitable market, or you want to do something where the suite of core portfolios that you have don’t actually provide the right solution. And then you start adding on that’s a year or two down the track once you’ve got all your clients into the suite of models or managed portfolios that are on platform, and then you go, Okay, now I need a ASD, this aura

Andrew Height
doesn’t really change the charter, though, does a Jackie, it’s still your charter still should really be defined at the inception point. And the slaves and how you deliver your charter might alternate and change the charter. I find it hard to change our charter anytime soon, myself substantial structural change, you’ve been

Brendon Vade
out of the proto Andrew so you know, in what some others might take a little bit longer to catch on. I mean, it’d be interesting, just maybe to zoom in as a hypothetical example, right? You’re an investment committee, you’ve been going, you’ve sat for three or four times and there’s a fund maybe that’s underperforming, and you may have got a templated set of questions about how you measure the fund. Right? It might be I don’t know, cost, PT, PE ratio, relevant time periods of performance. If it’s starting to fall down, or maybe some of those, inevitably to some other question, or some other reason that might pop up by one of the committee members to either keep or reject that button. That is maybe not part of the initial set of questions. So then do you up, you know, up end and redo the question Is that the sort of like process example the talking about the Jackie,

Jacqueline Fernley
it could very well be and I think you can always improve an investment process. And you can always find an example or something may happen, where you’ve really not captured that in your process. So that’s what I talked about in terms of it being a little bit of a live document. But to Andrew’s point, the core pieces, which is your your IC charter, your investment philosophies, and beliefs, they really shouldn’t be moving, really at all. Nor should your strategic asset allocation, the asset classes that you’ve chosen to invest behind. Those are the things that you sort of really do set. And then it’s just that process piece, where you might often iterate. And I think, to sort of capture a little bit more Brendan, the other things, I see that change, what data and what information does that investment committee actually need when they meet? So making sure that agendas, right, and then making sure you’ve got the analytics. So one of the pieces of work and Andrew said some of this is we are working with Jacoby analytics. So we have an open API into and out of Jacoby, which is an institutional grade portfolio analytics tool that’s used globally. We now provide analytical reports portfolio reports into our investment committees, so that that investment committee is sitting there with the information, they will looking at how their managers actually performed, and they can see it, it’s black and white, the data is there. So if you’re sitting with all that information, it’s much easier to go. Our rule is that if a manager underperforms for two years, or 18 months, it goes on the list, it goes on the list of there’s the naughty quarter, we’re going to review that manager and go through our process, check into that performance and change them out if they’re not actually doing. They’re meant to do. So

Andrew Height
Kate, it as Jackie is trying to find it early enough. Because once they become a dog in your box is certainly too late. So you know, the old man with the cash cow versus the dog. It’s works in this mandate all the time. But you got to have the analytics and this is one of my points that I was going to allude into this is the analytics and we do it on our own in our own matrix of reviewing the analytics is core, knowing when when stocks are either performing or underperforming, doing it from a managed fund point of view, but you’ve got to be on top of them because before you know it, they can blow up and they blow up way too quickly and they can blow up and you don’t even know about it. And they can blow up your system and even like a small portion of your portfolio potentially. It hurts. So having that detailed analytical alignment to what are they doing how they do and reporting that back and aligning that back to you to chart so, while we’ve been talking about coming down the stream of data and how you build an investment committee, you also need to build the structure back up to report on how you’re achieving what you’re trying to set out to do. And we’ve we’ve built that in our own system. Because we are running direct equities, it makes it a little bit harder, because fund managers are really hard to get the data on where they sit in the scheme of things. But from our investment portfolio management, one of our tools every week, our analysts actually runs a full on 15 page analytics around the investment process and the reporting of that internal performance of bonds. So if a client does client, we know that that stock is underperforming. And we’re on top of that before the client gets a call. And so what’s happening here, though, Andrew, I

Brendon Vade
mean, that the naturally leads into question about, you know, someone’s considering starting an investment committee, and then sort of taking stock of all the things which need reporting and analytics are really important one. Clearly, this is going to change depending on what type of implementation you’ve gotten, and what sort of models you’re looking to run, I imagine that your models are certainly in the more intensive end of the spectrum, being being with the amount of direct investments that you hold, but is there can you give us a bit of a sense of what sort of time investment is needed? I mean, you just mentioned a 15 page report, once a week, I’m hoping that that wouldn’t be I’ll get it that I was gonna have it other than take the time out takes me there with me to do the run out, then

Andrew Height
we obviously engage a platform like a Bloomberg or fat set or a refeed data system to give us a lot of analytical data. So it is in there and it is it is actually readily available. And we do that, we kept that for five up to date. So we can pull that data really efficiently. So that’s the first thing is you might want to spend, if you want to go down the route of really being analytical buyers, rectify the due date probably spent some form of money on building that structure. It does come down to, you know, as you go through it, how do you analyze it is going to be really important to allow you to make decisions in a timely manner. Because if your asset allocation is it, even if you’re an index model, when you want to move from emerging markets to developed, you’ve got to have some form of trigger to make you do that. And that’s the things that we’ve over 1520 years of work in this industry, and working for one of the boutiques regionally a long time ago that was more about informed information and developing strategies for the retail client. It gives a gave me the tools we wished we still utilize today about well, when is a market overvalued? When’s it undervalued? And those kinds of triggers, and then what funds are actually in the right categories to give me the outcome I’m looking for? Based on the questions that are probably already doing that just probably need to formalize it a bit better.

Brendon Vade
Jack can be curious to hear from you on the on the simpler end of the spectrum, you know, what sort of time investment should people be thinking about? And how should they think about sort of resourcing this exercise or the committee and bringing, like Andrew says some of the formality and structure to decisions they probably already making now. Or maybe there’s not in a formal process.

Jacqueline Fernley
And I think if we just take a step back for a moment, what we’re trying, what we’re talking about is delivering better client outcomes from an investment perspective. And consistent client outcomes across the business across the client book, this supports compliance across your wealth practice, and it saves you money in a lot of places, if implemented well. So that’s the first piece of the puzzle is a lot of wealth practices fail to scale. Because the cost of serve continues to increase because you’re not, you’re providing investment advice that’s not well structured in the first instance. And therefore you’ve got to wrap a whole host of compliance around it to make it work and, and the maths of those businesses don’t work. So that’s the proposition you’re solving. And what we’re talking about is putting it in an investment committee structure. And the important piece of this is that there is an ecosystem of support in the industry today that a wealth practice can access as a wealth practice running an MDA or an SMA, you can charge a fee on that model and split the advice piece and the model fee out and that income from that model fee can fund the external experts case that you need to actually deliver this solution. So, the big message, I want to make sure that we don’t scare people away. Because it sounds very complex. There are no doubt traps for young players, and there is a certain amount of complexity and delivering our pay well structured Investment Committee and an MDR and SMA solution, there’s no doubt there’s a bit there. But that’s why the outsourced CIO exists within Mason Stevens. That’s why the ecosystem around this industry exist to support that transition. And it is well worth it the other end when you get a far more profitable, scaled and compliant wealth practice. And so it might be a little daunting to begin with, but we’ve done it before. And and it is well with the other side.

Andrew Height
I think that the focus on fees is not really the solution here, I think, focusing on the outcome performance, will outstrip the cost of this implementation. You know, by being able to strip out some of the additional costs you’re getting from external already. Yeah, we find the clients get a better outcome by being involved or, like by actually having the extra services, they’re actually getting better outcomes, rather than having have just made hope that I’ve got it right and wanting stars giving me the right data. Yeah, yeah, the clients are willing to pay for that debt service ICL.

Brendon Vade
Yeah, it’s clearly going to be a trade off, I think that the business is going to need to make, we’re going to invest in, you know, the next sort of future growth of our business in order to make that component of what gets delivered scalable. And I’m sure there’s an inflection point somewhere, where and you’re, you know, you might be sitting a long way from that inflection point, you might be you might be past that inflection point. But at some stage, what I think the proposition, Jackie, that you’re really saying, and Andrew that you’ve sort of walked out in your practice for some time now, is that if you can get scalability around the investment decisions, via setting up a Investment Committee and making sure it runs well, then it allows you to take these other steps, MDA, SMA, whatever implementation suite, you decide. And that will then give you the platform for, for growth, where, you know, the initial cost of all these reporting tools and time within the business and all that sort of stuff start to start to have their own return both for the clients and to the business. Yeah, and

Andrew Height
I did my analytics part, I just really like that my signal, the pulse, I’m willing to pay a little bit more to have my finger on the pulse. But yeah, there’s tools out there like Morningstar in their research facility actually has the has some of the the tools that you could utilize to really just check and put it in the quartiles and say, you know, one quarter, you get a review, and you can actually use tools that you probably already paying for in their models already.

Jacqueline Fernley
And from our perspective, we offer that as one of the suite of services. So we can provide a bespoke portfolio Analytics report every month. And it’s part of the right card. So it just depends on what you as a wealth practice require. And it gets delivered up. And the data

Andrew Height
that I give us is pretty much the same as what we give what we’ll create it anyway. So it’s a it’s a it’s a good check point. So I actually yeah, that’s, that’s a good idea that we were doing. And we do that. So it’s, it’s good. It’s been it’s really beneficial from my point of view to make sure that we’re, we’re tracking the right direction. Yeah, I’ll see a lot that sometimes you you can as an advisor, track blind and hope that yeah, those those recent those, just checking yourself occasionally can really enjoy. Yeah, excellent. Well, guys, this

Brendon Vade
has been exceptionally helpful. And in painting a picture of, of setting up the committee and the things to think about, and it’s been it’s been really thorough and appreciate you sharing your experience. I’d be curious to know, you know, what are the what are the biggest trap for young players, as you say jacking? As we sort of try and tie a bow around this? What are the main things that you should be can not concerned but what should you be wary of? If you were starting out down this path? If you could? I know there are many things and maybe just keep it to some of the common common pitfalls. And also, you know, what’s, what’s one of the encouragement or the the unexpected upsides that you see that a lot of businesses get the value out of and clients get that value out of that maybe people just don’t expect from the outset? I’d be curious to hear from you guys.

Jacqueline Fernley
So I think the biggest trap for young Young players is ensuring you’ve got the right partner, or partners. I have seen asset consultants working with clients who just have investment philosophies and approaches that are completely different to what the wealth practice in itself is trying to deliver. And then the mistake that gets made is how to does that investment committee actually translate that as a consultant view into a portfolio. So that partnership, and who they utilize is just so important, because that that’s the piece of the puzzle, they can fork fall down, I have a lot of experience in my team have a lot of experience running, running this process, and we can support that relationship and the partnership and who you need. You know, for example, we’ve just completely reworked one of our clients, the whole investment governance piece, we build all their policies, We’ve restructured their investment committee, we’ve built a main IC, and two additional delegate ICs, one for managed fund selection, and one for direct investment, direct equities, there are different external asset consultants on each of those three committees, as well as someone from my team who have the right skill sets. So the point of all of that is just that matching of skill sets and the structure you build is so important. And the biggest trap is not getting that right in the first instance. And then the positive piece of it is, whilst it’s gonna sound quite daunting, it’ll be the best thing you do for your business two years down the track. But that process of one club by one client into the models, getting them structured and making it all happen. It’s a bit of a process. And I’m not going to pretend that it’s not, but the the benefits just outweigh it, the other side of the transition

Brendon Vade
exploit. And I’d be curious to hear from you. You know,

Andrew Height
the my first point of all this is start talking, start talking to people who you’re working with, if it’s the BDM on your platform, about if it’s somebody you want to go towards, to start talking about, well, what are they think, how do they utilize it, you know, if it’s worth going to a conference where Jackie speaking about this, it’s, it’s well worth it because Mason Stevens is well, and truly, and I’ve done a lot of research. And I’ve talked to some of Jackie’s major competitors about during this five years ago, when I first started out on my own, but we just didn’t have the scale. But that that five years of education really helped me make the decision around which platform had the solution for me, it made me really understand, well, they can help me, but I need that third party to be involved. And I need that I need help with investment knowledge. So who’s going to give me that? Well, not many. So okay, well, I need a broker on my investment committee do I owe, you know, so you start going through this pyramid of questions and skill sets of needs and wants and, but if you just start the conversation with somebody, you’ll start picking up all the little areas that you need and focus on to then be able to deliver when you get to 50, middle 150. And you’ve got your 100 clients, and you’re like, Well, I now need one. I know all the answers. And I have learned deliver, I know that I’m already in this place. So I think my first recommendation is sit down with somebody, you know, it’s either got one or in a platform and knows how to operate one. And that I think is the best step to understanding where you’re gonna end up because they’ve got the tools, they understand how they’re going to implement it. Yeah, it’s a regular conversation UbD and having with other platform practices, and they’re going to be able to give you a lot of insight around. Well, you could do it this way. You could do it this way. And I think it’s a really good starting point to talk to that kind of

Brendon Vade
model. Yeah, that’s great advice entered.

Jacqueline Fernley
I might just add one more thing, Brendan, in terms of answering the question, what’s the what’s the surprise? What’s the thing? And it is that if I look at our client base at Mason Stephens, some of our larger clients, and it’s not just one, it’s about three or four right now, who have gone through this transition and run a fully scaled wealth practice running MBAs. They’re not buying businesses, and they’re buying businesses with books of farm that are 123 times bigger than their farm. And they can do that because the profitability attached well the practice at scale in this format is just materially better than a traditional wealth practice. So they are then able to buy those traditional non scaled businesses when in the market in terms of acquiring them because they can pay a little bit more, and then tuck them into the suite of portfolios that are often there. And then they keep continuing to build. And the multiple that they their business themselves is valued at is materially higher than the traditional wealth practices that they’re acquiring the math, Dan for themselves. And so, you know, that’s the win at the

Andrew Height
end of the group. That’s a good point, Jackie, because the ability to scale your career advisor list, if someone’s looking after 50, if you’re doing an MBA with 80% of our client base, like be holding 100 120 clients, 150 clients probably under the book, if they’re not looking after the investment mandate, is there just purely client services and, and that’s a bit the worst sound and the ability to scale now that we’ve got an NDA in place, the scalability of our businesses throw for vault, and to Jackies point, we could suck, we could double in size, probably with two or Star Three Star. Yeah. Just because of the ability to make the investment, the time consumption and revise is really in implementing, it’s not giving it it’s, it’s a little bit of writing, but the implementation of a managed investment portfolio, the implementation of the strategic advice, that’s all your time consumption. And if you can outsource or utilize a more efficient way of doing the investment mandate side, my experience is that it’s substantially better for you and your firm, and the Elevate, it takes out all the compliance risk. Because if everyone’s in the model, the Investment Committee setting it, the company’s got the fingers around the in the mandate, and they’re in control. When you’re non discretionary, the mandate could be used, it could not be used, and you could end up with little pockets of sometimes gold and sometimes not gold, that actually can really hurt your business. And I really like it better as we grow. And as we build this business out the mandate and the model portfolio, give me comfort that we’re not taking additional risk by bringing in new advisors because if we can make sure that all the money goes into the model, I know what’s in that thing, and I know what’s happening behind the scenes. Well,

Speaker 1
editor Jackie, is an encouragement to roll up your sleeves and get curious and start to explore these. These these next steps that listeners might be might be curious to take. I don’t know what is so thank you very much both for your time, and we really appreciate you sharing your your expertise and sharing your wisdom. Thanks, Brendon.

Andrew Height
Yeah, thanks Brendon. Great to speak