Being based down the road from Neil Woodford has its perks.
Henley-on-Thames-based Harpsden Wealth Management used the same brand consultancy as the star fund manager when it changed its name this year and has accumulated £230 million of assets under advice from the area’s wealthy residents.
However, the firm is no slave to the Woodford cult, having a strong sense of its independence as a discretionary investment manager (DFM) and financial planning firm.
Jeremy Arthur and Ian Brady, directors of Harpsden, previously named Oaktree Wealth Management, have sought to combine financial planning with a feel for ‘institutional’ investment.
Arthur says: ‘By institutional, I mean we have a three-strong investment team, led by Ian, who are all formally trained and have worked at a senior level in global investment houses; and they do in-depth analysis down to the stock levels in our portfolios.
‘They even meet companies, as well as analysts and fund managers around the world. That capability allows us to focus on fewer, wealthier clients and run higher levels of service.’
The effect has been to drive the firm’s profits up to £439,000 this year.
JEREMY ARTHUR CV
- 2008-present Harpsden Wealth Management (formerly OakTree Wealth Management), director
- 2006-2008 Canaccord Genuity Financial Planning (was originally Andersen Charnley), business development director
- 2004-2006 Towry Law, director of employee benefits
- 2003-2004 Towry Law, director of central region
- 2002 Towry Law, regional sales manager
- 1997-2001 Towry Law, sales manager
- 1992-1996 Towry Law, private client financial adviser
- Chartered financial planner
Arthur and Brady have broader horizons than their bottom line, however.
As well as supporting many local causes, Brady says a long-term ambition is to use Harpsden’s profits to build a school for underprivileged children in Africa.
Before founding the firm in 2008, Arthur had been a director at national adviser Towry Law, then at London-based Canaccord Genuity Financial Planning, and Brady held senior fund manager positions at Invesco Perpetual, Schroders and Legal & General.
They set up the business in the teeth of the financial crisis in 2008. They pre-funded it for three years, which they say gave much-needed reassurance to clients, staff and partners.
From there, the firm has gained momentum: in the past three years funds under advice and income have tripled to £230 million and £1.75 million respectively.
It has around eight professional connection firms and five retired IFAs who introduce wealthy clients.
In-house DFM service facilitates proactive approach
Harpsden has six core discretionary, segregated portfolios, researched rigorously by its three-strong investment team.
The Harpsden Income & Growth portfolio has outperformed the IA Mixed Investment 40%-85% Shares benchmark in each of the past three calendar years and in the year to date.
Brady attributes the outperformance to ‘raising cash when markets went up and redeploying it when they fell. For example, many fund managers were overweight commodities a year ago; we were underweight.
Now we are 2% overweight in energy and 1% overweight in commodities,’ he says.
In 2012, on the same day that European Central Bank president Mario Draghi promised to ‘do whatever it takes’, the firm doubled its exposure to Europe to 6% and has continued to add, reaching 12% today, says Brady.
‘We use Invesco Perpetual European Equity Income, which we knew would recover after that speech,’ he says.
Squaring up over DFM offering
If an adviser offers its own discretionary service, it could incentivise them to recommend it above others and to not sack the manager for bad performance. But Arthur says: ‘[If that happened], clients would sack us.’
Brady says: ‘Many IFAs outsource, but all they do is fire fund managers for bad performance just to keep the client. We are trying to escape that trap. That is a reactive approach.
‘Nothing works all the time so we are proactive. We have bought fund managers who were worst in their sector [but] because we analyse down to stock level, we know their performance will come right.’
He gives the example of the JO Hambro UK Equity Income fund: performance suffered in January 2014 as it moved out of expensive defensive stocks into small cap and gradually into commodities.
The fund is managed by Clive Beagles and James Lowen, both of whom are Citywire AA rated. According to Citywire Discovery, Beagles has top decile performance for 10-year risk-adjusted returns in the UK equity income sector.
Beagles and Lowen are top decile over seven years and second decile over five years. However, they have declined to fifth decile over three years and ninth decile over one.
*Data net of fund manager and platform charges; gross of adviser charges. Dividends reinvested.
- ACTIVE FUNDS: 97%
- PASSIVE FUNDS: 3%
Acquiring a local presence
The business changed its name to Harpsden Wealth Management in April as part of a comprehensive rebrand.
In June it acquired local advice firm Keith Johnston & Partners, boosting funds by £60 million and adviser numbers from three to five.
‘We changed the name because there are many firms called Oaktree in financial services and beyond,’ says Arthur.
‘We wanted something unique and chose Harpsden as it is a nearby village with which we have connections, including Henley Golf Club, which is in Harpsden.’
The firm used creative agency Journey on the rebrand, which also worked on the launch of the Woodford Investments brand.
Arthur and Brady courted several advice firms before deciding to buy Keith Johnston & Partners, which was owned by Stephen Johnston, the son of founder Keith.
Arthur says: ‘Stephen was chartered and had a local presence. Very few of our clients are Henley based. Stephen didn’t want to deconstruct by consolidation the business his father had built.
‘It was profitable already but we saw a route to improve that by re-engineering it and keeping the four staff out of seven that were germane to [the new structure]: two advisers and two support staff.’
Johnston wanted the backing of a bigger business to ensure his clients were in a sustainable proposition and has in turn bought into the long-term plan of Harpsden by taking equity with the business, where he now works as a chartered financial planner.
‘We hope to improve [his firm’s] profitability by sharing resource and offering his clients a wider choice,’ says Arthur ‘Over time, and where suitable, we will take over some of the fund management without increasing the cost to clients.’
The firm made a one-off loss in 2012, with costs of £624,000 and income of £611,000, due to costs associated with a failed acquisition.
Arthur says an important lesson from that was not to engage lawyers, accountants and other professionals, nor undertake detailed due diligence until heads of terms have been signed.
Harpsden has three propositions: financial planning, portfolio management and wealth management.
Around 95% of its clients use the latter, which is a combination of the other two. It tends to set a minimum investment of £250,000.
For initial financial planning, the firm charges hourly rates or fixed fees based on £250 per hour for advisers, £125 for paraplanners and £75 for administrators. The initial charge typically equates to 1% of the investment.
Ongoing wealth management clients pay 1% on the first £1 million invested, 0.85% for the second £1 million, 0.60% for the next £3 million and 0.5% for amounts above that. The minimum fee is £2,500.
Ongoing portfolio management clients pay 0.85% on the first £1 million, 0.75% for the second £1 million, 0.60% for the next £3 million and 0.5% for amounts above that.
‘The typical 1% ongoing wealth management charge is for advice and fund management combined and people say this is a better deal [than they find elsewhere],’ says Arthur.
‘For that charge, wealth management clients receive regular review meetings – typically half yearly or annually and all the tax and financial planning you would expect within that.’
Arthur and Brady own 41.5% of Harpsden each. Other staff share the rest and the firm has operated a share options scheme since 2010.
Harpsden is a limited company and the directors pay themselves a combination of salary and dividends.
Three advisers are employed on salaries, one is on a contract for services and in phased retirement.
Harpsden has higher costs than some businesses. Arthur says this is mainly because it has been investing in staff and offers attractive salaries to bring in the right people.
The investment has paid off, with staff numbers up nine to 15 since 2012: three investment staff, two chartered accountants, and 10 working in financial planning.
Arthur and Brady say they plan to continue recruiting or acquiring around once every 18 months.
The firm is also trying to pump fresh blood into the profession.
It has had an arrangement with Reading University and the associated Henley Business School for the past two summers, under which Brady gives one annual lecture and the firm offers 10-week internships to two students a year.
Although this has not resulted in the firm recruiting any graduates yet, the hope is it will in future.
A decision the directors made three years ago has helped to increase efficiency: using the firm’s compliance consultant Threesixty to carry out process audits as well as financial audits.
IAN BRADY CV
- 2008-present Harpsden Wealth Management (formerly OakTree Wealth Management), director and chief investment officer
- 2003-2007 Invesco Perpetual, head of fund of funds and US equities
- 2001-2002 Schroders, head of US equities
- 1997-2001 Invesco Perpetual, head of US equities
- 1991-1996 Legal & General Investments, head of US equities
- 1989-1991 Britannia Life Investment Managers, fund manager US equities
- Member of CFA UK
- Institute of Investment Management and Research associate qualification
- MA (joint honours) in economics and international relations, University of Aberdeen
- Post-graduate diploma in accounting and finance, Strathclyde University
Harpsden achieved corporate chartered status this year. Arthur says this will become the benchmark for new model firms.
‘The next generation will also need to invest in technology because that will become a big differentiator, for example, in how you research investments,’ he says.
As well as growing by recruitment and acquisition, the firm plans to target the charity and small final salary investment markets with its portfolio services.
‘Many schemes up to £20 million don’t have the in-house expertise for fund management, so that could be a growth area,’ says Brady.
‘We also have an ethical portfolio and want to develop that with income and growth versions.’
In 2012, the pair set a target of £500 million funds under advice by 2019. Although they are less than halfway there, Brady still believes it is achievable.
‘We don’t have any particular exit plans at the moment,’ he says.
‘We want to keep building. We have reached base camp and everything is in place to go further.’
FIVE TOP TIPS
- Recruit good quality employees and provide them with a stake in the business.
- Continually invest in processes, employee development and delivery of the proposition.
- Take a long-term view.
- Prudent and realistic business planning is essential.
- Align the interest of clients, employees and shareholders.
First published DECEMBER 18 2015 BY: TIM COOPER, CITYWIRE
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