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2nd November 2011
Publication: FT Advisor

Firing Line: Lester Petch

Lester Petch, chief executive for Tam Asset Management, talks to Melanie Tringham about the road to setting up a  value for money discretionary management service for IFAs as well as the  massive opportunity made possible through the RDR.


Discretionary fund management has become a hot topic in the IFA service sector in recent months. As the retail distribution review becomes more real, so the discretionary managers are stepping up their campaigns to be the service of choice to IFAs stretched by new demands on their time and capability.Tam Asset Management is one of these. It has been around for about six years and is trying to pitch itself as a value service with a first‐class offering. One of its most important selling points, according to its chief executive Lester Petch, is that it can offer a complex investment report, detailing every transaction and risk‐profiling information in less than half a minute.


This is far more than the information that a platform can offer, which in the main simply gives a upto‐date version of where the portfolio stands.“Seven years ago we built a platform that was not a platform, it was an investment management delivery system. We offer our service through an extraordinarily transparent operating system. We are able to produce a 60‐page or 70‐page report over any timescale. “It is a full management report including transactions, historic asset allocation and that is all brought together in 20 seconds. “Platforms do not build libraries, we build libraries for our clients and they can look at anything at any time. It has been operational for five or six years.” Tam is trying to present itself as a value‐oriented company, with a high level of service. It is not trying to be huge, but has instead set up relationships with about 20 IFA firms, most of them large companies, with a varying degree of usage by the individual IFAs. It has £120m of assets under management, which puts it at the lower end of the spectrum ‐ Williams de Broe has £6.1bn ‐ and it is solely focused on the IFA market.


He said: “We are finding a lot of people are beginning to take discretionary fund management much more seriously than they were a couple of years ago. They are going to want to outsource that functionality more and more.” The problem is that the RDR is forcing more IFAs to reassess their business models, and question whether they should outsource some of the investment process instead of spending time doing their research and portfolio management. Traditionally, many have been going down the multi‐manager route, and the assets under management have reflected this. Funds of funds have seen an increase in assets from £11.7bn at the end of 2000 to £60bn by the end of last year, according to Defaqto.


Much of this has been driven by increasing fund manager turnover, stock market volatility and the sheer number of funds available. The discretionary fund managers, traditionally a preserve of the wealthy, have been approaching investors at the lower end of the market. Clients with smaller pots to invest may not want to have a fully bespoke service, but still have access to some of the benefits. Defaqto calculates that at the end of last year, of advisers using a platform, 26 per cent were using a discretionary manager. Tam offers two model portfolio services, with minium investment of £25,000 for its Premier Portfolio Service and £10,000 for its Focus Managed Portfolio Service. This compares to minimum investments of about £50,000 or £100,000 for bespoke portfolio services offered by other companies.


Mr Petch said: “We set it up from trying to understand what the IFA is doing, rather than saying we are great fund managers, we went to the people and said ‘what are your problems, what problems do you need solving?’”Tam found that the least of the IFAs’ worries was the fund management itself ‐ which was in many respects the easiest thing they could control. The problem with fund managers, they found, was everything behind the purchase of funds. Mr Petch said: “The one thing that was making them fed up was poor delivery, systems compliance, administration and compliance. The fund management is not the business they are bothered about. They are worried about the other parts of the service – its compliance management and investment management reporting.” The one thing that was making IFAs fed up was poor delivery, systems compliance, administration and compliance.


For many IFAs, the challenge is having the information to prove that they have actually done things. He said: “With the increasing burden of regulatory requirements, IFAs neither have time nor resource to respond to administrative and investment queries, without detriment to generating revenues and to have the necessary level of information to hand.” Mr Petch has spent most of his working life in investment management. He started life in the City, spending some time working for pension funds, before starting to work with the financial advisory market. He also spent five years in derivatives, to make sure he was familiar with the products. It was after this that he set up Tam.


The company has pitched itself towards the networks, but is exclusively focused on IFAs, and is not direct to consumer. As many IFAs prepare themselves for the RDR, Mr Petch said: “We are already RDR‐friendly. We knew this sort of thing was coming and we have already split out our costs and charges. Most of the issues that relate to the RDR are around those issues.” The whole process is around transparency, Mr Petch said, which is what he said Tam’s service was about. The RDR itself is a “massive opportunity”, he said. “The IFAs that we speak to want to focus their time on earning revenue. They need something easy and efficient. People coming to us get their risk profile and after that everything is available to them. They need to prove that they are doing the work of their client.”


He added: “We stay very much away from the client relationship. We have come across some people who are worried that managers contact their clients, and sometimes they feel it is a shortcut to giving their clients away, because all the details are with the fund manager.” When it came to charges, Mr Petch said he was in the bottom 10 per cent of discretionary fund managers for retail charging. “We are very much the value for money end rather than the expensive end, but when you look at the systems, they are very much high end,” he said. Above all, Mr Petch sympathises with IFAs. He said: “The industry is moving so fast [IFAs] do not know what is available to them. It makes their job quite difficult because there is so much out there to compare, and they are obliged to compare. That’s part of their responsibility.

“We are trying to make it as easy as possible.”