30th June 2016

Rising Cost of Risk in Wealth Management

SCM Direct is an innovative online investment manager offering clients direct low cost to high-end wealth management that is smart, common sense and modern. First launched in 2009 as a reaction to the 2008 financial crisis SCM is based just off Sloane Square, Westminster, London. We spoke to the firm’s Founding Partner, Gina Miller, to find out more about the company and the key issues around the rising cost of risk in wealth management

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Rising Cost of Risk in Wealth Management

Can you tell us about what your company does?

As innovative online investment managers, we offer clients direct low cost access to high end wealth management that is smart, commonsense and modern. Everything we do is underpinned by 100%
transparency and treating our clients fairly.

How long has the firm been going for and where are your offices based?

The company was launched in 2009 as a reaction to the 2008 financial crisis and a desire to challenge the status quo. We are based just off Sloane Square, Westminster, in London which is very central but not in the traditional heartlands of either Mayfair or the City and the cultures that purvey the traditional establishments there.

What kind of clients do you serve and how do you approach them?

Investors who come to us are looking to bypass expensive advisers, layers of inefficiencies and high fee underperforming traditional active funds. For UK clients our entry level is £15,000, either direct or via an ISA or SIPP wrapper. For overseas clients our entry level is £150,000 or the equivalent in Euros or US Dollars. We are also delighted to work with corporates and charities but whatever the size of our clients, the same levels of fees, openness, approachability and respect apply to all.

Our approach is simple, straightforward and personal. We do not believe that anyone should invest with us unless they fully understand our offering and appreciate that no manager has a crystal ball or can predict the future. What we aim to do is to minimise costs and risks, preserve capital and produce consistent positive returns. Everything we do is underpinned by 100% transparency and treating our clients fairly.

How are wealth management firms fighting battles on two fronts; financial regulations resulting in increasingly squeezed margins, and – fundamentally – the rising cost of risk?

As originators of the True and Fair Campaign, launched in 2012, calling for 100% transparency of fees and holdings, as well as a Code of Ethics, we do not believe that financial regulations have created a truly competitive, or customer centric, market in fund management.

The industry has operated more like a cartel, profiting from a lack of price competition, new entrants, and embedded conflicts of interest.

Rather than take a strong hand on regulation, the UK regulator has seemingly deferred its responsibilities to conflicted trade bodies. The end result of this dereliction of duty is a complete lack of transparency of fees or holdings, product mislabelling, closet index tracking, inflated research costs and risk and suitability tools that are not fit for purpose.

The industry only has itself to blame for increased regulation as they have failed to put their own houses in order.
In terms of margins, the average operating margin for a UK drugs company valued at more than £2 billion is 23.4%, compared to a stonking 44.8% for a UK large fund management company in this bracket. It is no wonder that the industry is so reticent to be honest with their customers regarding their charges and fights any transparency reforms – like turkeys they do not seem to want to vote for Christmas.

To what extent do you agree that as many as 81% of wealth managers cite conduct risk as a significant focus in their firm. With this is mind, how is your firm tackling risk in your company?

According to the FCA, conduct risk centres on Politically Exposed Persons (PEPs), anti-money laundering and sustainability, but I think it can be encapsulated by how a wealth manager’s proposition and service builds and maintains trust. We focus on trust because it is fundamental to everything.

We tackle risk by ensuring we treat our customers fairly, abiding by the FCA’s very pragmatic overarching principles of ‘fair, clear and not misleading’ and apply the ‘would I tell or sell this to my mother’ test. I believe actions speak louder than words. So our proof of promise is that we invest significant sums of our own money alongside clients, on exactly the same terms and fees.

If a firm is confident they are delivering on these principles, they should not be concerned about conduct risk – the issue is that behind the slick marketing most are not putting customers first, so they should be worried.

How you can give our readership a high return on their investments?

We cannot control or predict future returns – no one can. In our investment team’s long experience, the best recipe to preserving wealth and achieving consistent returns is by staying vigilant, focusing on fundamentals, having a contrarian mind-set, concentrating on asset allocation not stock picking, which accounts for over 90% of returns, and constantly seeking to minimise costs and risk.

What challenges lie ahead for your company in 2016?

As a new challenger, our challenge is connected with brand building.

Our seven-year track record proves our innovative approach delivers, we just need to continue building consumer / investor awareness without the deep pockets of the bigger traditional brands.

Another challenge is operating a 100% fee transparency model with no hidden costs at any level when we are not playing on a level industry playing field. Traditional wealth and investment managers continue to hide between 50 – 85% of their true Total Costs.

Can you outline any specific industry based challenges you are facing now and in the future?

Via our True and Fair Campaign, which led to us contributing text for Article 24 in MiFID II, as well as the fee calculator in PRIPS, the industry is facing a seismic change in 2018. All wealth and investment managers will have to show all costs in one Total Cost number. This will be a huge challenge for tradition wealth managers as their clients will realise the fees they think they are paying are typically only one third of the true total. New entrants such as SCM Direct will finally be competing on a level playing field, and investors will finally be granted the basic consumer right of knowing how much they are paying.
Looking ahead to the future, if we can continue to thrive as a company and identify any opportunities in the market from which we can achieve more success for both our clients and ourselves, without compromising our principles and ethics, we shall be delighted.

Company: SCM Direct
Name: Gina Miller
Email: [email protected]
Web Address:
Address: 2 Eaton Gate, Westminster SW1W 9BJ
Telephone: 44 (0) 7838 8650

Categories: Articles

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