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time to Advice Paul crowne, principal adviser, centric Wealth

From modest beginnings with no precedent to rely on, Paul Crowne, principal adviser at Centric Wealth, is today one of the leading proponents of managed accounts in a business that looks after $5 billion of client portfolios using MAs. He talks to MICHELLE BALTAZAR about his journey and why he believes MAs can help advisers future-proof their practice.

www.fsmanagedaccounts.com.auVolume 01 issue 01 | 2014

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the journAl for mAnAged Account professionAls• FS Managed Accounts


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FS Managed Accounts the journAl for mAnAged Account professionAls•

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P aul Crowne is an oddity in the financial planning business. When asked what he believes are the reasons why investors

should consider managed accounts, he launched into a discussion on why they wouldn’t be right. “I had a client last week who came in with the option to unwind a defined benefit scheme and give us mon-ey to manage under a managed account services. I said, ‘Looking at the features of the DBS you have, you’d be crazy to unwind it.’”

Asked what constitutes good advice, he did not mention his strengths but instead said, “You must know your limitations.”

And unusual of all is his company’s Code of Conduct emblazoned in giant letters on the hallway of his Sydney office, with words that are clearly visible to everyone before they walk into the office board-room: “Act with respect and courtesy. Place clients’ interests first. En-courage questions.”

Cynics would argue that it’s not what you say, it’s what you do. But being faced with a reminder on your ethics and professionalism every time you grab your morning coffee does say something about what Crowne and his colleagues are endeavouring to do.

For an industry that has taken a lot of public battering (more re-cently because of the Commonwealth Bank planning scandal), the idea of best-practice and personal integrity take pride of place at Centric Wealth, where Crowne is a principal adviser.

To bridge the credibility gap, Crowne does believe that managed accounts work well for many of his clients.

“We are in an industry right now which we are desperately trying to convert into a profession. And to be seen as a professional, you need to focus on your core skills and training,” he said.

“An adviser is trained to advice. And as an adviser who is oversee-ing the estate planning and the risk assessments, and all the rest of it, you shouldn’t be taking his eyes off all those particular tasks to try and research whether BHP is a better buy than RIO.”

“An investment adviser is a completely different kettle of fish.”

turning $1.9m to $3.3m plus propertyNot that all financial advisers are actively buying or selling stocks but the message that Crowne is trying to get across is that you cannot be the jack of all trades. Outsourcing the investment management is a way to deliver more value to the client.

This was the case for one of his clients who became a paraplegic in her early 20s and needed holistic financial advice to stay financially comfortable for the rest of her life from her $1.9m compensation pay-out.

From the beginning, her funds were invested using a managed dis-cretionary account (MDA) and over 23 years, she has drawn a $3.3 million income (including $500k to buy a property) and her portfo-lio is still worth $1.4 million (which goes back up to at least $1.9m if you include the value of the property).

“The objection to advisers handing over the investment piece into a managed account is usually around the fear of losing the ‘invest-ment adviser’ mantle,” he said.

“They ask, will the client still respect me? And I guess in their minds, ‘will they still pay me?’”

“But your profession is advice, not funds management, so free up your time to advice better by outsourcing the investment piece.”

The formula has worked well for Centric Wealth, which now man-ages over $3 billion in funds under managed accounts (MAs). The company was bought out by accounting and wealth management firm Findex in January this year, which adds $2 billion under MAs in the total tally.

modest beginningsThe aggregate $5 billion managed under MDAs is a serious chunk of the entire MA industry, with estimates ranging from $10bn to north of $20bn. To put in context, Rainmaker Research estimates that total funds under advice is $600 billion in 2013.



the quote

We are in an industry right now, which we are desperately trying to convert into a profession. And to be seen as a professional, you need to focus on your core skills and training.

www.fsmanagedaccounts.com.auVolume 01 Issue 01 | 2014

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But before Centric Wealth became a managed accounts giant, it started out small. Crowne worked in an accounting group back in 1993 where they built the investment administration side from the ground up.

“There was no precedent so we had to invent what we were doing as we went along,” he recalls.

The result was a three-way agreement where the client had a rela-tionship with the adviser, the broker and the custodian of their assets.

“Using a custodian allowed us to pool investments so there was greater simplicity. We tailored mandates which would limit expo-sures within asset classes.”

The firm then introduced the discretionary aspect two years later after realising it was inefficient to go back and forth with clients to get permission to trade on their behalf when they had a good invest-ment idea.

“Our clients embraced that. They didn’t want to be contacted while they were overseas or on holidays, or miss out on the trade because they couldn’t be contacted.”

Like any good business, the firm grew its clientele by word-of-mouth. Families and friends of clients started signing up. At the time, the MDA service was only available to clients with more than a million dollars of investable assets.

“It’s a bit like positive feedback. The better the system works, the greater the FUM increase through natural growth but also through referral activity, so it’s a case of getting significant institutional pres-ence where we start appearing on the share registers of some of the larger listed property trusts and some of the larger companies around town.”

Suddenly, chief financial officers (CFOs) were knocking at their doors asking about their intentions on the share register and whether they need more information about their companies.

“It provided us with a better quality service of research,” said Crowne when MDAs gave them an “institutional presence” in cer-tain holdings.

Fast forward to 2007 when the business was bought out by Centric Wealth. That meant an injection of capital and additional expertise into the business, which enabled them to service not just those with

one million dollars and above in assets. “Our separately managed account service became more industri-

alised and enabled us to service smaller clients. It was very uneco-nomical to hold smaller accounts back then because it was labour in-tensive. What’s available now was simply not available then,” he said.

The time of the acquisition coincided with the financial crisis, which took the wind off their sails.

“We had a lot of individually managed accounts (IMAs) at the time and we didn’t have the robust model that we have now, and it’s the lessons of the GFC. That triggered a tremendous amount of self-improvement in terms of our investment committee structure, our asset allocation models and the back testing of those,”

“I think the GFC hurt us like any particular group, but I think we’ve come out of it extremely strongly.”

He said the decisions that the portfolio construction committee made and the things they’ve done since then have been very timely and they have stuck to the mantra of providing risk-adjusted returns.

“And personally, because a lot of my clients are retirees, they are more concerned about the return of the capital than the return on the capital so risk-adjusted basis makes a lot of sense.”

future sale value, key man risk and client’s interestsCrowne believes there will be changes in the industry that will make the old-style model of financial advice less valuable in the future and that incorporating a managed discretionary account could neutralise that threat.

“If the adviser is a small operator and they know they can just keep it all inhouse by themselves, they could actually be setting themselves up for a fall – the loss of platform rebates, the loss of grandfather-ing commissions and all the rest of it, there will be changes in the industry,

“Incorporating an MDA, I believe, will increase the multiple that the adviser could get for selling their business.”

MDAs also address key man risk.“I’m very honest in saying that if something happens to me as your

MDA adviser and you have a new adviser provided within the firm and we’ve assessed that your existing mandate is suitable to you and existing managers are doing a great job with those investments, then that will continue whether I’m here or not.”

This year, one of Crowne’s team members is retiring and the pro-cess of transitioning that adviser’s clientele to a new adviser with-in Centric has been relatively smooth, as the succeeding adviser is someone familiar with the MDA process that they already use.

“To the client, they don’t have to ask the new adviser, ‘Are you an expert on investments?’ It doesn’t matter because the question is more ‘Are you an expert on my affairs, my profile, my circumstances and my family’s needs?’ And the answer is yes.”

And like it or not, clients will demand answers when markets turn. Under an MDA structure, you are one step removed from the stock selection so that the onus is on the MDA provider to monitor and continually re-assess your client’s portfolio returns or losses.

“It’s great to be sitting on the same side as the client when discuss-ing investment performance. For example, if you’ve got a relation-ship with an MDA provider, you’re on the same side of the client questioning them instead of your clients questioning you.”

cover story

the quote

But your profession is advice, not funds management, so free up your

time to advice better by outsourcing the investment piece.”

24 cover story www.fsmanagedaccounts.com.auVolume 01 issue 01 | 2014

more time for adviceCrowne said that MAs free up his time to provide advice.

“Our clients, particularly HNWs, are used to paying fees for whatever critical stage in life they’re going through: acquisition of property, asset protection, pre-nups, their daughter’s wedding. They pay fees for those things to get a professional outcome.”

“You, as a trusted financial adviser, levy your fee to basically project manage their entities and their structures, their cashflows, their risk exposure, their debt, their estate planning and their insurances – and drawing in experts where needed.”

In other words, just because the invest-ment piece is outsourced to an MDA does not mean it’s any less an active decision that you’ve made as an adviser.

“It’s in their best interests and by the way, it frees up my time to manage your core af-fairs that need advice.”

Drawing on his 20 years-plus in the busi-ness, Crowne said that you can easily de-liver value of at least 40 to 50 basis points from looking after your client’s estate plan-ning and structures, speaking with their accountants and solicitors, and bringing in the experts.

“You can only do that if you’ve got an in-vestment specialist looking after the actual money so an MDA, in that regard, really is quite compelling. fs

the quote

It’s great to be sitting on the same side as the client when discussing investment performance.


outcome of using managed discretionary accounts from the adviser viewpoint:

eliminate transaction time and risk

massively reduce SoA burden

investment performance 1 step removed

Adviser on same side of table as client when querying

performance

Strong client relationship: funds “sticky” in market downturn

reviews based on strategy, not shares

service more clients, more easily

imAs allow tailoring eg ethical exclusions, escrowed stock,

or skewing portfolios to allow for non-mDA assets in holistic

asset allocation

from the dealer viewpoint: Business now scalable

Reduced compliance risk

institutional support for smaller players with robust model

Sale multiple captures funds management arm

$12 million client. Affairs needed complex legal and investment solutions.

consolidate on mdA: establish cost bases use imA to preserve high CGt parcels and manage tax outcome

simple tax summary to accountant

concurrently, project manage key family concerns – estate planning

lawyer engaged, Family Provision Statements built advice relationship built with next generation (PoA holders)

on death of client, seamless transfer of wealth to children

those testamentary trusts still in our mDA four years later

trust portfolios and strategies tailored to individual trustees

case study: intergenerational Wealth planning

time to advice - fs managed accounts · your time to advice better by outsourcing the investment...

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