As more and more boutiques are being set up, advisers should be aware of what they’re getting themselves into and will want familiarity in a potential manager, according to Montgomery Investment Management.
The firm’s chief investment officer, Roger Montgomery, said the top three points advisers should look out for were what was motivating the manager, succession planning, and how the boutique was communicating with advisers and clients.
“I think you want to know how their ego is motivated — is it motivated by collecting funds under management (FUM) or is it motivated by having the best returns,” he said
“You really want to go with the person whose ego is driven by absolute stable returns because to preserve that, you’ll have to cap how much FUM you raise and that can be a challenge for some people.
“Because by the time you have the steam and momentum going behind you and you’re raising a lot of money, it’s very hard to put your hand out and say ‘Stop I don’t want anymore. We’ve collectively arrived at a point where we are happy to say that’ and I think that’s really important for an adviser when they’re dealing with boutiques.”
Montgomery said the communication piece was a big issue as many managers did not talk to their investors and therefore made it difficult for a client to stick to a strategy when it went through underperformance.
“The worst thing you can do as an investor is to switch boats mid-stream as that’s how you reduce your return, and so sticking with a strategy over the long run is better,” he said.
Bennelong Australian Equity Partners’ investment director, Julian Beaumont, said a common mistake advisers made when deliberating about using a boutique was the perception that boutiques were more risky than household institutionalised fund managers.
“They’ve grown up with some of those houses and become quite familiar and are unwilling to look for a better performing fund that may not have a strong brand,” Beaumont said.
Fidante’s general manager, Cathy Hales, said when looking to use a boutique, advisers should make sure the investment capability matched their clients’ needs, had the best capability in the product category, and to think about what support the boutique had.
“You want a team that walk their talk in terms of their strategy implementation,” Hales said.
“It’s a highly competitive industry and it’s important to know that they can stand the test of time. You want a three-to-five-year horizon so you need to make sure to partner with a boutique to stand the test of time.”
Read part one of this feature here: Getting away from the big guys
