Why was Fowler Drew formed?

The prompting, as a start-up in 2004, was the publication two years earlier of Stuart Fowler’s book No Monkey Business: what Investors need to know and why (FT Prentice Hall). Described by one financial adviser as ‘an excellent blueprint for modern wealth management’, the book was an institutional fund manager’s view of the technical and ethical shortcomings in investment services for private investors.

It was two experienced and enlightened financial advisers who were instrumental in putting the blueprint into practice, combining their retail financial advice knowledge with Stuart’s institutional investment expertise.

Why is it so different from other wealth managers?

A new business without legacy clients has few natural advantages but one is a clean sheet of paper to fill with better ideas than those that established businesses are effectively slaves to. What filled our blank page was a set of ideas from three different sources.

1. From Stuart’s background as a manager of corporate and public pension funds and sovereign wealth funds, we took a commitment to quantitative investment methods, quite widely used in the institutional world but rarely in retail. We took the concept Stuart’s former business pioneered of Active/Passive: active asset allocation (what markets and how much in each) combined with ‘trackers’ or passive funds to implement the market exposure. Our concept of goal-based and outcomes-driven investing was derived from the actuarial consultancy techniques increasingly used in company pension schemes: Asset/Liability Modelling and Liability Driven Investing.

2. From an earlier venture with business partner Chris Drew, we took (under license) a set of techniques for turning these institutional practices into systematic business processes. This incorporated everything from the decision logic for planning and managing goal-based portfolios to the investment accounting systems to support virtual goal-based portfolios made up of different accounts for different legal owners contributing to the goal. Nothing like this existed ‘off-the-shelf’.

3. Traditional financial planning and advice qualifications in insurance, pensions, tax and trusts, and the required regulatory permissions, necessarily came from the Independent Financial Advice sector.

It wasn’t only the business format we wanted to redesign. We also had views about the excessive total costs involved in the traditional financial-services ‘value chain’, the limited usefulness of some of the links in the chain and the flaws in the conventional approach to setting fees. So our revenue model was radically different as well as lower cost: flat fees based on service scope (linked to inflation) rather than portfolio-based fees (linked to changing assets under management).

How has the business developed since formation?

As a start-up with limited financial resources the overriding objective had to be sustainability of the business, because that’s what clients planning lifetime ‘journeys’ depend on for consistency. Within that constraint, which required a very conservative growth strategy, we focused above all on the continuing development of core technology, from the refinement of our original modelling to the increasing automation of all business processes. This focus has been critical to our very competitive pricing, given we also provide high levels of customisation and personal service.

Fee setting has been a constant challenge. No method is without flaws and the key has turned out to be simplicity and transparency, rather than ‘fairness’ based on resources absorbed – which will always be more opaque as well as complex. This has led to us adopt a more traditional approach of asset-based fees but with cross subsidies limited by imposing both a floor and a cap.

Today the firm manages over £300 million on behalf of some 55 families with a total staff of 11, split between 5 professionals and the rest in business and client administration or business development.

Where do you see the business going?

We are just completing a three-year project of technology development as base building for a much larger, faster scaling up of the business. What defined the base is franchise-like business processes capable of supporting a much larger number of clients without commensurate investment in people or systems and without loss of consistency.

A more aggressive growth strategy to build on this base will require new management resources and probably, for the first time, outside capital. But shareholders, management and clients are as one in seeing independence as the best guarantor of the essential differences that make the Fowler Drew ‘franchise’ appealing.

Because what we have developed is potentially a better solution for ‘robo-advice’, we are often asked if that’s where we heading. It’s an option at some point but we see ourselves as more ‘cyborgs’ than ‘robots’: using machines to empower both adviser and client, in a collaborative process, rather than replacing the human adviser. That is so even though we have developed interfaces that technically do not require an adviser to guide the process.

We needed that machine capability to realise the key informing idea of the book and the firm: an individual’s true interests are best revealed directly, not interpreted or interpolated by an agent. It’s your money and it’s also your life. We can’t put ourselves in your shoes but we can put you in our shoes, giving you the power of our knowledge and our decision logic.