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 a steeply regressive fee scale.

Today the firm manages over £350 million on behalf of some 90 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?

Incoming MD Clint McCabe sees several priorities, all supporting continuity of process. The good thing about having a highly differentiated solution to financial planning and investment is that clients want above all for it to continue. That constrains what we can do as a firm, including the actions Stuart Fowler can take as the founder stepping back. Continuity of our unique solution, in the eyes of our clients, is best assured by the continued independence of the company. That in turn dictates Clint’s priorities, as the steward of an independent Fowler Drew.

1. Continuity needs a sustainable economic model and that requires an improvement in the company’s operating margins that must largely come from fee increases. An early initiative was therefore to make changes to fees that would both increase overall revenues and deal with the legacy of differential fee bases that resulted from our original fixed fee model. His first action was to introduce a regressive fee scale that narrowed that distribution of fee levels and ensured consistency for all: fee differences between clients are explained by differences in the amount of assets under management, with no exceptions. 

2. Technology investment is needed to ensure our cost advantage from using systematic decision processes in both planning and managing portfolios is sustainable. Our original technology platform for business processes, bespoke to support our unique investment processes, needs replacing to take advantage of efficiency potential from later generations of available toolkits. That includes external communication: how we interact with clients. 

3. The investment process itself needs support to generate constant incremental improvements in its robustness and functionality. As a quantitative manager in retail investment we are a rare animal. Where other firms have a research capability aimed at sifting new ideas (funds, securities, themes) to invest in, we have an R&D function: pure research into different mathematical techniques for solving problems and application research aimed at the means of implementing systematic decision making and of providing client access to the technology we rely on. We will step up this investment, to give life to a series of ideas the team has to improve the product, even though it is already far ahead of industry solutions.   

4. Clint decribes Fowler Drew as ‘the industry’s best kept secret’. With a business development background, he aims to change that. We will make more noise.