I recently sat down to have a chat with Justin Urquhart Stewart, about the ethos of 7IM, the £15billion investment management business he co-founded in 2002. His best and worst moments and the importance of wealth management and making sure that people start planning their financial futures as soon as possible.
Where did the name Seven Investment Management come from?
We made it up.
I think actually, there were six of us in the room but we thought it would be rather unfortunate if we had to change it quite quickly so we add one on, seven. Then we had to make sure there were seven people somewhere along the line.
Who’s your average customer, on the investment management and wealth management side?
Well you see, we’ve got two bits intermediaries and private clients.
When we started, financial planners didn’t really exist. Of course, IFAs existed because in those days, they just lived on the huge rebates they were getting from the fund houses. I used to find it funny going on the roadshows of Fidelity and Invesco. The last slide of each of their presentations was, as the roadshow was probably in January, between now and the end of the tax year, for your ISA, you’ll get a 5% commission. What’s the fund? No idea, but it’s going to sell.
So we came along saying, “well, we can’t actually pay 5% of that but I tell you what, we’re going to run your money in a way that is going to be cheaper and…” Not interested in that in the slightest.
The sensible ones said yes, that’s the way it’s going to happen in the future. When RDR came in, i.e. banning commissions, suddenly, all these people had to suddenly change their colours and say how else can we charge and find a way of extracting money from clients, hence St James’s Place.
That was when people realised that actually, they’re not fit to run money properly. Not that they’re stupid, but they haven’t got the tools to do it. They haven’t been trained what to do. To actually have a properly balanced portfolio with the right levels of risk and liquidity and things like that, let alone dealing with foreign exchange, whoa, no idea at all.
So that’s the area that grew because people had a problem.
Then we had the private clients side, which had been pretty small, hadn’t really focused much on that. Only in about three years or so, we started to focus on that.
The average private client size started about £250k/£300k, so pretty small; it’s now over half a bar [million]. The aim would be to develop that to provide for the half-million to ten million families. Not the super wealthy. Probably the bits below the private banking side.
Technically, we put an entry of £200k or something in for the family, but frankly, if someone comes in and says actually, I don’t have any amount because we’re waiting for this to mature or whatever it happens to be, or you can see what’s happening, then fine.
With us there’s one fee for the family based on value. If it goes up, we earn more. If it goes down, we earn less. That’s it. Keep it as simple as possible. And more people in the family? That’s fine.
It is a relationship.
The plan probably says in most cases, they don’t need big returns. They need five, six, seven per cent, something like that. If they’ve got double-digit return requirements, they’ve got a big problem if something’s gone wrong.
When should people start wealth management planning?
It needs to start when you’re nought.
YOU don’t start with nought because you don’t come rushing out of your mother’s womb with a ISA claim form.
But for parents, the ability to be able to sit there and say we’ll start saving for the kids at that age, small amounts. If I were the Government, I’d say “right, this small child now has the ability to have a tax-free pot of say a quarter of a million, so godparents and everybody can stick money in”.
And so don’t put it in a junior ISA so the silly kid gets it when they’re 18. Because the first thing, that’s going to happen is it disappears behind the bar…
When you’re actually at your most irresponsible…
Let’s give a child ten grand when he’s 18?
Ludicrous, give it the real benefit of compounding from nought to 40 and you can really start seeing something happen. And already, you’ll be making a difference to that, to the next generation coming through.
Just simple planning like that.
It is this education of giving the ability to have a greater control of what’s going on. It means you’re much less likely to get ripped off. And you can actually start enjoying the money, and enjoying some of the investments as well to actually know, those are the investments you want to participate in.
And for those approaching retirement?
People that have just retired start fretting about the day today. They’ve got their pensions and their ISAs and all the other bits and pieces, and quite understandably at 65/70-odd, they ask “I’ve got so many years to go. Have I got enough?” And obviously “I haven’t got enough because I have no idea how much I actually need”.
The market going up and down or whatever variance it is, and, there’s no new money coming in,”That’s it. As of today, I’m going to get poorer”. And you spend the rest of your life desperately trying to accrue assets, and what you actually need is someone to turn round and say actually, “it’s fine, you’ve got more than enough. Spend it”.
Almost always somebody needs to given the authority to be able to say, “It’s fine, go and use it.” In fact, do you know what, we’re going to take this chunk of money, you’re going to spend that this year, and teach them to go out and enjoy it. And I think it’s getting fascinating.
The key bit that’s missing is proper financial planning.
We’ve never done financial planning in this country properly.
They do it to an extent a little bit in the States. They’ve started now having financial planners. Some of them are just covert financial advisors, just by another means. But a good financial planner doesn’t have to have huge great questionnaires on how much is being spent on your newspapers every day and things like that, but basically, simple planning as to what you’re going to need, not just for you but for the family.
That family further up and that family further down. And why that’s going to be so important is given the dysfunctionality of our politics, and it’s going to carry on for ages, the one word that’s going to be affected is confidence. So the more control you’ve got, not to say of the day to day running of your monies, because you don’t need to do that, but to know what your money is going to be doing. Then you’re going to be okay, and your family’s going to be okay, it’s going to give you confidence.
Whereas everybody else will be sitting there going “I don’t know what’s happening next”. And that to me is one of the most important issues.
Running the money is almost a commoditised issue, because if you’re good at running money, you should be good and steady, dare I say even dull.
The long-term stuff, put it away, don’t look at it that often. You can have some fun money; that’s why we have horse-racing, or have a punt on some stocks and things like that. The definition of that is you can afford to lose it and you don’t care. So therefore, it’s a small percentage.
You should update your plan every single year because your partner’s died or got married again or whatever it is, you adjust it for those circumstances. The systems will simply allow you to do that now. And it separates out the sort of rubbish you get from investment managers the entire time about needing to have more exposure to, an emerging market or to debt and things like that. People are not really interested in that whatsoever. You just need to know the outcome of it.
For the younger generation, Millennials who are, five years into work, they’re starting to get some money to put away. There are a few execution-only wealth management platforms out there. Should they use them? What do you think is the most important thing for them in terms of getting their financial future planned?
Right. The way we looked at this, we weren’t bright enough to work this one out.
But, actually, some of our clients did. There were a group of boys and girls and they wrote Donkey Kong, they said, “We haven’t got a clue what you’re talking about.” They’d sold their business for a huge amount and, you know, we were lucky and privileged to actually look after it.
They said, “We don’t actually understand. What do you mean by SIPP?, what do you mean by an ISA?”
So we said, “I’ll tell you what we’ll do, we’ll set up a little joint venture, which we’ve done. You write what we do as a game or in the style of a game and financial planning and the style of a sort of game.”
It’s called: 7IMagine (7IM-agine)
So the gamification of wealth management?
Gamification. Quite literally. I’ve done talks and presentations in several sixth-forms.
We try and get schools and universities when we can, but normally, once every six weeks or so.
It’s a good education for us, not just for them. I find it ridiculous we don’t teach people this at school. So we run through the 7Imagine app.
They all get their iPads out and I said “Log yourself in.” I said, “Right, okay, you’re no longer 17 or 18. You’re now 23, you’ve finished university and you’ve got £50,000 worth of debt. Now we’ll give you an income of 25/30,000. We’re going to put in your maximum ISA and we’re going to put in a pension and obviously, the amount you get back from the Government.”
So this is all imaginative stuff. “Work out now how much money do you think you’re going to need if you want a pension of say, £25,000 a year or £50,000 a year.” And they put those numbers in and they play with the game, and press the button and it comes out as a million quid.
So now you get married, you’ve got children, you’ve got this coming out, you put all those bits in, grandma leaves you something, someone else dies.
Literally, you can play with this and see the way you need to get to. Then as a 17/18-year-old, you know, rather sad life if you’re saving immediately, but at least you have in your mind “I’ve got to pay this debt down, but if I start doing this carefully”… and at least it told them what the problem was. We even told them part of the solution, but purely as a game at this stage without adding then in real life, which obviously is more painful.
That’s the way to start it. Not so much as tell them what the problem is, because that just scares the living daylights out of everybody, but tell them what the answer is.
It’s actually not that impossible if you start early enough. Wouldn’t it have been nice if our parents had done that, but the reason they didn’t is, well because you didn’t have to in those days, and they didn’t understand it either.
That then gets quite a warm reception. But you play that similar thing to entrepreneurs, who of course are very focused on big, dynamic and exciting this, that and the other, and aren’t interested in long-term saving because they’re just interested in rocketry.
I think entrepreneurs tend to have very high-risk thresholds.
But still, in the back of their minds somewhere, they realise, yeah, okay, I’m not doing it now but I know I’ve got to do that.
That panic in the back of your mind.
That then occurs to them when they’re no longer young, thrusting entrepreneurs because they’ve just got to 35 and they realise that other people younger than them are now doing better.
Then you start becoming the middle business person and it’s interesting because you normally go to Institute of Directors or even Chambers meetings and things like that, and you’ll see people that are very good at running their businesses and absolutely crap at running their finances because they don’t know where to get advice.
The accountant does the audit but that’s about it. I’m not going to go near a stockbroker, why do I need that? The average financial advisor’s not going to help me. And we just cross fingers they don’t run into St James’s Place. If you then talk to those people and say actually, this is what your position is now, you’re running a business really very well indeed because you’re good at making widgets, but you’ve got to be able to pull away from that. This is how you can do it.
So we go through the same exercise as you did with the 17-year-olds, except older now with real-life money, and that again starts to play well with them.
So is there a junior and senior version of the app?
Well, no is the answer. You just make sure that the app doesn’t look too childish. So you can’t have Dungeons and Dragons on it and things like that.
People can get all their reports, their standard market reports and things like that coming through on the app, that will be the style of what we’re trying to do.
What that has enabled us then to do, because we’ve been lucky enough to build up enough assets over time, and I don’t think we could start our business today, because we’re lucky enough to have some privilege to look after, what, 14-15 billion of assets.
Some friends of mine who run perfectly good investment management firms here and they’ve got about four or five billion. They’re not going to have economies of scale. It’s just going to get squeezed out.
What’s your view on active versus passives?
One of the issues I think is interesting. I’ve got good, active managers, they buy them and sell as necessary. We don’t buy and sell every day but I’ll use the passives to get me exposure to what they’re doing short-term.
If I want to have greater exposure to a Japanese fund manager, then I’ll buy an ETF to try and reflect some of that, so that gives me the liquidity of that area. But there are times when it will blend a core of active managers with ETFs around the outside to give you the flexibility. And then actively using the passives, if you see what I mean.
You can actually build an entire portfolio of passives, which is something like Vanguard does and we do, but Vanguard, keep it still, that’s it. We will do a strategic asset allocation longer term but we’ll also take tactical views as well.
What that does is give us enough volume so that when we were looking, talking to some of the better financial planners, where they’ve got potential clients they would like to talk to, but their client level probably kicks in about 100/150,000, but they also have potential clients with £20,000.
So they wanted to have a system whereby they could go onto a website, like a Nutmeg, and be able to help when they say, “you know, I’ve got £20,000, what fund should I put it in, there’s a range of differentiated funds?” and pop it in there.
The IFA or someone like us, working for the IFA, could then make sure that’s operated at a low cost. They still know what’s going on. When that client starts growing up and it actually does get to £k80, £100k, £150k, then the financial planner can say can I help you now. So get it early on.
Nutmeg will never ever make any money unless it’s got squillions. And so I’m afraid it’s a larger house capable of doing that, because we could do it and we’ll not lose money, so we don’t need to make a lot of it, but it enables us to hang onto the potentials for the future, for those financial planners or for ourselves.
Over the time you’ve run 7 Investment, what’s been the best part, or the bit you’re most proud of?
The best bit is actually just having the bunch out there, and it sounds patronising but you suddenly realise that various people like Katrina who joined us, well she must’ve been 12 – she wasn’t – but she’s grown up, got married, had a family, and it’s like you’ve gone through her entire life cycle. And there are people who’ve been there that length of time.
We have a low turnover rate of people, which is great. From nothing, there’s something, and it’s grown and it’s got its own values and style and now it’s time to walk away from it. And I’m really proud of that.
Over the years, we’ve had one or two people who were absolutely shite, they were the older brokers who would have our own book. Never trust anybody who claims to have that. They were just full of British cynicism. You could put them in the room and feel the energy being extracted from the it, just by them going around saying “That’ll never work.”
We didn’t not have things on the wall going on about integrity and honesty. We used to say to people, actually telling people this is what we stand for, this is what we have to do, and it’s up us to say we’ve got integrity and honesty and prove it, not some rule.
And you know, we prove it in terms of how we charge people, how we deal with clients and how we deal with ourselves. And that’s not easy when there are 70 or 50, 100, 150, 200. 300? Bloody difficult.
What’s been the worst part of running this business so far? What do you wish you could’ve changed over the years?
The worst part is actually when you’re standing next to a cash machine, when it says free money, and you think “I think wish it was”. I’ve done that on occasion. Because there were times when we knew we couldn’t pay ourselves a great deal. After 18 months, we found we couldn’t pay ourselves at all.
It was “it’s exciting, we’re young, we can do it”.
Tom and I both approached our wives before we set this up. On paper, we were worth a lot of money because we had all our Barclays directors and monuments and all the other various bits.
This was before the banking crisis, of course. So we went out and bought a box of matches. We had then spoke to our wives the night before.
I said to Francesca, “Darling, do you mind if we’re poor again?”
And I said, “I’m going to be leaving Barclays.” She said, “You’re leaving Barclays? Good. Go now.” Because I had an accident in Africa years ago and Barclays didn’t help. So we sat down and set fire to this pile of paper, quite literally burnt our future earnings. I said “Well that’s that problem done then.”
So yes, there were times in the beginning, in the first two or three years, which is really educational when you actually have a team of about 30 or 40. You have to be able to take pay cuts.
People at the bottom don’t get pay cuts; people at the top take pay cuts.
You have to adjust it accordingly as some people just can’t afford it. So you cut your cloth accordingly. You’re still certain what we’re doing is right and it will come right; it’s just going to take time. We just need to bide the time. And we were able to get through it.
Do you think it’s an important process to go through though? Do you think the business would be where it is today if it had gone much better at the beginning?
Where I am now, I can sit and say it’s a good learning experience because we were successful. If we hadn’t had been successful, I’d have said that was a bloody awful learning experience.
That’s what you had to do. It’s almost admitting your sins because no one wants to admit the fact that actually, you’re not the best corporate leader in the world. And it’s almost laying that open, saying it can be fallible.
What it did do is make sure that people realise that people had to work very hard to get through this. Also that this could happen again. But we’re bigger. There are more mouths to feed. We could find ourselves in a position where there’s a dearth of money coming in.
We may suddenly drop a huge amount of money or something because we did something really stupid. 101 things that could occur. Your system gets hacked and suddenly, all the money’s gone, all the data’s gone. And so all of those issues are things that could’ve happened, which could happen.
So getting people to realise that you have to adjust and change and nothing is given, whilst you’d love to say you’re saving for your pension and that’s great and we’re all going to be fine, it can change horribly.
The bit I fear for, and I hope they continue, is we can have town hall meetings and actually get people together and sit there and we tell everybody everything except what we can’t tell you. Corporate issues which would actually cause problems, which is nothing untoward, but no, there are certain things we can’t tell you.
We had that open policy and people will generally trust you. When you’ve got over 300 people in different sites, that can be really difficult to do. That’s one of the things that I think I’ve really got to help Dean with over the next year is probably just go round and find other ways of doing this properly to just actually make sure that it’s still a human business, which is great. It’s down to that personality, the trust you have with the individual.
The reason I have asked my lot to actually go out and do all the media stuff is because you don’t get paid for it, but it’s free advertising, as long as you don’t treat it as advertising. I’ve said to them we’ll be on something once a day every day but no one’s going to run in the following morning and say brilliant, I must use them.
People occasionally do. But if they’re using us, they’ll said ooh, I’m with them. And the fact you’re on the BBC, must know what you’re talking about. You know it’s rubbish, I know it’s rubbish, that’s not the point. It adds that credibility.
The person I need to talk to of every member of staff is their mother. If their mother said ooh, your chap from your office was on the radio today or on television today, suddenly, we’re fine. So it gives them, the customers, potential customers comfort.
And also, it really annoys the competition.
Which I’m not trying to do, but my competition generally is much, much larger than me. Fidelity could cover the world with its entire department of communications, where I’m asking my people just to do it on the side of a plate.
Also, it’s good for them as well. You mustn’t lie, no bullshitting, you’ve got to be clear on your answers, and also, if you can possibly try and make it entertaining, that would be helpful. And I said the good news is you can give your interview and you can ask your best friend actually what you’re talking about, and they’ll say I have no idea. And I said my entire career’s been based on that.
What’s next for you and 7IM?
Basically, the rules we have here is at 65, you go. And I’m 65 in January. But my wife actually died earlier this year so I was off for about six months, and so I do two or three days a week at the moment. So quite deliberately stepped back. So as of January, I will be doing probably a couple of days a week, and sort of more of an ambassadorial role. So I started to pull back so I got the other trading boys and girls to do more media, because it’s rather unhealthy having some silly git in red braces wandering around the entire time. I’ll still be involved.
It’s important to give investment businesses personality though?
Well only to say, look, actually, you don’t all have to be thieving bastards here. You don’t have to be pompous gits.
Absolutely, financial institutions need to evolve. You see it all the time, don’t you, established companies that refuse to evolve die off.
They do die off, but equally, you don’t want to find yourself then turning into Barclays. And you can hear it sometimes. In the investment world, they make you start talking about smart beta and you go for Christ’s sake, do you actually know what that is? You don’t.
I was the world’s worst barrister and of course, as a barrister, it’s perfect you see, because when we were unsure of what we were talking about, it was simple. We reverted to Latin so no one has any clue what we’re talking about at all. But in the investment world, that’s the same thing. Just revert to some strange piece of investment structure we’re not going to know about.
It took me over a year to find Tom’s replacement.
It was quite funny, we have to go through all the head-hunters and the first lot turned up with a lovely list of old stockbrokers. And I said, “These are all yesterday’s generals.” “Oh, they’ve got a great track record.” “Yes, they’ve had a great track record.” You know, in five years’ time, we’re not going to be doing what they’re doing. We’re not doing what they’re doing now. This is worlds apart. “Who do you want?” “Well somebody who understand change, radical change.”
They came back with people who had sort of taken Tesco’s from there to there and different bits and pieces, and all looked very good at what they did, but had no knowledge of finance at all. And I said, “Now we’ve gone too far the other way.
We need people who actually understand something about investment management but the money world, but also understand how to try and change it, and particularly the people in it.” And so I said, “I’m looking for someone who doesn’t look like me.” It was quite funny. The chap I ended up choosing, I said, “Do sit down. How did you get a suit like that? It’s dreadful.” And he said, “Well I don’t like yours either.” So we were off to a flying start.
It’s a chap called Dean Proctor. He’s now Chief Executive. He’s taken over the top. And Dean is very nice. He wears a natty pair of blue patent shoes. And I said, “Blue?” But he’s very different and it’s fine, because we were a nice entrepreneurial business and you all strap in.
But now have to behave more responsibly because we’ve got to a certain size, so he’s got to take it from the next stage without losing that enthusiasm, and the bit which is the developing of game software and other things, what are the next stages, and not reverting back to the world is…
And finally, what would be your top three resources of where people should go to become better investors, whether it’s something that’s helped you personally, whether it’s a book, a strategy, a website?
It depends on the conversation with the client and what sort of things they like and understand. But I always try and direct them to the most accessible stuff. Things like MoneyWeek, which is a really good, simple entrance to financial news.
That’s a simple way of learning more about financial news and some of the stupidity of it.
You have to try and steer them away from the punting sites, where you’ve got people calling themselves professional traders, and if you want to get into that sort of thing, there are lots of more advanced classes you can try and do. If you’re into that world, you’re beyond me, because mostly, it terrifies the living daylights out of me.
But simple, straightforward stuff, then somewhere like the Motley Fool always used to be very good… slightly gone off now. They haven’t got the profile they had before, but they’ve made it fun and they didn’t try and patronise you.
They’ll be some clients who still want direct stock holdings and things like that, and I encourage people to do so, to know what’s therein, particularly as now, quite rightly, we’re all a darn sight more interested in if they behaving sustainably and ethically.
Justin Urquhart Stewart is Co-Founder of Seven Investment Management