Steven Sussman, JM Finn CEO discusses traditional wealth management firms versus digital-only platforms

We talk to Steven Sussman, the CEO of JM Finn which manages around £9.5 billion of family funds to find out. This is what we discussed:

What do you think of all the new fintech based digital wealth platforms?

Interesting, isn’t it? I think it’s really interesting. I mean they’re struggling, but it is an entry point for people who don’t have a lot of money. Youngsters, first of all, like technology. So anything that’s technology-based, they’re more inclined to look at.

They may also think they’re not worthy to have an investment manager, which is not necessarily true, certainly not with us. We like youngsters to come on board. They’re our future. But digital-only platforms are likely to struggle to survive because getting critical mass is tough. Tiller, for example, was one we’ve seen closed alongside UBS’ SmartWealth and Investec’s Click & Invest which all closed recently. And it’s very interesting to note that Sean Port, the CIO of Nutmeg, has just left the business.

I’m not surprised really. Nutmeg, I think they have a very nice platform, but it’s an industry that needs big accounts. It’s a great lead-in for the younger investors to get started.

It’s also not that cheap. I noticed, the first £100,000, they charge up to 0.75%. Now for what is effectively a no-contact, no-interference portfolio, 0.75 seems high? We charge 0.75%, but we give you personal service and you meet people and you get all the wealth of experience that that comes with.

What are your thoughts on all the chat about disrupting the industry? Do you think it needs disruption or progression?

I think it helps in some ways, but, unless the tech firms start introducing investment managers on the end of the phone for those who want to move away from the pure, digital experience, they’re going to lose those clients.

Those clients will suddenly start to think to themselves I need to talk to someone, and I think the first real acid test will come when there’s another market crash, because if you see your money disappearing, you want to talk to someone. You want someone to turn round and say “don’t panic, we’ve seen this happen before, this is just another wave. In the long-term, it’ll come back, or medium to long-term, it’ll come back.”

It’s also interesting to note that the digital-only wealth management demographic is the kind that looks at their valuation 24/7 and is encouraged to do so, which for long-term investment, is not a helpful thing.

So, as opposed to ETF driven index-tracking platforms, do you have any portfolio protection for if you think, as many do, we’re heading towards a recession? Can you position a portfolio with protection?

All investment managers have the ability to hedge. They’re taking positions all the time in view of the market. It’s a constant process for them to review the market and position client portfolios in line with the individual investment objectives.

Some clients are slightly more protectionist than others and but most want capital preservation. Our ethos is generally to protect the client for capital preservation.

How finely tuned are your portfolios per customer? Is everyone different or do people or do people fall into different risk appetites?

Technically, every one is different, absolutely. There’s a homogeneity but every portfolio is different.

Going back to getting the younger generation into wealth management and wealth planning, with digitisation and gamification. Are you evolving into that market?

No.

We have not opened up an online investing side. What we do have is a really powerful online portal. So if you’re a discretionary client of ours, you can see your portfolio 24 hours a day if you wish to do so.

You just click on your app, smile because it’s got digital recognition if you’ve got a smartphone, and Bob’s your uncle and there’s your portfolio. There are all your valuations. There’s all the correspondence if that’s what you want. And more and more of our clients do do that.

But most like picking up the phone to the investment manager. And I suppose, in a way, that’s us.

We are human beings. We do like to make contact with each other. And they’re paying for trust. And they trust the investment manager. 

I’m very proud of this firm because of that trust level. We did a survey of our clients this year and we had some stunning results, with a 98% trust factor with our clients.

We have an NPS [Net Promoter Score] of +70. Which measures a client’s propensity to refer your firm. The industry score is 36.

Some clients said in the survey, “I know exactly who we’d like to refer you to”. And that is really very rare in our industry, and that is because our investment managers are true to our ethos of putting the client first, and I think this stems from the days when we were a partnership.

We were a partnership until 2006 and the partners were joint and severally liable, so you know exactly what’s on the line when you’re joint and severally liable. And they always took the view that you put your client first.

If you look after your client, your client will eventually look after you. And that ethos, even today, flows right through the veins of this firm, and that’s really, really important. So our clients naturally stick to us because they know that the investment manager worries. He or she won’t sleep at night if the market’s bad.

Anecdotally, I’ll tell you a story, when Lehman crashed and there was rush on the banks, actually, we received a lot of client money to us.

One client phoned up one of our investment managers and said, “Poor you, you must be having a really hard time,” but it was his money. And that’s the relationship we have. And I always remember that because I think that says a lot about us and the way we approach things. It’s client first and everything else follows.

So do the majority of your new clients come from referrals?

Yes – it has been the most fruitful route for our growth over the years. It’s organic, it’s referrals. And it’s the introduction of new investment managers. To date, we haven’t bought a firm. It doesn’t mean we don’t look at firms, but we haven’t bought one. So our growth has not been as spectacular as some but then it has been steady and built on solid foundations.

How do you manage the relationship of making sure that a family sticks with you through the generations? When I spoke to Peter Hargreaves one of the points he brought up was, “what do you do when all the older fund managers retire? Who can follow them?

First of all, we work very hard at that, we like to work in teams, older and younger together.

So as a team, the older one will talk to the older generation and so on. Of course, a client doesn’t want their investment manager to die on them. They want the investment manager to see them out. So that’s why they have a junior, they will be there to hold the reins. And then we try to get the children involved.

One of the biggest problems that we think in our country is the lack of preparation for death.

I’ve got to be bold about that. The lack of discussion between parents and children

I say to our elder son “Come on, we’ve got to talk.” “No, I don’t want to talk about that, Dad.” He doesn’t want to conceive that one day, I’ll be gone. But you have to talk about that. People have to become aware of what is going to happen financially.

What about getting younger families, just starting to generate wealth when should they start looking at wealth management?

I think financial planning education should happen in schools. People need to understand what happens when they retire.

When you’re 18, you think you’re going to live forever. When you’re in your 60s, you may not think that’s so true.

The old tried and tested method of the compounding of investments is all well and good, but those seeds have got to be planted in the mind early on.

The thing we’re doing is focusing on events for our younger clients and potential clients.

We will put on educational or social events with our wealth planners to explain to them about the issues they face and the importance of factoring them in early. We’ve just partnered with the Affordable Art Fair as part of a campaign to meet younger clients and investors, so we can have a chance at educating them. Because none of us are or were, in our twenties, really thinking about retiring.

I remember when I was in my 20s and someone said “You really should be investing in your pension now because of the compounding effect.” I was like “yeah, yeah, I’ll be retired at 50, what do I care?”

Any top tips for parents? What do you think they can say to their children to get them thinking about financial planning in their 20s?

First of all, and this is going to sound and is not meant to, like a political broadcast, but youngsters should be more acutely aware of the political macroeconomic situation that’s going on around them and how it impacts their purse. And therefore, make provision for later on in life.

It is really a case of being more involved in what’s going on in your financial world as opposed to just your eco-climate. There is another world out there that really impacts upon you. Parents and schools should encourage that.

When we talk about schools teaching financial planning, I think they should also do economics, and do a little bit of tax. Because what amazes me is that I speak to some really bright people and they haven’t got a clue how their pension works. They haven’t got a clue whether that’s in or outside an estate for inheritance tax purposes. And these are just basics.

They get to 50 and they think “I don’t have a pension”. So they’ve just got to get involved in what’s happened in their financial life. We see it time and time again with the political parties, how they sell to the young by giving things to them. No-one ever asks where’s that coming from. Because you’ve got to take it from somewhere to give to the other players. And as we know, the pensions have been whittled down and defined benefits have disappeared, defined contribution is in, SIPPs are in, but the gross in, gross out, virtually disappeared, above the one million level. All that has been lost to them. So they resort to ISAs, there’s nothing wrong with ISAs, they’re a really good vehicle, but it forms part of your estate.

We should be talking to youngsters now saying look, “I know you’re not really that interested, but you need to be aware and you need to start thinking about your provisions”. Our wealth planners can help make a plan for them; if you’re putting a fiver a week, what does that mean for you?

What would you say would be your top resources for them to start engaging with?

I’ve thought about this. I don’t have a magic book for them. I’m an accountant by profession. I had enough of books in my time. I think they should be reading the Financial Press, and I don’t just mean the Financial Times. I mean pick up the Times or the Telegraph and see what’s happening. And when they read these articles, not just say oh, I see so-and-so’s going bust, try and understand why, because that’s their world.

I think if they do that and they read the money articles as well, that will be helpful to them because they need to understand what’s happening in their financial world. I think if I have a message to them, it’s “just become more aware”. Don’t think it’s something that happens to other people.

In our society, we have this really strange notion of oh, he’s rich. There’s no definition of rich. It’s a perception in people’s minds. They may just find that they’re the ones that are rich. They don’t recognise it. And what is rich? I mean, look at our tax rates. It doesn’t take long to start kicking into a higher rate.

So they need to understand that and I think they need to keep abreast of what’s going on in the financial world. And if they do that, then they’ll be more proactive in their planning.

I think a lot of us in the industry are getting better at helping youngsters. We’ve come up with our own guide, which covers the different issues the different generation face. One of the reasons why we wanted to do that is to help our existing clients with their wealth transfer challenges.

There are different issues with different age groups, and so we try to come up with some insights that we give to our clients with the hope that they pass that on to the next generation. 

Because it is interesting, going back to that next generation, you know, the youngsters, they’re brilliant at spending. They get mobile phones really young, with one tap on their phone they can buy things on Amazon, and then the credit card arrives when they’re 16 and it’s all spend, spend, spend.

And they eat out a lot.

Whereas my generation, we were all taught to save. Okay, there was a different interest rate environment so I could save £20 a month and I could see my interest growing, but going back to your question about tips that parents could do, I think one is talk to them more and maybe even give them some of their inheritance early, even if it’s a small ISA. Give them an investment manager to help grow with them, because that’s what we like to do. It’s all about the long-term relationship. And then teach them how to save. 

So those are our key resources. A wealth planner to come and talk through the estate transfer. And then an investment manager for the young. And most clients will say yeah, but he’s only got two ISAs or an ISA. It doesn’t matter. We will work with you and give you an Investment Manager.

Download JM Finn Guide “Wealth Across The Generations Guide” & Global Investing: A Stock Pickers Perspective“.

Do you think a lot of people are intimidated by wealth managers? Perhaps seeing it as something to engage with once they have a lot of money.

Yes and that’s one of the reasons we partnered with the Affordable Art Fair. The fair was borne out of a vision of sharing art with a much broader audience. It’s a vision we share, because we do not have a minimum investment limit and don’t think that wealth management should solely be the preserve of the very wealthy.

For those getting started we also have a managed portfolio service that you could invest from as little as £10 a month via a standing order.

With us, you still have the access to an investment manager, even if you only do £10 a month. Okay, they’re not going to talk to you every month, but the point is someone will start understanding you and learning your investment needs. So hopefully, in 10 years’ time or when that life event happens that you need some expert advice, such as an inheritance or first job or you sold your business or whatever it is, you’ve got someone who knows you. It’s interesting. All the things you’re talking about are all the things that we’re thinking about a lot. How can we help that next generation?

Looking at your time at JM Finn, has there been a standout moment over the years where you’ll look back as it being your best moment?

There’s a lot of standout moments. I mean, first of all, you must excuse me, I’m very proud of this firm. I really am. I mean I’m proud of the people in it from top to bottom. And I think it’s a lovely firm to work at and I think I’m very proud of the fact that people enjoy working here and they all say if you come, you cannot leave, a little bit like the Hotel California, you may check out but you can’t leave. So that’s really important.

I came to JM Finn in 1997 when we were running about one billion pounds, today we’re running £9.5 billion on behalf of around 18,500 clients. It’s been steady, organic growth from referrals which is great.

I think the key moment for us was the movement from partnership to incorporation in 2006. That was probably one of the most important times for the firm.

You could say it was the best time or the worst time. Because the partnership was great but we had to move on. We had to make ourselves more professional. We had to devolve more equity into the hands of the non-partners.

In a partnership, your accounts are opaque. We are extremely prudent, so we’ve never borrowed. We have no long-term debt in the firm. And I remember when we were a partnership and banks asked us for our reporting accounts. We said why. That didn’t go down too well. Why do you want to know that? We’re paying cash.

The service continued for the client, the quality of service, the personal service continued. How it affected the firm was that we moved forward again. We brought in professional managers into the operational roles and we managed to devolve 15% of the equity into the hands of the up and coming investment managers before we sold to Delen.

That was really a very good transition, but for the client, they didn’t feel it at all, which was the intention – it was very much business as usual. What that did do was allow us to invest heavily in our infrastructure, in our controls, in our software, and all that has provided what I regard to be a first-class service for the clients to create a robust and scalable service. So that’s was a watershed thing, if you like.

There are lots of other things that I’m very proud of about this firm, but most of all is the client service. It’s the humanity of the firm. Some people might say we’re not as cut-throat as people want, but we e not. 

What about the worst moment?

Well everything could go differently. The markets crash, we know that. I’ve seen a few of those here. And I’ve watch it go down 10, 15%, 20%. I’ve seen people’s faces. I’ve seen the worry in their eyes.

But I’ve also seen the clients stay with us and I’m proud of that, because they have the investment manager on the phone.  Who’s ringing them, who’s speaking to them, who’s telling them this is what happens, “this is a market correction, we’ll take this as an opportunity, we’ll build from here”.

To see them not fleeing, to see them feeling secure and saying “I understand you” and “I trust you” and move on, that is wonderful.

As we move into the modern era, the youngsters get fed with technology gaming, they get fed with performance, and you have to just be a little worried about over-performance in any of the markets because it does mean people take a position that may not be defensible when the market corrects.

Indeed, if you’re outperforming by 20% a year, it probably means you’re taking more risk than someone who’s generating 6%.

Exactly. So we never put ourselves out there on a performance level alone, because that’s dangerous. I think you’re attracting the wrong sort of people. If you’re a discretionary fund manager, the clients that look at it 24 hours a day, you start to worry “why are they’re discretionary?”

I think it’s that trust that we build with the clients. So even in the darkest hours, there was a reaffirming moment that we’d done something right.

What does the future look like for JM Finn?

A recent development is the opening of our Winchester office. 

Part of our focus is talking to clients so opening a new office is really part of that. We’ve got a lot of clients in the south, so it made sense to have a new hub down there. 

It’s also acknowledging changing working patterns, and I don’t mean for us, I mean for our clients. You have so many clients that are working from home or working from different areas and coming into London for a couple of days a week, but they want to work when they come into London. They don’t want to see their investment manager. So actually being local is very important, we’ve got Bury St Edmunds, Bristol, Cardiff, Leeds and now Winchester which will allow us to see more of our clients more regularly..

And we’ve also, which we’re really proud of, managed to recruit high-quality investment managers, which is a true reflection of the quality operation that we’re running here.

So how many of you are there as a whole?

In the firm?

305 in total. 250 here in London and 84 investment managers.

It’ll be 86 shortly. It’s a very personal service. These investment managers know all their clients. They’re all on first-name terms. They know the spouse and they know the children. It’s really that important. And if you’re putting a lot of money with someone, you want to know them that well.

Adding to the team allows us to grow and scale, because one person can only look after so many. So that’s really important.

I think the other thing is we reinforce that with providing clients with the information they want. Not just what they need or what the regulator asks for. We try to make them feel that they’re with the best quality firm in the city, and we believe we are.

If you ask me what our goal is, it’s not to be the biggest, but the best.

Steven Sussman in CEO of JM Finn