Over the past two years, Mason Stevens CIO Jacqueline Fernley has built an Outsourced CIO offering to complement their wealth platform and managed accounts focus and to cater for a wide range of wealth management clients. We spoke to Fernley about the process and some of the key considerations behind the new strategy.
Designing an investment option for a 25-year old, who is more or less at the start of their professional career, is a relatively straightforward exercise. Since they have a lifetime of wealth creation ahead of them, their risk profile is high and their investment horizon is long.
Hence why most superannuation funds’ MySuper option is somewhere in the middle of a traditional balanced and growth option.
But designing a suite of managed account-based investment solutions for an advice practice is quite a different task. Clients might be young, or they might be about to retire. They might have large amounts of savings or small amounts.
It is also a question of what type of clients a wealth management firm wants to target. Are they specialising in ultra high net worth individuals, who require highly customised services, or do they focus more on retail clients?
These were questions that Jacqueline Fernley, Chief Investment Officer of Mason Stevens, had to take into consideration when she developed an Outsourced CIO offering to complement the company’s platform.
Now, after nearly two years, Fernley has designed a complete menu of services for wealth management practices, and she has built a team of investment professionals to support the offering.
“You can probably imagine, working out what [a wealth management firm’s] client value proposition is in the market, working out what the suite of managed account solutions they need, isn’t straightforward. It does take a little bit of time and discussion and most importantly stakeholder engagement,” Fernley says in an interview with [i3] Insights.
“How do you want to grow? What sort of clients do you want to attach to? What does the proposition need to look like? Because that proposition might look very different if you want to focus on entrepreneurs versus a 65-year plus [person], who is in a family wealth transfer process,” she says.
You can probably imagine, working out what [a wealth management firm’s] client value proposition is in the market, working out what the suite of managed account solutions they need, isn't straightforward. It does take a little bit of time and discussion and most importantly stakeholder engagement
Mason Stevens has launched a series of off-the-shelf, internal investment solutions catering to both retail and wholesale clients. For retail clients there are simple ETF-only, multi asset managed portfolios, as well as more complex flagship managed portfolios that combine both managed funds and ETFs. The wholesale flagship offering includes investments that are wholesale only with up to three month redemption windows.
“Our flagship portfolios for wholesale and retail use best of breed managers and ETFs that we’ve designed to allow such that the look-through cost is competitive and gives enough room for an advisor to also charge what they need. They are available in white label form on a wealth managers platform of choice,” Fernley says.
“The key to the Outsourced CIO offering is that the menu items are everything you need to build a suite of multi-asset portfolios, as well as everything you need to service a low-balance client, a retail client and a wholesale client. This includes content that can be white-labelled for your client base,” she says.
Mason Stevens has been busy onboarding new clients onto the Outsourced CIO solution. For example, it announced a partnership with wealth management firm Euroz Hartleys in Western Australia last month.
Fernley says that part of the reason the deal came through was that Mason Stevens is not only offering comprehensive investment strategies, but also allows Euroz Hartleys to make use of external platforms.
“Amanda Boyce, who is the Head of Advice for Euroz Hartleys’ wealth practice, went to market and she couldn’t find anything that was flexible enough for her business. So they have partnered with us for our suite of retail and wholesale managed portfolios and they’ve white-labelled them. And then we’ve set them up on competing platforms, as well as our own,” she says.
Building for Scale
Mason Stevens implements its investment strategies largely through managed accounts (MAs). Fernley says this structure allows private wealth firms to scale up their businesses more easily and ensures all clients are treated fairly and efficiently.
“When you run a traditional wealth practice, managing each client individually, an investment decision might be made on the internal portfolio where you want to reduce risk assets by x per cent because of a market event – let’s call it COVID-19 – an adviser then has to engage with each client via an SOA (statement of advice) or an ROA (record of advice), explain it, get sign-off and implement it, that can often take three to six months,” Fernley says.
If you roll into a managed account solution, not only are these decisions being made in an institutional-like investment committee setting, but also when the decision is made, everyone gets that trade at the same time. It's democratising good quality investment decisions
“This means there is performance drag attached to the delay in decision-making, and between the decision and the implementation because it can just take so long. In those circumstances, clients can have a very different performance experience, because of where they are on the list.
“But if you roll into a managed account solution, not only are these decisions being made in an institutional-like investment committee setting, but also when the decision is made, everyone gets that trade at the same time. It’s democratising good quality investment decisions,” Fernley says.
Tailoring the Offering
In addition to its off-the-shelf ETF and multi-manager strategies, Mason Stevens also operates more tailored and high conviction strategies. These services take the form of Outsourced CIO services that require a collaborative approach with a wealth practice.
In this situation, Fernley and her team work with a private wealth firm’s investment committee and build portfolios in a collaborative manner. Late last year, Mason Stevens hired David Macri, who previously was the CIO of Australian Ethical, to head up its asset allocation team.
“Our strategic asset allocation is very much a seven to 10 year through-the-cycle type of approach, whereas our dynamic asset allocation (DAA) is really looking forward six to 12 months to think about the dynamics of the day,” Fernley says.
“The way in which we think about markets is to consider what the key probabilities and scenarios are and how this affects asset returns. We will then look to adjust our strategic asset allocation through our DAA [process] to take advantage of what returns are available in the market.”
As markets move, the team adjusts their portfolios based on the probability of the scenarios coming to fruition and the associated returns available. The last few years certainly have been dynamic and there was lots of noise in the market, Fernley says, but it is important to keep focused on those aspects that really have the ability to change the return outlook.
“Fundamentally, there are only two things that really matter in markets and that is the direction of inflation and the direction of growth, and the combination of those two,” she says.
“Whilst our central view is that we will soft-land, and we are invested for that, we have a non-immaterial risk of recession as we sit here today. As a consequence, we have sufficient insurance sitting in portfolios for that outcome,” she says.
Whilst our central view is that we will soft-land, and we are invested for that, we have a non-immaterial risk of recession as we sit here today. As a consequence, we have sufficient insurance sitting in portfolios for that outcome
This insurance takes the form of a combination of defensive and duration assets, including infrastructure. But the team also uses alternative strategies to support the portfolio, including trend following.
“I think it’s important that you’ve got enough levers to pull and know which levers you want to pull as data unfolds. We may push that level of insurance up over time as the data unfolds, but right now, I think it’s important to remain invested,” she says.
Mason Stevens runs a number of fixed income strategies internally, led by Lloyd Mitchell, Head of Fixed Income at Mason Stevens. Mitchell runs a suite of fixed income managed accounts and cash-enhanced strategies.
He also engages directly with wealth management firms for bespoke fixed income bond portfolios for high net worth and ultra high net worth clients.
Mason Stevens also has an equities execution team that can access research and capabilities from around the globe, but the firm doesn’t put its own equity portfolios together. Fernley says that in contrast to fixed income solutions, there are plenty of good, reasonably-priced equity strategies in the market that would be hard to compete with.
“We can advise, direct and support our clients in equities, but we don’t have our own equity SMA. And the reason I’ve done that is because there are some wonderful solutions in the market. We partner with Quest [Asset Partners], Schroders and Blackmore Capital direct SMAs, to name a few.
“There are some wonderful products in the market that are fit for purpose. So I don’t see a gap in the market for us to do that specifically. Whereas, there are not those wonderful solutions for fixed income in the market,” Fernley says.
Mentoring
Over the course of her career, Fernley has seen many investment professionals enter the market and she has developed a network of people who she mentors. Fernley also plays a key role in raising the profile of women in finance.
“I’ve had a 30-year career and worked with a suite of women, and men for that matter, who I’m in contact with now to offer support to. It could be any number of things, for example they might say: ‘I want to have a conversation around my remuneration. How do I approach that?’
“So I have regular coffee catch-ups with all of those people that I’ve worked with in my life whose careers and relationships I value,” she says.
Fernley is also a member of the CFA Institute’s Diversity Committee, which runs several programs. Currently, Fernley is involved with a joint project with Lisa Wade, Chief Executive Officer of DigitalX, and Camilla Love from F3 (Future Females in Finance) around digital assets.
“We’re doing a six-week project, funded by the CFA diversity committee, thinking about digital assets. What are the types of digital assets, and how do you put them into a multi-asset portfolio, if in fact you should. Are they their own asset class? Do they sit within different asset classes? How do you build a strategic asset allocation with them?
“Obviously there’s Bitcoin, but there’s also tokenisation of real assets, and there’s also the tokenisation of the debt under real assets. Does the debt stream sit in private credit or in fixed income? Does the real asset tokenisation sit in infrastructure? Where does Bitcoin fit?
“That’s what we’re endeavouring to solve at the moment. As I sit here today, I don’t know the answer. I’m hoping to have the answer when we have finished the program,” she says.
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[i3] Insights is the official educational bulletin of the Investment Innovation Institute [i3]. It covers major trends and innovations in institutional investing, providing independent and thought-provoking content about pension funds, insurance companies and sovereign wealth funds across the globe.