Since winning the best domestic clients team award in Wealth Adviser’s 2017 awards, WHIreland has seen assets under management grow to GBP3.1 billion.
In an interview conducted on 2 February, Richard Killingbeck, (pictured) CEO, also reported that they have recently had new hires for the firm: Mike Ingram, Chief Market Strategist, who arrived in November last year, and Paul Jones, who has recently joined as COO from Brewin Dolphin.
Killingbeck says: “This is part of the programme of reinvesting and shifting the dial from a pure stockbroking business to a discretionary wealth management business.”
Commenting on the rise of ETFs, Ingram says: “There has been a lot of focus on the cannibalisation of active assets under management and I think that net net, it’s been a healthy thing because it has introduced more transparent pricing in active management.”
He observes that institutions are increasingly using ETFs for such diverse tasks as cash equitisation, transition management, hedging, multi-asset and core-satellite investing, tactical asset allocation and portfolio completion.
We do have some concerns as to whether we have moved past the sweet spot for ETFs,” he says. “Transparency and flexibility are good things but one can get to a point where virtually the entire market is being driven by these passive flows.”
The ease of use and liquidity of ETFs is very appealing he says, but there is often a mismatch between the liquidity of the ETF and the underlying assets.
“We have had an extraordinary period of rising markets and relatively low volatility but there may be rumblings in the jungle in that regard. What worries me is that we may be setting ourselves up for a position where a lot of the market is locked on auto pilot and the mountain range is looming. The way markets are being accessed and traded has fundamentally changed but a lot may be too much.”
Looking forward in terms of the global investment opportunities that he analyses every day, Ingram says: “I think the one liner is we are out of intensive care but the global economy is in no state to run a marathon.”
Looking at private sector aggregate forecasts, Ingram feel there is decent momentum in the global economy, with recent upgrades to growth prospects in the Eurozone, Japan and some emerging markets. The UK however seems to be dragged along by the rest of the world.
“The issue is we still we don’t look to be in any danger of hitting pre-crisis levels of growth and over the long term there is a massive productivity problem in the UK. Productivity is lower and it will feed into growth potential, corporate earnings and investment returns so to my mind I still think there has been and continues to be significant capital misallocation.”
While central bank intervention post crisis was warranted as the UK was in what Ingram calls ‘a doom loop’, it has not got a bit too comfortable with zero and even negative interest rates.
“Markets have become addicted to that and when capital costs virtually nothing its easy for people to take a punt. It’s like morphine - a little dulls the pain and too much kills the patient. We are exiting an extended period of easy money which has created distortions and that transition won’t be painless. It’s a mathematical certainty it will be harder to make risk adjusted returns.”
The result is that WHIreland has turned to cash, with Killingbeck confirming that the firm sits with 5-6 per cent cash and remains wary of putting it into the market given the current background.
Turning to the other great subject of recent years for wealth managers, MiFID II, Killingbeck says that regulatory changes of this quantum usually come around once a decade but there have been two in this decade, with RDR in 2010 and MiFID II this year.
“I don’t think anyone can ascertain the impact of MiFID II until the summer at the earliest,” Killingbeck says. “From our company’s perspective, it’s been a lot of work to get the company into MiFID compliance in the last nine months of the year and one month after it came in, a lot of firms aren’t prepared.”
The great debate over corporate research has had its effects for WHIreland, as Killingbeck points out that it will have positive aspects for both corporate and private clients over the next 12 months.
“The reality is that producers of corporate research are now realising that there is little value in their research. One big bank was charging GBP3 million for access to global research and that is now down to GBP100,000. There has been a mispricing of value.”
WHIreland has gone down the route of issuer sponsored research which means that their corporate clients pay a retainer for all advice which makes WHIreland free to distribute research.
As research was all bundled up in commissions and trading revenue, Killingbeck predicts there will be some fallout as MiFID II has its effect.
“Commissions have halved in the last month and volumes are down to 80 to 90 per cent in certain stocks as a lot of fund managers are going through the big global firms because they are concerned about the full impact of MiFID on smaller firms. Smaller company research will be affected by this with not nearly as many analysts covering smaller stocks.”
Killingbeck predicts that with the MiFID regulatory and compliance requirements, private client business will polarise to discretionary or execution only with more companies shifting out of advisory.
“MiFID is like RDR. The full impact on the industry is substantial but we won’t know the impact on individual companies for another six to 12 months.”
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