But here, too, the costs need to stack up and the only way to do that, he says, is through a platform and a model portfolio on very low fees.
“Our core business is focused on the £500,000 to £2m space. We did not have a great deal of legacy business either, so we took the view that there is a lot of opportunity to work with the IFAs and say: ‘For your tail of clients, it makes sense for you and for us and the client to have this on a platform.’”
Vestra’s model portfolio business currently has around £600m in assets under management and is managed principally by Sanjay Rijhsinghani.
But Scott believes there is a huge amount of growth to come in that part of the business. Part of the reason for this is that in order to properly compete, you need scale, he says.
“If we were to set up a DFM today to enter that market and do nothing else, we would struggle.
Either you need a really strong investment proposition – and even then many IFAs are looking for asset class blocks that fit into volatility bands – or you need a core business that can act as an engine,” he says.
Indeed, he expects the space will be dominated by the big players, with the big asset managers the potential new entrants.
“In a way it could go back to the old-style insurance company managed fund model, which is where we were 30 years ago, but it has just gone from an insurance company to an asset manager.
“At a fundamental level, not much has changed. If you go back to the old days of managed funds, those were a mixture of bonds, equities and properties, and the returns were okay. As an investor, all you can really invest in are equity, bonds and property. Everything else is a derivative of those.”
In Vestra’s case, the core business is its bespoke offering that makes up the rest of its £5.3bn in AUM and covers around 5,000 clients.
For these solutions, the firm’s investment committee agrees the broad macro view and weightings to various asset classes, which are then translated by the individual investment managers into each portfolio to best suit the client.
In terms of that macro view, the dominant theme is the firm’s outlook for inflation and returns.
According to Marriott, there are a number of reasons why one should expect the current low inflation environment to persist for a long time.
The first driving factor is the commodities sector. Not only are prices low at the moment but on a long-term basis, he says, the world is extracting commodities more efficiently than it has done in the past, and is using fewer of them to do the same work.
A good case in point is the auto sector where, Marriott explains, not only is the trend toward smaller cars that require fewer commodities to make, but they also use less fuel. On top of that, he adds, the recycling of materials is getting better as well.
The second anchor for inflation is the internet, which he says makes price comparison easier, so it is harder for resellers to raise prices and brings the consumer closer to the producer.
