“We have been seeing more firms being set up over the last few years, which may have been driven by the post-RDR environment. Perhaps managers have wanted to do certain things with their clients but could not because they were at a bigger firm, so they have gone off and done it with a smaller group.”
Lee Goggin, co-founder of Find A Wealth Manager, agrees that there has been a discernible rise in the popularity of these ‘niche’ managers in the last few years, which he attributes in part to the current interest rate environment.
“People are looking for either more interesting investment opportunities or more hands-on control, such as advisory relationship with the boutiques,” he explained.
“Because of low interest rates there is no yield. We have had a six-year bull market and it has brought a general change in the economic cycle. Barring a catastrophe, we do not appear to be near the end of it yet, and until rates reach some sort of normality people are going to be searching for yield via equities.
“What boutiques do well is offering a bespoke service, so you tend to get more knowledgeable clients going to the boutiques while the rest head to the big firms and model portfolios.”
The clouds also rise
However, while the sun is currently shining on the outlook for boutiques, there may be a storm looming on the horizon.
Consensus indicates September as the most likely date for a US interest rate rise, the question lies around whether or not it will coincide with a global economic downturn.
“September will be a really interesting time if interest rate rises come in and we head into bear market territory,” said Goggin.
“The big firms tend to protect people’s assets through diversification and not having more than 3-4% in any one stock, whereas a boutique will be more inclined to have less diversification because of the clients they are dealing with.”
Goggin added that there is also the issue of boutiques being less shored-up financially than their larger cousins.
“Running a boutique is expensive,” he expanded. “There needs to be momentum, and sales teams that are consistently bringing in assets, and even when assets have been raised it is difficult to maintain them – there are a lot of redemptions from boutiques.
