A few years ago at a strategy ‘away day’, the Smith & Williamson executives debated growth; not where they were going to find it but whether or not the firm should pursue it at all. After all, the firm had scale, and what kind of message did it send to existing clients?
According to Chris Kenny, investment management partner at the firm, the answer was ‘yes’ – but not for the sake of it. Rather, he says, the firm came up with two reasons why growth is important.
“The first is that clients are eating into their capital faster than they ever have before. So, as a business, you have to run quite fast just to staywhere you are in terms of scale.
”This maintenance of assets under management is important, Kenny explains, because the cost of regulation has risen dramatically and is likely to continue to do so. “Regulatory and general cost pressures are such that, by our guestimate, if you have less than £2bn in assets under management, it is almost impossible to carry on.”
The second reason Smith & Williamson came up with was staff and, in particular, its partnership culture. “We have invested heavily in recruitmentof graduates over the past decade and we have been lucky that those we have hired have been, in the main, incredibly smart, challenging people.“
The problem is they can’t wait for me to retire to inherit a book of clients. They have to be able to grow to generate new clients and revenues and keep them interested. So, it is a case that the youth are driving growth. ”This second piece of the growth puzzle is worth teasing out as it speaks more fundamentally to the nature of the firm and why Kenny believes it has been able not just to attract and retain new talent, but also why it is well placed to deal with the significant changes the sector as a whole faces.
The firm is run as a partnership, a fact that is, Kenny points out, rather unusual these days. But, he says, because of this, the firm is not under pressure to deliver sales of a particular product, or feeling the heat from a private equity owner or a bank that is leaking revenues in other areas. “In most cases, clients aren’t interested in quarterly performance. They want to know if you will be there to help preserve their family’s wealth over decades and, in the case of Smith & Williamson, which has been around for 100 years, for generations.
“That ownership structure allows you to step back and make decisions for the long term that are in the clients’ interests because you have aligned their interests with the investment manager’s. It is about sitting alongside the client and giving them the right advice, which can often be tricky and complex, but that is fine because everyone is headed in the same direction,” Kenny says.
