Carreno’s way

Should Europe’s small advisory firms allow themselves to be backed by American friends? Roxane McMeeken reports on Raymond James’ plan for European expansion. Despite the fact it is a top 10 US financial services giant, few in Europe are familiar with the name Raymond James Investment Services. Up to a point, this is just fine by the firm’s European chief executive Kevin Carreno, because while he is aiming to become a major player in wealth management, he is not in the business of marketing proprietary products to either individuals or institutions. The E85bn Florida-headquartered firm has just launched in Europe and already has E500m of assets under management. Mr Carreno is confident he can hit the E1.5bn mark within 12 months. The US firm claims a unique strategy for cashing in on Europe’s burgeoning specialist wealth management market. It has concluded that a key part of the wealth management business is distribution – getting your clients access to the best funds and at favourable rates. Often, this means getting into institutional funds. While large banks might have the resources and clout to organise this, how can smaller independent advisers and private client stockbrokers compete? This is where Raymond James comes in, according to Mr Carreno. He explains that in Europe his company’s business is to provide independent advisers with anything they need in order to serve clients with upwards of E80,000 to invest. And to serve them to the standard of a top 10 US financial services firm “at affordable and transparent prices”. Acting as a middleman, Raymond James can provide advisers with web access to 6000 investment funds worldwide at favourable, institutional prices and on a straight-through processing basis, in the style of a fund supermarket. Or, for clients seeking more structured assistance, Raymond James offers access to an institutional multi-manager service run by up-and-coming London firm, Attica Asset Management. Advisers can also outsource investment performance monitoring and analysis, client reporting and global custody to Raymond James. Global custody is in turn outsourced to Credit Suisse-owned Pershing, based in New Jersey. Complicated relations The only downside to this is explaining the relationship to wealthy individuals, according to Johns Eckersley, partner of one of Raymond James’s first UK clients, Castlefield Investments. “If you say to clients you’re Castlefield and you run everything, it’s pretty simple,” says Mr Eckersley. “But if you say, the stocks are held by Pershing, which is a subsidiary of Credit Suisse, the admin is handled by Raymond James, which is a subsidiary of Raymond James Financial in the US and we are the people you speak to, it can be confusing for people who just want to know who to call if they’re unhappy.” Mr Carreno explains that the arrangement with Attica is non-exclusive and he is keeping an eye out for further multi-managers to team up with. Attica was chosen because it has an “understandable message to take to clients”, says Mr Carreno. In addition, they were good value. “Their pricing system is transparent – 175 basis points including the annual management fee.” Attica also boasted access to the best institutions-only funds and a robust process for researching them, which is based on analysis by global institutional investment consultants Mercer. Raymond James offers advisers a range of investment wrappers. It promotes a self-invested personal pension through a white label agreement with pension trustee and administrator, SippDeal. An offshore portfolio bond is also available. This takes the client’s assets and parks them in an offshore jurisdiction, under the watchful eye of Pershing, for tax benefits. Wrap fee programmes are also planned for the future, once the European market has matured, reveals Raymond James’s head of business development Tim O’Connor. He adds that the firm is currently working on a bespoke tax and trust service, which will be outsourced to a third party. The world of investment advice is a “very clubby group”, says Mr Carreno. But, if they don’t already have it, advisers that sign up with Raymond James gain authorisation under either their own name or that of Raymond James. In both cases, Raymond James then takes the cost and administration involved in meeting compliance requirements off the hands of advisers. The company plans to chase continental European business as soon as it has firmed up its British presence. But Mr Carreno won’t be rushing into anything. He denies any suggestions that he is merely representing another US powerhouse blundering across the Atlantic with an American blueprint under its arm. “Most of them find out a year or two down the line that it just isn’t working,” snipes Mr Carreno. Nor is Raymond James a US firm earnestly trying to “tailor” its American business for the European market, ŕ la State Street, he says. Market research Carreno has already been in London researching the market for two and a half years. This research led to the decision to build an operation solely selling third party products through out-of-house advisers. This contrasts with the company’s US operation, which sells directly to individual investors as well as to advisers. Mr Carreno explains the decision to focus the business in this way: “As Willie Sutton the bank robber said when asked why he robbed banks, ‘that’s where the money is’.” Raymond James takes a cut of commission on all transaction-based business and splits any fees charged for business based on assets under management. “It is much easier for us to go to advisers and say we can provide them with an enhanced service than to try and reach thousands of their clients directly,” says Mr Carreno, “especially when we don’t have brand recognition. If we try to go head to head with a Zurich type it’s going to be a losing battle.” He adds: “By working with existing advisers, we are buying their reputation and their history”. However, he emphasises that advisers retain full control of their client relationships and all rights to their company name. Raymond James has 3000 advisers on the books in the US. So far the European arm has taken on board 13 adviser offices, amounting to E500m in assets. But Mr Carreno says that he is not “taking people off the street”. Advisers must have around E350,000 in commissions or at least E40m in assets under management. Their clients should have around E75,000 to invest. “We have to vet advisers carefully because we need to understand them in order to provide them with the right support,” says Mr Carreno. “They have to fill out a 20-page questionnaire on what type of business they are in. If it’s predominantly pensions, this requires different support than if it’s more individual equities.”

Benefits of big-business backing Raymond James has clinched one of its first deals with Castlefield Investments, a 70-client operation with E135m under management for individuals, charities and pension funds. Partner and investment manager at the Manchester, UK-based firm, John Eckersley, says that the deal sprung from a desire “not to get distracted by running the administration of a middle and back office”. He says, “Raymond James allows us to run our business under their regulatory umbrella. Effectively, our clients become clients of Raymond James and Raymond James agrees to let us manage their money, but without interfering at all.” According to Mr Eckersley, this is preferable to being a registered stand-alone business, which would entail “having our own compliance department and regulatory capital”. The arrangement further means that “clients can see we have the backing of a big business” and Castlefield benefits from aggregation, since Raymond James obtains favourable, institutional rates from fund managers and its custodian, Pershing.