Lord North Street seeks the ‘unbiased’ approach

Tucked behind London’s Ritz hotel, Lord North Street – a boutique investment office set up almost ten years ago – has been taking its wealthy clients down a very different route to competing, mainstream wealth management organisations. “We have no products to sell, so we don’t make more money from offering one solution above another,” says co- founder Adam Wethered, who reveals the organisation runs assets of “slightly less than” £3bn (€3.5bn). “As asset allocation makes the most difference to performance, you want your asset allocator to be unbiased.” Private banks are typically not set up with the interests of clients in mind, believes Mr Wethered, a barrister by training who started his career in the investment world in 1976. “In big banks like JPMorgan, UBS or Citi, the private bank was set up as a distribution arm for investment management,” he adds, with client advisers under huge pressure to sell what their bosses tell them to. Mr Wethered should know, as he was, until recently, one of those bosses. During a career at JPMorgan, which spanned almost 25 years, he was simultaneously running the US bank’s private banking business and the institutional clients arm for JPMorgan Investment Management in the Emea region. One part of his job was helping fund managers create investment products; the other was encouraging private bankers to sell them. Many private bankers, who lost money for their clients in the recent crisis, are now casting doubts on the traditional wealth management model for the same reasons, believes Mr Wethered. “We get approaches from staff who want to leave these banks,” he says. “They are talking to their clients about what they believe is the right thing to do, but then they get called in by the boss and told about the bottom line. The best private bankers are those who are closer to the client than to the organisation.” Under the Lord North Street model, client volume is far from a key consideration. If four new clients are taken on in a 12 month period, that is considered a good year, bearing in mind these wealthy families generally have assets of more than £25m to invest. The company is paid by a fee agreed with the client, levied across all assets held, generally up to 50 basis points. With this fee-based business model, unhampered by the pressure to push large numbers of high net worth individuals through a revolving door, staff enjoy the luxury of time to spend with their clients. “We take as much time as it takes to find out what a family’s objectives are for their wealth,” says Mr Wethered. “We create a portfolio with no bias and we have no financial interest in those discussions. Fund manager selection is fascinating, but it is not where you should begin.” Sometimes it emerges that families’ expectations are not always realistic. “One man came in who had been an entrepreneur and had sold his business. He worked out that he had been making an annual return of more than 50 per cent on his company’s shares and he said to us: ‘Can you beat that?’ We advised him to start another business, to get back to work and become a serial entrepreneur, which we suspected he wanted to do anyway.” Unlike some private banks who swear by active management of private portfolios, Lord North Street has no qualms about putting large positions in passive investments such as exchange traded funds (ETFs), and combining these with skill-based fund managers. The latter may be sourced from a third party bank or independent firm. But structured products are very much off the menu, says Mr Wethered, with a well-balanced portfolio serving as a natural insurance against major risks. “You don’t actually need structured products. They have a counterparty risk, which is excessive and not adequately priced.” One of the key asset allocations decisions recently made by Mr Wethered’s team regarded fixed income investments. “We saw credit as too cheaply priced and took most clients entirely out of it, well before the crisis of 2008 hit,” he reveals. The dominant issue last year, he says, became that no assets, apart from cash, were entirely safe from the financial tsunami. Hedge funds have been able to protect portfolios, with Lord North Street’s programme losing less money than comparable equity portfolios. But the notion of default allocations, recommended by advocates of efficient portfolio theory, is not accepted by Mr Wethered. “The efficient frontier is the best selling tool you can have for hedge funds. But the word ‘default’ shows a mindset and approach 180 degrees away from where we are.”