Fantastic beasts and how to make them

The investment manager sitting at their desk with their daily Starbucks coffee whilst building an order to buy Starbucks stock for all of their clients has found something special.

This is not a tip for shares in the behemoth coffee producer, I like drinking its coffee but I don't analyse stocks. The special thing they have found is stock where they have loyalty to the product and belief in the company. I'm lucky to work in an industry that I'm interested in and as a result I've studied the development of the wealth management industry for over 20yrs. During that time I’ve met loads of excellent people and known a lot of firms but I’ve seen remarkably few where I would consider being a loyal customer, and a shareholder.

There are firms all over the country who it would be sensible to invest with, they employ trustworthy, knowledgeable, hardworking people and have strong investment and advice processes but dig into the day to day operations of the business and you find business critical spreadsheets instead of real systems, manual workarounds and lots of inefficiencies.

Equally there are a number of firms whose financial performance has been strong, the growth target has been met and after analysing the corporate results it would be easy to consider investing in them. But as a keen observer of the industry I know I wouldn't invest with them, maybe the charges are too high, maybe morale is on the decline, or maybe the plan to create shareholder value is too short term.

But there are the rare few, where the decision to invest with is a clear yes, as would be the decision to own part of that company, those companies are rare and as such I feel it's fair to crown them financial services unicorns.

What’s the point of being a unicorn?

Before we go any further it seems sensible to ask why all wealth businesses should want to be unicorns. Well not all unicorns are worth a billion dollars and have offices in San Francisco, Beijing or Shoreditch. In this context, we’re talking about businesses that are well run, profitable, have good governance and clear strategies - be it growth, exit or something else and blend this with a service that transcends being client-centric and achieves the level of being client-valued.

Talk of mythical animals aside, it is good business practice to take regular time for objective introspection

What makes a financial services unicorn?

First I must repeat my warning from the first paragraph, I don't analyse stocks. I do hope that at least one investment manager reading this takes the time to put their own companies finances through some of the rigor reserved for stocks that make it onto the buy list, and reflects on the quality of the services they provide, but with warning and hope out of the way I will offer a handful of thoughts on what makes a unicorn.

Looking first into the front office the human characteristics of trustworthiness, hard work and knowledge are a must, but they must also translate into high revenue per front office professional which must be blended with client loyalty and high levels of client satisfaction.

Moving through the middle office and into the back office must be a seamless journey with smart processes and well considered workflows ensuring complex, multi departmental tasks are dealt with efficiently by great technology and small effective teams.

Then up to the top floor, where the business leaders are able to articulate a clear corporate vision encompassing strategies for doing well by their shareholders, their staff, their clients whilst making a positive impact on the world.

Finally ending with the investor relations department who are able to supply the proof, not only solid financial statements but fantastic client and staff satisfaction surveys and evidence of consistent portfolio performance.

I was going to include high levels of staff ownership as an area, but if ownership comes through remuneration it's not the same as actively buying shares or indeed owning your own company. The ‘active owners’ working for financial services unicorns should be incredibly proud of that status, and shouldn't shy away from highlighting both the corporate success and success with clients.

Creating and running such a business is not just good for the CEO’s pocket, it also benefits the clients, employees and external shareholders too.

I don't believe in fairytales

Talk of mythical animals aside, it is good business practice to take regular time for objective introspection. No matter what the goal of the business, it’s essential to take a look at where it is on the road to achieving it. If, when you ask yourself the question “would I actively invest in my own business” the answer is no, it’s clear that things need to change but asking a slightly different question ‘‘would my clients invest in my business’ might give an entirely new perspective.

Creating and running such a business is not just good for the CEO’s pocket, it also benefits the clients, employees and external shareholders too. Potential staff looking for their next move (indeed current staff as well) will almost certainly want to work at a well-run business, successful HNWI looking for advice will almost certainly want to work with a successful wealth manager and shareholders (current or future) will place a premium on a firm with commercial and client success.

The wealth management industry has proven itself capable of rapid growth and continual evolution, getting stronger and more capable every year, and I suspect for many becoming a firm that your clients want to invest with and invest in won't be a fairytale for long.