WealthBriefing talks exclusively to Peter Moores about the opportunities for UK investment managers, and transposing the Raymond James model from the US. Peter Moores is the chief executive of Raymond James Investment Services, the UK arm of Raymond James Financial’s Private Client Group, reporting to Chet Helck, president and chief operating officer of the US-based diversified financial services firm.

WealthBriefing talks exclusively to Peter Moores about the opportunities for UK investment managers, and transposing the Raymond James model from the US.

Peter Moores is the chief executive of Raymond James Investment Services, the UK arm of Raymond James Financial’s Private Client Group, reporting to Chet Helck, president and chief operating officer of the US-based diversified financial services firm.

He joined RJIS in December 2004 as managing director and became chief executive in February 2005. Peter began his career in Chase Manhattan in New York where he spent 10 years in various management roles in the US and Europe. He then joined DAB and was seconded to London as managing director and senior country officer of their UK discount brokerage, SELFtrade UK, which he turned around from a loss making operation to profitability before being recruited to run RJIS.

NYSE-listed Raymond James Financial, the parent company, now has a market cap of $3.6 billion and was founded in the US in 1962, almost forty years before Raymond James Investment Services was established “to offer middle and back office services, as well as compliance and FSA registration where appropriate, to investment professionals in the UK who provide or aspire to provide investment management services to their clients”.

The group now has 4,700 financial advisers in 2,200 offices in the US, Canada and UK with over one million clients with assets under control of $182 billion.

The Private Client Group of Raymond James Financial is clearly important to the company as it comprised roughly two thirds of the overall total revenue of $2.6 billion in the year to 30 Sept 2006.

Mr Moores is very keen to stress that it’s not the advice only market that RJIS targets. “This is not an IFA network; we support investment managers in the true sense of the phrase,” he said.

All Raymond James advisers must have the FSA’s CF 27 permission, which gives advisery and discretionary management capability. And in the UK, the firm estimates its target market for its independent contractor/professional partner model to consist of around 7,000 portfolio managers of which a subset are interested in running their own business. For its wrap platform, its target market is around 1,000 IFA firms moving to the New Model Adviser space as well as a number of accountancy and asset management firms that need a private client investment management platform.

Advisers can trade as Raymond James or, in certain circumstances, under their own unique trade name and there are several ways in which advisers can affiliate with Raymond James.

Firstly, there is the independent contracting relationship. This was pioneered by Raymond James in the US in the 1980s and now 60 per cent of investment advisers in the US are independent contractors. Before this business model was introduced, they had to be employed.

Although the relationship is based upon a contract for services, the adviser is regulated and supervised under the auspices of Raymond James.

“Through the relationship with Raymond James, the adviser can give a personalised service but be backed up by a large business. This gives the investor the best of both worlds,” said Mr Moores.

RJIS does not centrally manufacture any products but supports advisers when they deem it appropriate to develop certain bespoke products themselves. “We are totally open architecture, but with an emphasis on traditional rather than alternative assets, although we can trade and hold alternatives where required,” said Mr Moores.

The platform allows for not only multiple asset classes, but also institutional type share classes as well as ETFs and low load funds, which often give the customer a pricing advantage, according to Mr Moores.

“This way the adviser can charge for investment management in a transparent way,” he said.

The relationship with Raymond James is constructed in such as way as to give investment advisers the opportunity to build a boutique investment business, but they are not totally alone - the middle and back office, coupled with compliance and FSA registration where applicable, are supplied by RJIS head office staff.

“But there are high standards for getting involved, after all it’s their business and they are building capital value. It’s all about building long-term relationships with clients,” he said.

He stresses too that with Raymond James there are no non-compete agreements.

Mr Moores said: “Core to our proposition is the concept that the adviser owns their client relationships. They can leave us with 90 days’ notice and take their clients with them, giving the adviser the ability to control their own destiny.”

When they join Raymond James, managers can typically double take home pay whilst creating capital value at no incremental cost to the investor. They control their own P & L and become responsible for their own expenses. And in the US there is an internal M&A market for Raymond James businesses.

“We believe that the adviser should own the client relationship. What is happening increasingly is that the portfolio manager is being edged out of the picture. The Client Relationship Manager is becoming more important in the relationship, even though they are not the ones running the money and this certainly has been a driver for recruitment for Raymond James,” said Mr Moores.

In the US, where Raymond James has 4,000 advisers, 60 per cent of financial advisers are independent so there’s a ready pool of people. But in the UK RJ has to convert each new recruit from being an employee in a private client investment firm or an IFA wishing to move to the New Model Adviser philosophy.

With its independent contracting and professional partner offerings, from the private investor’s perspective RJ’s competition includes other investment management firms, for example, Rathbones, Rensburg Sheppards, Gerrards and Charles Stanley. From the Adviser’s perspective there really is no competition, as outside of Raymond James, their options are to typically be an employee of an investment management firm or set up their own directly regulated business.

“For the wrap model, the competition is other wrap platforms, although we find ourselves in a unique position as the only platform focused on investment firms who provide or aspire to provide their own investment management services to their clients,” said Mr Moores.

It usually takes three to six months for the adviser to get their business up and running after taking the decision to leave their current firm, although for Raymond James the process can take as little as two weeks irrespective of which affiliation option the adviser chooses.

The investment adviser sometimes uses gardening leave to think about the business and action the business plan. As soon as gardening leave is concluded, the adviser can officially join RJIS and typically start to advise friends and family who will not be part of any non-compete agreement imposed by the former employer.

“We believe that industry action is needed on non-compete clauses. They’re typically unenforceable, although they incur significant legal expense for both the adviser and the previous employer and more importantly create confusion for the client. How fair is it to the investor to have to switch advisers when he or she may wish to continue the relationship? The adviser may have worked with the client for years and built up a strong understanding of the client’s particular needs. We may want to take a look at how firms in the US deal with this issue as there’s a concerted effort amongst investment firms there to recognise and mutually agree this point.”

The second business model, the professional partner route, is used for RJIS branches located within other firms that have CF21 permissions only. According to Mr Moores, this structure is useful where strong non-compete agreements exist.

“This route is often used where there is a highly qualified investment manager who leaves his employer and wishes to establish his own investment management business, but the non compete contained within his previous employer’s contract is so restrictive that there is not a hope he can bring any clients with him for an extended period of time.

“The professional partner - typically a financial planning firm - has a ready book of clients they wish to refer to the RJIS investment manager to provide discretionary investment management services under the tightly controlled professional partner arrangement.”

“It’s a version of an introducer agreement and is a non-exclusive, both ways, arrangement.”

Advisers can also have their own directly regulated firm, which affiliates with RJIS via the wrap platform. Here, the investment firm is responsible for its own compliance capabilities and FSA registration and it may become cost effective when an adviser has at least £150 to £200 million in assets under management.

The adviser can move from independent contracting or professional partner status to the wrap platform business model, without clients needing to transfer assets. This also works in reverse with firms who want to utilise RJIS’ compliance and supervision services, thereby giving up direct authorisation and moving to an independent contractor or professional partner relationship with RJIS, but again, RJIS has strict vetting procedures to ensure they understand the reasons the advisers want to give up authorisation.

There are currently 36 locations in the UK – 26 Raymond James branches and 10 affiliated firms using the wrap platform. There are around 70 advisers currently using their services under all three of the firm’s business models.

“Although at the top end some accounts are into eight figures, the average RJIS account size is £160,000 with an average client relationship size of around £400,000 to £500,000 which is in line with our goal to work with advisers who target the high net worth investor,” said Mr Moores.

“Generally in the market, we think that there is currently too much pressure to get into proprietary products.”

“RJIS does not push product. We don’t centrally manufacture any of our own product in the UK; we don’t push anyone else’s either as we believe we need to provide access to a full range of investment products in the UK so the advisers can select what they believe is right for their clients. This is key to retaining independence.”

And although Raymond James take a percentage of revenue, it is typical that the independent contractors can double take home pay within two to three years.

For independent contractor/professional partner relationships, RJIS retains roughly 25 per cent of the revenues generated plus some additional ancillary fees. For the wrap platform, the primary RJIS fees include custody, account and brokerage charges. “In all cases we charge for each service we provide. RJIS believes it is important to unbundle prices so the clients and advisers know exactly what they are paying for and how RJIS is being remunerated. This approach to pricing is attractive to the high net worth client as it prevents cross subsidy whereby larger clients are in effect subsidising charges made to smaller clients.

“We see the process of taking a portfolio manager to relationship manager as being a negative for the industry as it moves away from an emphasis on tailored investment advice for the client and towards product push.

“The business we’re building in the UK is not an experiment. We’re adding about two new locations every quarter, which may not sound much, but there’s an extensive appraisal process we go through with each applicant.

“Joining the Raymond James business is only right for investment advisers if they have an entrepreneurial attitude. But I’ve noticed a growing entrepreneurial attitude in the UK. We have taken people from most middle bracket UK firms.”

“But we’re very particular about who we have a relationship with. We’re not interested in doing business with lots of people and then weed them out at a later stage. It’s more important for us to be selective at the recruitment stage.”

Capital growth is clearly an important factor in enticing investment managers to join the set-up.

“We’ve seen some of our US offices getting up to three times annual revenue for their businesses if they’ve a good compliance track record and this seems to be consistent with the UK market. This certainly is something RJ can help with and is a further reason for getting involved with us".