Cover Story: Marshall Brentnall

A process for the better

Evalesco directors Marshall Brentnall, Jeff Thurecht and Jules Knox analyse the process of creating model portfolios and how that in turn has led to better outcomes for their clients. Annabelle Dickson writes.

The take up of managed accounts is sweeping through the Australian financial advice industry at a rapid pace. In fact, it can be argued that those advice firms that do not use managed accounts will soon be left behind.

The benefits of managed accounts have been made clear to advisers, namely increased transparency and a decreased administrative burden.

"We wanted a solution that aligned with our broader investment philosophy in terms of how we manage money, removing biases, no direct exposure, transparency, and we just couldn't find that."
But the opportunity to create bespoke model portfolios and therefore better outcomes for clients is what stood out the most for Evalesco Financial Services directors and personal financial advisers Marshall Brentnall, Jeff Thurecht and Jules Knox.

It took changing licensees to Australian Adviser Network (AAN), which Evalesco established with Queensland-based firms Centaur Financial Services, Robina Financial Solutions and Guide Financial, for Brentnall, Thurecht and Knox to put model portfolios at the forefront of their advice process.

"When we changed the licensing to the AAN licence it gave us more control and visibility as to what actually happened behind the scenes and inside those models and then to have more influence on that," Thurecht says.

"That was when we really made the decision to start having a look at it and using it for some clients and now, we've embraced it fully for the vast majority of our clients and certainly for new clients coming into the business. It's been a fantastic addition to our proposition."

The first principle of AAN's shared investment philosophy is taking care of clients and the models are crucial to that.

AAN Asset Management sits under the AAN licence and is home to its six model portfolios - Core, Index Core, Growth, Index Growth, Australian Shares and the newest model, Sustainable Growth. Together, these portfolios now hold $900 million in funds under advice.

Some of the managers in the models include Franklin Templeton, Australian Ethical, Hyperion and Bennelong.

Brentnall is Evalesco's representative on AAN's investment committee and was heavily involved in creating the new sustainable model which launched in December.

Client appetite for sustainable investments had been on the rise, Brentnall says, and AAN could not source a managed solution that aligned with its investment philosophy. So, they created their own.

"It was quite the journey for our investment committee and over a period of 12 months, required substantial analysis, a little soul searching, and we had to rethink our position on several issues," Brentnall says.

"We wanted a solution that aligned with our broader investment philosophy in terms of how we manage money, removing biases, no direct exposure, transparency, and we just couldn't find that."

The process began by creating a sustainability policy that aligned with the overarching investment philosophy.

The criterion for exclusions acknowledges whether a product or service contravenes an Australian law or future legislative change, causes substantial or potential harm to society or is likely to cause environmental damage beyond a level that can be reasonably remediated.

Rounding out the criteria, is whether an exclusion is aligned to the expectations of investors seeking a suitable portfolio and whether a sector's positive impact on society or the environment is of sufficient magnitude to mitigate shortfalls against other criteria.

Implementing this checklist then led to the exclusion of sectors that the investment committee believes are sufficient to satisfy the expectations of most investors seeking a sustainable portfolio.

These include tobacco and tobacco products, gambling, alcohol, pornography, the manufacture or distribution of armaments and high-impact fossil fuels.

After developing the policy, Brentnall and the committee went to market to determine which managers would be able to align with it.

"What we have created, is essentially a best of breed sustainable growth model containing wholesale managed funds, ETFs and an SMA in the form of a 90-10 model. To have a diversified sustainable model, not run by a fund manager is quite unique in the marketplace," Brentnall says.

Brentnall was tasked with building the portfolio and was privy to the conversations with different fund managers and able to negotiate discounts for the holdings in the model.

Moreover, he was engaging with clients to gauge demand for such a product.

"By the time it was ready to launch, I already knew which of our clients had a strong appetite for it," Brentnall says.

On the other hand, Knox says her client base, which mainly consists of accumulators, are potentially less interested than the rest of Evalesco's clients but expects demand to grow.

"Sustainable investing is becoming a topic of interest but it's still a minority among my client base," Knox says.

She recently reviewed a client who expressed this interest which then led to an allocation in Sustainable Growth.

"I do think that demand will grow over time and so it's really good though that we have this option ready for clients," Knox says.

Brentnall says Sustainable Growth, along with the other models, has been built into the advice process through the risk statement.

"If the client has stated that they want some or all of their portfolio invested in an ethical manner, then I'll ask them for more information around what that means to them, whether it's avoiding one industry or allocating the entire portfolio," he says.

So far, the model portfolios, which are available on Praemium, have proved their worth to Evalesco and the wider AAN clients, particularly over the last three years.

Many clients, particularly accumulators, have exposure to Growth which has delivered over 29% before fees over the last 12 months.

"That is a really good outcome, and we know that because we track each of the models against a benchmark and it has a peer group of comparable funds," Brentnall says.

For comparison purposes, the peer group growth model has tracked at over 20.1% so that's a really big gap between how we've delivered outcomes."

Most of the retiree clients have a smaller exposure to Growth and a larger exposure to Core which has returned 21.63% over the last 12 months.

"I think that is a really good number and like the Growth model it is on the back of really sensible management and adherence to our philosophy," Brentnall says.

Meanwhile, the newly launched Sustainable Growth has returned 13.54% since its inception in December.

Thurecht believes advice firms that have not implemented managed accounts are missing out on the opportunity to provide better outcomes for the client and allows advisers to manage their time better.

This is in line with the latest Investment Trends Managed Accounts Report which showed 91% of advisers rated managed accounts as 'good' or 'very good' for ease in demonstrating client best interest obligations compared to managed funds (80%) or direct equities (65%).

"Portfolio construction is really important but it's not necessarily the most important thing that an adviser can do. Their time can be better spent with their clients talking about strategy and helping them manage their behaviour and getting the right outcomes," he says.

"Managed accounts can be a really great facilitator of some of those strategies to help clients get on the path to achieving their goals. I certainly would encourage advisers that it's worthwhile looking at."

Elsewhere, Thurecht acts as Evalesco's chief executive and oversees the daily operations of the business while advising a small pool of clients.

"The consistency of portfolios and therefore outcomes for clients are a real positive. The efficiency of implementing changes and making sure that clients are in the right portfolios has been fantastic," he says.

"In the previous setup, if you wanted to make a change of a manager or do a rebalance you had to get a Record of Advice done and then signed off by the client.

"Half the clients would get them back and half wouldn't and then you implement those changes, and they take place at different times so everybody's getting different outcomes."

Knox echoes this and says the model portfolios mean she can focus more on the strategy for each client rather than poring over research.

"I remember sitting down going through the Morningstar reports trying to work out which funds to go in and which ones to get out of, which wrap platforms [were suitable] and I spent a lot of time studying the APL and making sure I was keeping up to speed with all of the best of breed managers."

She says it now means she can devote her time evenly between investments, the lending side and managing the team.

"I feel so comfortable that my clients are getting the best investment portfolios and it's being well-managed and obviously updated regularly and rebalanced," Knox says.

As an Evalesco director, Knox has different responsibilities to Thurecht and Brentnall. Five years ago, she rolled her one-woman advice business into Evalesco and has been working on building out the lending side of the business.

"I originally had my own practice and I got to know Jeff and Marshall through our former licensee. I brought my business in and merged and took a share of the business at the time about five years ago," she explains.

Thurecht says he's noticed the difference in the business since Knox joined, saying she is a fantastic adviser and regularly receives referrals from her existing clients.

"She is an accredited mortgage broker and has really been driving growth in that area of the business as well. That's another area where we're getting some really fantastic outcomes for clients," Thurecht says.

Brentnall agrees and says having the mortgage broking function internally is also delivering amazing outcomes for clients.

"One thing we do, even if someone isn't a mortgage client of ours, is always proactively contact the bank and do a health check on the loan. They seem to drive down the cost of the client's home loan even if they are not the broker," he says.

"Jules has a bit of a process, and the success rate is really good. That is something we are doing particularly with younger clients and that helps with the affordability viewpoint around advice too."

Morever, since the implementation of the model portfolios, Knox, Thurecht and Brentnall, along with the rest of the team, are confident if they need to make a change that it is happening across the

client base and in turn, every client is getting the change for the same reasons at the same time.

Prior to implementation, managed accounts were on their radar for some time before they took the plunge.

Thurecht and Brentnall originally met working at insurance company Norwich Union (later Aviva and then bought by MLC) in around 1997.

It was later that Thurecht moved on and joined advice practice Unicorp Partners where Brentnall joined him later, before going out on his own.

"Marshall went out on his own but kept sharing some of the office space and using some of the resources of the team. We were still working together but in separate businesses," Thurecht says.

Several years later, in 2008, Brentnall encouraged Thurecht to join forces to create Evalesco.

"We bought a smallish client base; I brought some clients with me, and Marshall had some clients. We've been growing it from there," Thurecht says.

"We always set out to build a business and not make it just about the two of us, we always thought we wanted to add more people into the mix and get some resources and that was one of their shared views of life at the time."

Evalesco now has 23 staff members and recently acquired advice firm Noall & Co which was previously headed by former Association of Financial Advisers national president Marc Bineham.

Bineham has since joined Evalesco as a financial coach and will provide financial literacy programs and coaching to people in their 50s and 60s.

Meanwhile, Noall & Co's Roisin Loughrey and Aoife Bryant joined Evalesco's client services team and elsewhere, Evalesco appointed Dominic De Minaur as a specialist insurance adviser.

"Personal insurance has always been an important focus for our business. As we've grown, and now with the inclusion of the Noall & Co insurance client base, we've identified an opportunity to make it an even bigger priority," Thurecht says.

"It's onwards and upwards from here."