Wealth advisors all like to claim the mantle of being independent but few can claim to be as independent as Lord North Street. This publication recently met with co-founder William Drake to talk about his firm's strategy.

Achieving true independence as a wealth manager in the eyes of clients can be a tough sell when so many investors have been hurt by financial mayhem.

For ultra high net worth investors concerned that they might be pushed into ill-conceived products, a firm that can act as their independent friend is very appealing. And William Drake, co-founder of Lord North Street, the private investment office serving UHNW clients, says his firm’s merits have proven so attractive that he has had to turn clients away that cannot meet the minimum £25 million watermark for investable assets. It is an enviable position for a firm started in 2000 by Drake and co-founder Adam Wethered.

Lord North Street, which has a total of 25 clients, deliberately takes on only a handful of new clients a year. If it tries to take on a larger number, the business model, which involves close relationships, comes under strain, Drake told WealthBriefing in a recent interview.

“What we are trying to emulate is the best single family office practices,” Drake said from the firm’s offices in St James’s, London.

“The people here are very much on the clients’ side of the table,” he continued.

“Your charging method should have no bias to any one asset class or product; you should have no product that you are trying to push and be completely transparent about your fees. Also, for the model to work, you must not be a bank that is trying to pretend it is a MFO [multi-family office],” Drake said.

“I can sleep at night with the knowledge that even though things might not have gone well, there is no pressure to do certain things,” he said.

Minimum sizes

A conundrum for relatively small firms with wealthy clients is how scalable, or expandable, is its business model. It is an issue that Drake says he has thought long and hard about.

“We have thought about dropping our minimum [client asset] sizes, and we’ve had to turn away quite a lot of people. Our hope is that there will be a company that can handle such business from them,” he said.

“We are thinking of doing a search for someone to whom we can refer this sort of business,” Drake said. At one stage, Drake said, Lord North Street thought of providing some kind of `Lord North Street-lite’ version of the firm to cater for clients below the £25 million threshold.

Only a tiny handful of firms provide the kind of investment management as provided by LNS, Drake said. LNS is a discretionary wealth manager.

“We have an independence of view and ability to implement our ideas and have great reporting,” Drake said.

Like some of his peers, he voiced the complaint that far too many wealth managers, such as those with investment banking sister companies, are pushing products at clients regardless of clients’ real interests. This is a complaint recently voiced in a survey undertaken by Société Générale, the French bank, and the Economist Intelligence Unit (to view the article, click here.)

“The industry in many cases is just a machine for creating and distributing product,” Drake said.

Sometimes one of the hardest things for investment advisors to do is to persuade a client not to do something, Drake said, referring to a transaction-based culture where remuneration for the wealth manager often hinged on an ability to write new business.

Investment strategy

Drake briefly talked about his investment outlook, and at a time when there are big worries about sovereign defaults and possible rising inflation, said he prefers to hold corporate, rather than government, debt.

“Companies in many instances now seem to us to show rather more attractive investment characteristics than governments. They went into the slump in pretty good shape with low gearing levels and they recovered very quickly. Companies have not built up massive debt. Unlike governments, they can also change their locations for production,” he said.

Another theme that governs his investment thinking is the risk of inflation as opposed to deflation. At present, LNS leans to the expectation that inflationary pressures exist and could worsen, but is watching closely at the US economy for any sign of deflation reasserting itself.

Another investment theme he raises is the ascent of formerly Third World nations into the ranks of developing economies, driving demand for such things as consumer goods and commodities, he said.

“We do buy into the long-term trend of people coming out of poverty and into affluence in the Third World,” said Drake.

Drake has long experience in financial services – including a spell of almost 17 years at Granville, the investment bank – and he has seen enough fads and fashions in investment management not to be easily beguiled by the next Big Thing in wealth management. It is a point of view that appears to be working well at Lord North Street.

(William Drake is a member of WealthBriefing's editorial board.)