ISG puts independent stamp on advice

After selling a 50 percent stake to Perpetual Trustees in 1997, Investor Security Group was able to free up back office functions while retaining independence to serve high net worth clients. Simon Segal spoke with managing director, Rob Keavney about the path travelled by the group.

Investor Security Group (ISG) markets itself as "a boutique service for those who require high quality personal service and can afford it."

So how is this different to the rest of the financial planning comnmunity?

ISG managing director Rob Keavney points to a few features that he believes distinguishes ISG from the pack.

The group has a unique back-office arrangement with its 50 per cent institutional shareholder Perpetual Trustees which means ISG does not run its own master trust and is thus able to retain its independence.

ISG also refuses to offer in-house investment products (including any products from Perpetual). It is devoted to transparency around charges and conducts comprehensive adviser and client reviews. It also emphasises brand building.

Keavney founded ISG in 1984 with Lamberto Grasseschi. When Grasseschi sold out in 1989, ISG introduced equity participation for advisers.

"We were probably the first to do so," recalls Keavney, adding that those advisers who have been with ISG for ten years have seen the value of their investment in ISG tripled. "And this excludes dividend payments."

In 1997, Perpetual bought a 50 per cent stake in ISG for an undisclosed amount. The other 50 per cent remains with ISG directors and employees, the majority held by Keavney and his wife Glenese.

No party has a casting vote. The logic of the deal for ISG was that it added its volume to that of Perpetual Private Clients, thus saving a fortune in back-office costs and discarding any need to own a master trust which, Keavney believes, "is an expensive way to solve back-office problems." ISG's costs for administration and record-keeping are 15-25 basis points. "Extraordinarily cheap," notes Keavney.

At the same time, ISG is not dependent on any one product. This is important for ISG. In its determination to avoid ties with any investment fund and retain autonomy in advice, ISG has been steadfast in never selling Perpetual products since the merger. The trustee company thus gets zero distribution benefits from the ISG deal.

"Our core principle is that the recommendation of any in-house investment fund cannot constitute truly independent advice," Keavney says.

Today ISG has 12 owner-managed business units with a total of 30 advisers, ranking it at 65 spot in the forthcoming Money Management Top 100 survey conducted by Look Research. ISG's largest business unit has four advisers.

All ISG clients are charged on a fee basis.

"Back in 1990," claims Keavney, "we were one of the first to introduce fees for service." All up-front commissions are rebated to clients and no payments are accepted from financial institutions and fund managers for sponsorships, prizes or other incentives.

"Our Active Monitoring Service involves a written service agreement which sets out our obligations for the on-going review of portfolios, on-going communication with clients, rebates of commissions and details of our service."

ISG targets the high net worth market, but will advise individuals with around $200,000 to invest if they have strong potential to grow their wealth. The 875 clients have an average $477 000 invested through ISG, leaving $417.5m in funds under advice.

"Sure, because of the potential windfalls in commissions and fees almost everyone in the industry claims to be interested in high-net worth clients," says Keavney. "But few actually service this market and even fewer are appropriately set up to deal with the top end client. The bulk badge themselves as a service solely for high net worth individuals but still try to be all things to all people."

Keavney finds that the financial needs of the rich do not fit into a nice neat slot.

"It is not a matter of simply using off the shelf financial planning software to deal with the complex tax and legal issues relating to companies, trust structures and estate planning," he says.

To this end, ISG is devoted to building a brand at the sophisticated high-earning end of the market.

"The industry is not brand conscious. We plan to change this."

He notes this requires tight discipline.

"All our advisers have the same message and work the same market. They all work on a fee per service. They use the same financial planning software. The end result is that clients get the same recognisable service from any ISG adviser. No other dealer is as synchronised and consistent as we are."

Keavney reckons a few advisers have built valuable businesses that are worth more than $1 million.

"Being so synchronised makes our adviser businesses valuable assets. There are real live buyers."

Furthermore, ISG promises to manage the sale of any adviser business if the owner dies. "Advisers are the key to our success. We take plenty off their desk including preparing client plans and review reports. This enables them to provide a higher degree of service."

ISG pays advisers on a share of revenue basis where the fee is split.

The actual split depends on whether the adviser operates on ISG premises and on the growth of the funds under advice.

Formally, if an adviser leaves ISG, the contract says the adviser's clients are free to choose where to remain. In reality, they go with the adviser who has the personal contact.

Keavney knows ISG clients are satisfied from an independent survey ISG conducted last year.

"The most significant result is that we had a 50 per cent response rate to a 13 page questionnaire. That busy clients took the trouble shows the relationship with ISG was important enough for them to invest their time."

Of the half that replied, just over half rated ISG's service "very good" and 43 per cent "good". The response on whether clients felt they were getting value for money was similar. More than 90 per cnet of clients said they are prepared to recommend ISG.

Where is ISG headed? Keavney talks about growing funds under management to $2 billion within three years.

"We always had the client service. Now, after three years of bedding down, we have the back-office support as a platform for rapid growth."

Keavney has no plans to list on the stock exchange.

VITAL STATISTICS

Investor Security Group

Advisers - 30

Funds under administration - $417 million

Ownership - Perpetual Trustees 50%/ISG directors and employees 50%

Founded - 1984

Location - Sydney based, five offices

Key Figures - Robert Keavney, managing director; Glenese Keavney, executive director

Position in Money Management Top 100 - 65

Master Trust - Perpetual Trustees

Next Conference - March 2001, Sydney