1 Welcome to the Wise Seminar. Its great to see so many of you here - - PDF document

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Welcome to the Wise Seminar. It’s great to see so many of you here tonight. My name is Ben Peters, and I am the Chief Executive at Wise. My first important job as CEO is housekeeping. The exits are the big doorways on either side

• f the barn. The assembly point in the car park in the unlikely event of an emergency. The

loos are to the left of bar, downstairs facility on the right. I was delighted to be asked by the board to fulfil the role of CEO last year. The main responsibility is to formulate and deliver our business plan. So what’s the plan? At its most basic, it is to give you the sort of service that we would expect to receive

• urselves.

That’s whether you’re getting financial advice as a private individual, investing in the multi- asset Wise Funds, or investing in our equity fund Evenlode, management of which is my day job.

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We want you to leave the finances to us, so that you can focus on the things that matter to you. Tonight you’re going to hear some of the detail on how we will deliver on that aim. You’ll hear about our investment strategies, our people, and our operations. I’ll be available for Q&A at the end of the presentations, and to talk to you over drinks and food afterwards – I hope you will join me. Now I will hand over to our Chief Operations Officer, Alex Rae, who many of you will know.

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At past seminars we have mainly talked about our funds but this year we thought we would also update you on Wise Investment as a company. In my presentation I will talk to you about Wise Investment being an Employee Owned company, I will tell you a bit about what has happened at Wise since the last seminar and lastly talk to you about an IT project that we are currently working on.

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You may be aware that we became an employee owned company three years ago. In fact three years on Monday just gone. We are set up under exactly the same trust arrangement as the John Lewis

• Partnership. In May 2013 the trust immediately owned 51% of the shares and so became a majority

shareholder, and over time the trust will become a 100% shareholder. This was originally a way of succession planning but has become much more than that. We are getting involved in the EO Association, we do work internally on staff engagement and work very hard to make sure that everyone in the company really feel that they own the company and have an input. What does this mean to you as a client? We feel that being employee owned is great both for retaining existing staff as well as recruiting good people into the company. Ultimately having a good team of people will mean that we can provide a better service to you. By having staff who are motivated and engaged in the business we feel that we can continually work on improving how we do things with the help of everyone in the business, not just a small selection of people as might be the case in other

• rganisations.

Something that I know many of you have asked about is what will happen when Tony retires? Being employee owned means that we will not be in a position of having to sell the company when the

• riginal shareholders ( including Tony) decides to retire. In fact Wise Investment will need to have the

agreement of staff if we are ever going to be sold. And this is not going to happen! This in turn will mean that we can retain independence and carry on looking after our client the way we feel is best rather than being told what to do by a parent company. An interesting fact is that Employee Owned businesses now accounts for around 4% of the UK economy, making it larger than the agricultural sector, to give you an idea of the size.

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Quite a lot has happened within the business over the last 18 months or so. AUM totalled £425 million, now £740 million approximately. A huge part of this growth has come from the success of Evenlode which has grown from £201 million to £530 million since the last seminar we had. We have increased our staff numbers from 18 to soon to be 32 and I will talk a bit more about this in a moment. We will be taking on further office space next door to the building we are currently in. We are a Chipping Norton company and will remain so. We have no plans to move the business elsewhere. This is really a big thank you to all of you who continue to do business with us and also continue to recommend us to your friends and families. We have also been working on our internal processes ensuring that as we grow we are still able to provide the kind of service we want to our clients. Our main aim is to continue looking after our clients in the same way we have always done. Something that I feel is important to mention is that although you may now be dealing with a new adviser we have not had any advisers leave. Tony changed to fund manager only, me moving into a new role. Apart from that we have not had an adviser leave. This means there is consistency across the business, this is something we value. We are working on improving our technology and I will talk more about this in a moment. We have also introduced a corporate social responsibility programme, getting involved in Young Enterprise, all staff can do a volunteer day for a charity and we sponsor the local Chipping Norton Theatre as well as doing fundraising for local charities and we aim to do more in this area in future. We feel that it is important to make a positive impact on not only our clients but the wider community as well and this is something all our staff value.

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Since our last seminar in October 2014 we have grown significantly. As I mentioned staff numbers have gone from 18 to soon to be 32. This includes me moving into a new role, hiring two new advisers and boosting the technical team for client services, something Angus will talk more about in his presentation, hiring an IT manager to work across the whole company, two analysts on the Evenlode team, and a business development manager and an analyst for Tony’s funds. So growth has been across the business as a whole. We are growing and getter bigger but our main aim is to retain the same look and feel of Wise Investment as previously. We do not want to become a call centre type office and we are working very hard to ensure that regardless of how many staff we have you, our clients, will still feel like we are exactly the same as before and that you continue to deal with your

• wn adviser and a small support team that knows you all well.

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During the last year or so we have undertaken a big project to review our current IT systems, which we have named Big Tech. This is to ensure that we have a system that is fit for purpose and that is going to provide us and our clients with all the functionality that we need. Why are we doing this? We need to update our systems to keep competitive and ensure that we are compliant with new rules and regulations. To help us with this project and also to support growing staff numbers we have taken on an in-house IT manager, Chris Rigbye. The Big Tech project will mean upgrading the Client System that we use for a more modern system that will include more detailed portfolio analysis and performance reporting for our advisers to use. So what will this mean for you as clients of Wise Investment? It should mean a better service in terms of the valuations that we can send out, which we know have not been ideal. We will also have a much improved client log-in experience, and our advisers will have a more interactive way of using our system in meetings with you. We are aiming for the new system to be in place by the early part of 2017. We have also worked on new branding for the company to incorporate both the Client business as well as the Funds business. You will have seen some of this new branding on the banners as you came in. We will be launching our new website shortly, please let us know what you think!

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I would like to reiterate that everything we do we do with all our clients in mind and hopefully you will feel that we are always working with your best interest at heart. This is something that is very important to us and we value greatly. If any of you have any suggestions for how we can improve things further or even let us know if there is something in particular you value that you don’t want us to change then please do let either your adviser know or speak to me. Wise Investment only exists thanks to all of you and we do appreciate every one of you. Thank you very much for listening. I am happy to discuss anything you might have queries about either later on this evening or please get in touch with me directly in the coming weeks. I will now pass over to Hugh who is one of the fund managers on Evenlode Income.

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Thanks Alex. So Alex has given you an update on the business, and my job tonight is to give you an update on how we view the world of investments at the moment. Part of the reason you are clients of Wise Investment and are sitting here tonight is because you’ve got some money saved up. And it’s probably money that you don’t want to spend in the next 3,4, 5, 10 years or more. But you’d like to generate a return from these savings, and protect them against inflation over time, and perhaps generate some income too. And you don’t want to take too much risk to do this. One of the key roles we play at Wise is to help you in that task. The two key messages I’d like to leave you with tonight, are that it continues to be a difficult environment for savers, with returns from cash and bonds in particular remaining very

• unattractive. And the best opportunities we see continue to be in carefully chosen, high

quality, resilient shares. And for those of you that have attended the last two or three seminars, you will know that this has been a consistent message from us for the last few years.

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So first I’d like to look at the returns available for cash and bonds in a bit more detail. And for any of you with money in the bank, you’ll know that interest rates are very low at the moment. I think this chart is really interesting. This shows the UK base interest rate all the way back to 1694, when the Bank of England was created. It shows that interest rates are current at an all time low, lower than at any time in more than 300 years. In the early years of the Bank of England, central bankers didn’t move rates around much. But since the middle of the 19th Century, central bankers have attempted to move rates around more to control the economy, and there’s been plenty to deal with over the years. You can see here rates hit a low of 2% during the 1930s depression, and then a high of 17% in 1981 when inflation was running in the double

• digits. Now turning to last few years, you can see that in the midsts of the financial crisis, in March

2009, interest rates in the UK hit their lowest ever level of 0.5%. Now, I would stress that it is not something uniquely bad about the current economic environment that has led to this record low for interest rates. There have been much worse periods economically

• ver the years – the 1930s for instance, and there have been many banking crises just as bad as 2008-9,
• particularly. What is unprecedented is the way that central banks have reacted over the last few years,

and this stems from the currently fashionable theory that this is the best way to stimulate a low- inflation, low-growth economy. Time will tell whether this theory is correct. Actually, perhaps the strangest thing at the moment is that British interest rates look pretty attractive compared to what you can get in most other areas of the world. In many countries negative interest rates are now in place (the Eurozone, Japan, Switzerland, Sweden etc.) in an even more extreme attempt to stimulate economic growth and inflation. If you’re a saver in a country, with negative interest rates you might want to invest in a mattress to stick you’re money under. And in fact the EU announced last week that it’s going to stop printing the 500 euro bank note, because people have started hoarding them, rather than putting their money in the bank.

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Now this situation with interest rates has pushed the returns available from bonds to unprecedented lows too. And so you can see – this chart shows the yield on a UK government 10 year bond since the early 1990s, and back in the early 1990s they offered a rather attractive 9% yield. But since then they have been gradually declining as inflation has declined across the world, and this trend has accelerated since the global financial crisis. In fact, in February gilt yields reached an all-time low, at about 1.2%. So a low return from bonds, even taking into account the low inflation rate. And if inflation picked up again, returns from bonds would become significantly negative in real, inflation-adjusted terms.

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So this brings us to the main alternative asset class to cash and bonds, which is shares. And we think this is the most attractive asset class for long-term savers at the moment.

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Now the problem there are two key problems with shares, or at least things that makes people worry about shares. The first is that there are plenty of things to feel gloomy about in the world. You can certainly write a long list of things to worry about, and when I was putting these slides together last week, I had a go at writing a list, and it was quite cathartic, so here it is. Now I don’t want to be dismissive about any of these risks. These are all things we give a lot

• f thought to at Wise, and have opinions on, which we’re very happy to share, and perhaps

we will discuss them more in the Q & A session at the end of these presentations – I’d be very surprised if we get through the Q & A session without mentioning the word Brexit. But if you think back to pretty much anytime over the last few decades, or centuries even, you could have also written a long list of things to worry about.

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And the second problems with shares, is that people talk about this scary thing called ‘The Stockmarket’. And when you hear the word “Stockmarket” it perhaps brings to mind images

• f unpleasant city types either shouting a lot or holding their heads in their hands, which all

seems a bit unsavoury and risky. And you think of share prices wobbling around a lot, which also feels scary. This chart shows the performance of the UK stock-market over the last 20 years, and its gone up, but its wobbled around rather a lot. At Wise, however, we think that owning a share is actually nothing to do with the ‘stockmarket’. And for our purposes tonight, I’d like to forget about the ‘stockmarket’.

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A share actually represents part-ownership of a real company, rather than a piece of paper to trade in and out of. And this point is hugely important. Some of you here tonight may own your own business, or a part of a small business, or work for a small private business. And you don’t keep getting your mobile phone out to check the price of that business every few seconds, or when you read about something uncertain like Brexit or Grexit, because you can’t check the price. Instead, you concentrate on operating that business, keeping your clients happy, adapting to the changing economic environment, generating profits and cash flow etc. And the other thing you do, is you think about the long-term future of that business, and you’ll typically own your business over a long period of time. Many years, perhaps many

• decades. And at Wise, we think this long-term focus is absolutely critical when it comes to

investing in the shares of businesses. And the message I’d like to leave you with is that we do see some good opportunities in

• shares. We think that you need to be selective- at the moment, but in fact – always. Some

shares aren’t very cheap at the moment and others are quite risky, some companies have become too indebted. But there remain some good opportunities in attractively valued, robust companies, and this is where we are focusing at Wise.

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Tony’s going to talk in a bit more detail about the sort of characteristics we look for in shares, and he’s up next. But before passing over to him, I’m just going to finish with a little anecdote, a little story, and I’m afraid for regular readers of my monthly investment views, it’s going to be about Unilever again. But Unilever is a great example of a high quality share for the long-run, purveying as it does a very strong brand portfolio of repeat-purchase goods from Dove soap to Marmite. One of the readers of my investment view, a guy called James, emailed me to tell me about his grandfather. His grandfather is in his 90s, he lives down in Sussex, and he’s been investing in shares since the 1960s. Now he recorded all the purchases he’s made in a ledger than he kept in the desk drawer of his study. This is an old dusty

• book. And in it is a purchase of Unilever shares he’d made on the 1st August 1966, so this is almost exactly 50

years ago now. He bought 700 shares at 29s and 6d, that was an initial investment of £1,032 at the time. So this was two days after England won the World Cup at Wembley. Quite a different world. The swinging 60s. Harold Wilson had been elected prime minister earlier in the year. And James’s grandfather has just held these shares over the years, done nothing at all. The dividends cheques arrived, he spent them, and he continues to own these 700 Unilever shares today. Now I liked this story so much I decided to buy a copy of the Financial Times from the day he made that

• purchase. And here it is. And this is another incredible artifact, in many ways looks much the same as the FT
• today. It’s got a similar section at the back with share prices with some great listed British companies such as

Bovril and Rowntree making an appearance which has sadly been bought by other companies over the years. And Unilever’s there obviously. But there was doom and gloom in the papers I’m afraid to say, just like today. “Wall Street hits low”. And in fact, if you’d had a crystal ball about what would happen over the next few years you might have had second thoughts about buying any shares in 1966.The oil prices, the three day week, strikes, rampant inflation, 17% interest rates. But Unilever just kept plugging away over the years selling its rather mundane products and expanding its product range and geographical exposure. So how did James’s grandfather do? Well rather well.

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So his first dividend in 1966, from his £1000 investment, would have been about £40. But Unilever has grown dividends by +10% per annum over the last fifty years, so today James’s grandfather gets more than £5000 per annum from his initial £1000 investment. That’s just this year’s dividend. But also think of all those dividends over the year’s he’s had too.

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And how much are those 700 shares worth today. Well here is the chart of Unilever’s share price since 1966. And as you can see, it’s not always been plain sailing. But the fundamental progress of the business has ultimately dragged the share price with it. So today that £1000 investment is worth £140,000 today. So lethargy can be a successful investment strategy.

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And I think this is just a really good story to remind you of the fact that when you buy shares, you don’t invest in the stock-market, or the economy for that matter, but in individual

• companies. And if these companies are robust then they should do well for you over the

long-term. And on this note, as I hand over to Tony, I’ll finish with one of my favourite quotes from Jack Bogle that sums this idea up – “the stock market is a giant distraction to the business of investment’.

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Good evening everyone. It’s very good to see you all, and thank you for coming to our seminar. The title of this short presentation comes from The House at Pooh Corner by AA Milne. In it there’s a chapter called In Which Rabbit Has A Busy Day And We Discover What Christopher Robin Does In The Mornings. Christopher Robin has begun to disappear in the mornings, leaving behind an enigmatic message saying ‘Backson’. The animals all wonder where he might have gone, and who the mysterious Backson might be. At the end of the chapter, Christopher Robin returns to the forest where they all live, and they discover that he has been at school, and now knows how to spell ‘Back Soon’ Like Christopher Robin, I disappeared from view, and, also like Christopher Robin, I have been studying. Up to the end of 2012, I used to visit my clients and manage the Wise funds in my spare time. Since the beginning of 2013, I have concentrated on managing the funds full-time. You might wonder why it was necessary to spend the whole of my time on something that had been part-time before. The reason was that until 2012, the Wise funds had been pure funds of funds, but increasingly I wanted to research the underlying companies myself, which takes much longer to do. That was for three reasons. First of all, I came to believe that in order to understand funds, you need to understand the assets that go into them. Fund managers are very good at telling you how clever they are, and it isn’t always easy to know who to believe. Some fund managers will tell you that they only buy large companies, because they are less risky than smaller ones, while others tell you that they

• nly buy small companies, because they grow faster than larger ones. Some tell you that they buy shares that have been going

up, because they are likely to carry on going up, while others tell you that they don’t buy shares that have been going up, because they have become too expensive. Others again base their style on being able to read the business cycle, while others insist that you can’t read the business cycle and should ignore it. And so on. I felt the time had come to find out for myself. The second reason was that, in Wise Income, we noticed that a surprisingly large number of income fund managers don’t seem to care how much income their funds produce, and are happy to hold stocks that hardly pay any income. We wanted to build a portfolio of companies in which each holding produced a decent level of income, and decided that we had to do it ourselves. Finally, by investing direct, we cut out a layer of charges, and you may have noticed that Wise Income’s annual charge has fallen every year for the last few years, from around 1.4% three years ago, to just under 1.0% now. So then, the obvious question was how I could produce acceptable investment returns, coming to this discipline relatively late in life and without the highly evolved analytical skills enjoyed by many of my younger peers. I realised that when we are investing, in companies as well as funds, we are hiring people to work for us, and what matters above everything else is which people we do and don’t choose to employ. People spend a long time peering into the future and wondering what’s going to

• happen. I now think that our best approach to the future is to accept that we don’t know what’s going to happen, and the best

way to future-proof a portfolio is to employ the right kind of people, who manage the assets they’re responsible for in an intelligent and prudent way.

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Over the last few years, we have evolved a simple method of looking at companies for the Wise funds, which we call ‘the three-legged stool’. The stool has three legs. Without any one

• f those legs, the whole thing falls down. In our investment process, we are looking for

A robust business. We ask the question ‘How likely are this company’s products or services to be in demand in ten or twenty years’ time? And furthermore, is demand likely to grow or to shrink? Then we look at the management. We are looking for a team of people who are intelligent, experienced, and motivated in the right way, by which I mean, focussing on the company rather than on their own personal agendas. A good management will always have a sensible, achievable strategy, and they will be good at delivering the strategy as well as communicating it. Last but not least, there are the finances. We like to see companies holding cash, and we don’t like structural debt. The question we ask is ‘How well would this company be able to cope with adverse conditions that lasted several years?’ If the balance sheet doesn’t look strong enough to cope with those more difficult times, then the risks of investment are higher, and also it tells you that the management are probably being overconfident, a characteristic which we try to avoid. We need all these three things, a sound business, good management and a strong balance sheet, otherwise the investment case falls down.

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A stool won’t support you unless it’s standing on a solid floor, so we need a fourth thing, and that’s value. The lower the price of the asset when we buy it, the better chance we have of making you money. So, we work hard to buy assets when they’re cheap, which isn’t as easy as you might think, because that’s the very time when everyone is telling you why you should avoid them. So, that’s what Christopher Robin does in the mornings. He still researches funds, but now he researches individual companies as well, and he sits in a funds team of five, soon to be six people, who do a similar thing.

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The graph shows how the Wise funds have performed since the markets began to recover seven years ago. The top line on the graph is TB Wise Income, the next one is TB Wise Investment, and then there’s the FTSE-100 index, and finally our sector average. What does the graph show us? Well… There is a lot of evidence to suggest that investors still haven’t recovered psychologically from the crisis, hence the fashion for absolute return funds, which cost you a lot in fees but don’t actually make you any money. This timidity on the part of investors causes them to behave like ostriches, with their heads buried in the sand and their bottoms sticking up in the air. At a time when most investors aren’t really looking for investment opportunities, you might expect that there might be opportunities for the minority of managers who are actually looking for them. The graph shows that in the difficult environment of the last seven years, we have continued to find opportunities, and I believe that there are still plenty of

• pportunities left.

Finally, I wanted to say a quick word about my retirement. I do have form in this. Some of you may remember that I was once Wise Investment’s only adviser, then I was the head of the advising team, then I was one member of the team, and now there is an advising team, but I’m not a part of it. We are following a similar path with the Wise funds. We have already started building up

• ur team, and in a few years’ time, that team will be able to manage the funds without me. My

goal for Wise Investment the company has always been to create something which can survive and thrive beyond my own involvement in it, and we are now much nearer the end of that process than the beginning. Thank you.

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Hello everyone For those that don’t know my name is James Payne and I have been with Wise for 10 years. I’m a senior adviser at Wise Investment and part of the client services executive team. This evening I will be presenting with my colleague Angus Aston who is also an adviser and a member of the client services executive team. Angus has been at Wise for 12 years.

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Over next 15 minutes we’d like to tell you a bit more about the Private Client Business, what’s been happening, what we’re doing and what it all means for you. After which we’ll be passing

• ver to you for Q&A.

As I mentioned previously, I’ve now been here for 10 years. To start with, I’d like to explain why ‘I work for Wise Investment’ and why I expect to do so for the rest of my working life.

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Aside from the obvious personal reasons such as being away from the hustle and bustle of a city lifestyle, working with people I like and trust, having a 20 min commute and having the CEO making me a cup of tea…

• 1. The financial world is an increasingly complex one; both in terms of changing regulations

affect individuals and the uncertainties affecting capital markets. We’re at the fore-front of this and our aim is to keep you informed and to guide you through the technicalities that are likely to impact you and your financial circumstances over time. We have an experienced and well qualified team of both financial planners, investment managers and support staff. Not only that, our ability to offer an integrated service (financial planning and investment management) is unusual in today’s market place, and one that reduces the number of professional advisers you need to use and pay for.

• 2. We strive to provide you with a highly personalised, professional and easy to understand
• service. We’re not about selling products, but much more interested in nurturing and

maintaining long term relationships. Our proposition is designed with your best interest at heart.

• 3. The employee-ownership structure, encourages our staff, as part owners of the business, to

contribute to and enhance the service we provide to our clients and the wider community such as local schools and environmental projects. To sum up, I’m proud to work for Wise Investment.

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It would seem that you think so to. The feedback we receive tends to suggest that we are on the right tracks. In terms of our communications (face-to-face and written), our investment performance and financial

• utcomes.

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And my personal favourite testimonial….. Can’t imagine who they are referring too!

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Well, why am I telling you all this? This presentation is not just about promoting us and

• ur services. It hasn’t gone unnoticed that Wise Investment is growing. While this is all

very good for Wise Investment, a number of you have enquired as to how we can maintain our personalised service and the integrated approach. I’ll now pass you over to Angus who’s going to give you a bit more information regarding the developments that have taken place.

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As James said, I am going to explain in a bit more detail the developments that have taken place over the last couple of years, how they have come about, what the benefits are and why they matter. To do so, I think the Good Ship Wise Investment is a useful analogy. A ship has passengers and crew. For Wise Investment, you are the passengers and we are the crew. Without passengers there’s no point in the ship setting sail in the first place, and it matters to all of us that the ship sails smoothly. We are interdependent. We are absolutely determined to keep the same values and ethos that the company was founded on, but we believe we are better able to do so if we are slightly bigger because a larger ship is more stable, especially in rough seas. There has been a significant increase in staff numbers, so I’d like to look at the crew for a

• moment. What are they all here to do?

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On a ship there are two main jobs for the crew: looking after the passengers and sailing the ship Would you have the same people sailing the ship and looking after the passengers at the same time? Well, for the first 23 years of Wise Investment, we managed to do exactly that. That became unsustainable because Investment markets and financial planning environment (especially pensions) have become increasingly complex burden of regulation has significantly increased, especially since the financial crisis. Not just financial regulation, but general business regulation – employment law etc. As Alex said, we now have dedicated people covering the key roles of business management, HR and IT. From 2018 it will be compulsory for each regulated firm to have its own compliance function, so we are in the process of building a dedicated compliance team. On the ‘looking after the passengers’ side, we have developed a new role – that of Technical

• Analyst. Their job is to carry out research and report-writing for clients alongside the

advisers.

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So, what does this mean for your. Well, the most important thing is that the advice team can focus on looking after you. The investment team can focus on managing the funds. And the business team can sail the ship

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The last point, and perhaps the most important one, is to ask whether we could have remained a smaller business – what if we hadn’t evolved in this way? I think the answer can be found by looking at what’s happening in the industry Many small firms are finding it difficult to survive. Being subsumed into much larger businesses, that provide ready-made investment and compliance solutions, and losing their independence We absolutely must avoid this, because we believe it would be detrimental to your interests. Hence the need to develop and grow on our own terms.

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As Ben said earlier, the purpose of our service is to allow you to spend your time on things that matter most to you. Well, these are the things that matter to us, and everything we are doing is driven by these principles. What does the future hold? – For the economy, for investments, tax, pensions? As Tony and Hugh both said, we can’t accurately predict the future, but as a larger business with a broader team, we believe we are well-placed to deal with whatever the world throws at us. Thank you all for listening. We now have time for questions.

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