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Financial Advice

Before Passive Was Cool

U.K. advisor Alex Riley saw where the world was going and adopted low fees early on.

Low-cost passive investing has grown in popularity in the United Kingdom since the Retail Distribution Review in 2013 banned financial advisors from accepting commissions from fund companies. But Alex Riley was on board the indexing bandwagon years before then.

Riley, director at Bunker Riley Financial Planning in London, says he saw the move against commissions coming and first dabbled in charging some clients direct fees in 2006. This gave him the ability to use inexpensive passive funds. While these fees were only a small part of the firm’s revenues, it put him well ahead of the curve in the U.K. “The writing was on the wall for many years [before 2013],” he says.

Today, most of the funds Riley uses for clients are passive, though he sees the differentiator “not as passive versus active, but low cost versus high cost. If you can find a genuinely active fund at a good cost, then it’s open to use.”

Financial Planning First At Bunker Riley, co-run with longtime friend Justin Bunker, Riley puts financial planning first; investment advice follows. Once he helps a client determine his or her financial goals, he'll build the client's core portfolio predominantly with exchange-traded funds, while taking a satellite approach that includes actively managed funds.

Fees, which are posted on the firm’s website, are initially based on hourly rates—a typical financial review that requires three hours of research and administration and two hours of advice costs GBP 600. Clients are given a financial plan and recommendation, which they are then free to take or leave.

If clients stay on, the firm charges a fee based on a percentage of assets under management. The fee is capped when assets exceed GBP 3 million. “The difference between looking after someone with GBP 4 million and someone with GBP 3 million is negligible,” Riley says. “We think it’s fair. We’re not a large wealth manager with concierge services, so it’s only right that when you get up to a certain amount of money the fees stop.”

While the core of his firm’s clients is made up of creative types—executives at television and film companies—Riley says his approach to their finances is straight-laced.

“We take a strategic asset-allocation approach to client money as opposed to tactical,” he says. “We have clients who come to us who don’t understand finances and investments. Yes, it’s our responsibility to do the absolute best job that we can do, but I don’t think that involves being too cute.”

More Than Partners Based just a short walk from Buckingham Palace, Bunker Riley "first and foremost is Justin and Alex, who've been friends for 23 years," Riley says. The pair met in 1995 while on a graduate traineeship and worked together as financial advisors at an insurance company. Riley soon realized that he didn't like selling financial products.

Riley and Bunker left the company to join former colleagues who had broken away and set up their own independent financial advisory firm. Riley and Bunker inherited the business in the mid-2000s, rebranding it eponymously in 2010. While there have been some disagreements, “I can honestly say that Justin and I have never had an argument in 25 years,” Riley says.

“We’ve gone from being two guys who went down the pub on a Friday night and had a few drinks to guys who met our current wives; who went through each other’s engagements, weddings, having children. We’ve been through that progression together.”

It’s a small practice. Riley and Bunker are the firm’s sole advisors. For now, it works, though Riley says he would eventually like to grow the business.

“We’re quite happy with where we’re sitting right now,” he says. “I don’t want the dynamic of our business to change so that it has too much of an impact on what I do away from work. I personally have a very good worklife balance.”

Should the firm add a third advisor, Riley says he would love to bring in a female planner. “There’s not enough diversity in the investment world. I would love to be in a situation where we had more advisors from different backgrounds.”

Outside the Norm Riley says he wants to position himself and his practice as different. A keen fixed-gear cyclist, Riley says he's "super active" and has completed both the New York and Berlin marathons, as well as a race in Croatia where competitors are chased by a car. The race finishes once you're caught.

He likes his creative clients, most of whom range in age from 40 to 60, because they are smart, successful people who have little hands-on understanding of financial management, “so they need our help.”

“I try to live a little bit vicariously through them,” he says. “I love finance, but it can be boring.

I kind of like dealing with people in a creative field because it balances out what I do. It gives me access to a different world, an exciting world.”

While he’s “not necessarily what you would call a quintessential finance guy at heart,” Riley throws himself into learning, reading, and attending conferences. “I don’t do those things because I have to do them; I do them because I want to.”

He’s attended every Morningstar Investment Conference in London (11 in all) and plans to attend his first Chicago conference this year. He views Morningstar as a trusted source of information. He was also one of the first people in the U.K. to subscribe to Morningstar Advisor Workstation Office, which he still uses every day to build customized client reports, review documents, and read qualitative analyses. He also is able to back-test his model portfolios to show their hypothetical performance through periods of stress like the financial crisis.

“You’re not trying to show clients what the return is,” he says. Rather, he uses it to show what potential loss would look like. “You’re trying to show to clients what the loss on this type of investment portfolio could be through a pretty terrible period to allow them to come to terms with what their risk is on these types of investments.”

That fits with Riley’s investment philosophy. “We take a strategic asset-allocation approach to client money. We’re not trying to outperform markets and use complex trading strategies,” he says.

“We have clients who don’t understand investments; our job is to make sure that our clients meet their financial goals within the constructs of a financial plan that includes investments that they can genuinely understand and that is not going to blow up at some point.”

Alex Riley, director and advisor, Bunker Riley Financial Planning.

How he caught our eye: U.K. advisor who was an early convert to passive investing.

Career path: Studied financial economics at London Metropolitan University. Trained as a financial advisor at a London-based insurance company in 1995. After two years, he joined former colleagues' independent advisory firm. He purchased the firm with Justin Bunker in the mid-2000s. They rebranded the firm Bunker Riley in 2010.

Personal: Lives in South East London. Married with two kids, aged seven and nine. He has completed the New York and Berlin marathons and is an enthusiastic fixed-gear cyclist and amateur photographer. Likes to read and tries to get through one book per month.

Favorite funds: Vanguard's broad market index trackers for their extremely low-cost core exposure. DFA Emerging Markets Core Index in a sector where there are few standout funds with a cost-conscious approach. And for the right type of client, the iShares Edge MSCI Multifactor ETF.

This article originally appeared in the April/May 2018 issue of Morningstar magazine. To learn more about Morningstar magazine, please visit our corporate website.

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