Comment: Careful handling can keep investments safe

It can masquerade as a personalised service, but it is nothing of the kind. The result is that, over time, people discover they have been sold inappropriate products or encouraged to buy a product for which they had no need. The more that sales targets are met at the branches, the greater the illusion that a particular product or service is popular or meeting public demand.

Just as dangerously misleading, from the company’s point of view, is the illusion that incentive-driven marketing of this sort in the branches has anything to do with personal service. Banks, as we have all learnt to our cost, were the worst offenders in mis-selling. But they were by no means alone.

Accompanying this was a belief that traditional companies could not survive on their own; that merger and consolidation were unavoidable trends in finance and that the world had just better get used to multi-purpose banks. This business model would sweep all before it. There seemed no place for the small, old-fashioned, traditional brokerage or financial advisory firm.

And so it proved until HBOS collapsed into the arms of Lloyds Bank, and Royal Bank of Scotland collapsed alongside. Both banks have recently faced hefty fines for the mis-selling of products, including payment protection insurance.

I set this out by way of a mea culpa for not acknowledging as emphatically as  I should have done those smaller firms in the financial sector in Scotland that have maintained a traditional service and that have continued to flourish by doing so.

One such is Haddington-based McInroy & Wood. It has kept such a low profile you would be forgiven for thinking it a firm of timber merchants. And, when hearing that it is in fact a firm of personal investment managers, you would not be alone in assuming that this was some tiny sideline for a firm of accountants.

In fact, McInroy & Wood is one of the leading private investment managers in Scotland. It has funds under management in excess of £720 million. It owns and manages four unit trusts listed in The Scotsman. And these funds have been turning in a consistently superior performance.

You will not see in the firm’s introductory brochure one of those cliché-ridden lookalike “mission statements” that have spread like hideous algae across the corporate world. But it has several key principles of which it is rightly proud: genuine independence; concentration on private clients; personal attention and regard for reputation and performance.

It offers individual portfolio management services – at 1 per cent plus VAT – and pooled portfolio services. The two most popular unit trusts are the income fund – yielding 3.1 per cent – and the balanced fund. Both have alternated between first- and second-quartile performance over the past year. These funds are ranked third and fifth respectively in their IMA categories by return on investment over ten years.

Not that the other two funds have been laggards: the smaller companies fund has achieved an annualised return after fees over the past ten years of 13 per cent and the emerging markets fund 11.3 per cent over five years.

I was accorded a rare interview last week with the firm’s chief executive, Tim Wood, and co-founder Victor Wood. As one might expect, Victor places considerable store not only on length of experience in financial markets – he has more than 45 years – but also an ability to build relationships of confidence with individual investors.

Indeed, at the heart of this firm is a culture derived from traditional Scottish investment trust management: applying professional competence to global investment undertaken directly and managing clients’ money as if it were one’s own.

The funds each have an average of 60 to 70 holdings, this figure falling to 45-50 for the smaller companies fund. There is low portfolio turnover and the average length of a shareholding in the funds is six years. Capital preservation is the principal goal.

“Over the past 30 years,” Victor tells me, proffering from the files a sheaf of elegantly written and impressively perspicacious notes to clients, “we have got the major inflection points right: the slump in bonds in the 80s, the tech boom and bust in the 90s and the bank bust.”

The result has been superior above-average performance over long-term periods and a steady increase in clients.

He adds: “You would be surprised at the number of senior people in the financial sector who pursue high-risk strategies in their professional jobs but who come to us wanting the opposite – a cautious approach and emphasis on capital protection.”

McInroy & Wood can fairly lay claim to being an absolutely typical Scottish financial business of the classic kind; unostentatious, committed to personal service and discreet to the point of invisibility. The Rolls-Royce may be kept under a tarpaulin. But the engine under the bonnet turns in a superior performance.