News, Insights
"A conflict of interest occurs when an entity or individual becomes unreliable because of a clash between personal (or self-serving) interests and professional duties or responsibilities. Such a conflict occurs when a company or person has a vested interest—such as money, status, knowledge, relationships, or reputation—which puts into question whether their actions, judgment, and/or decision-making can be unbiased." - Investopedia
Almost every business that achieves any degree of scale or complexity is exposed to perceived or actual conflicts of interests that must be managed to preserve the integrity of their services. A conflict of interest fundamentally undermines the independence of the advice or service provided which, depending on what that advice or service is, could render it invalid, misleading and/or biased. In short, being conflicted is not a positive (and sometimes untenable) position to provide advice or services from.
At Enhance we take conflicts of interest very seriously. Our Monitoring, Portfolio and Consultancy services are all forms of independent investment oversight and it is the independent nature of our proposition - in assessing and selecting investment solutions - that is most attractive and valuable to our fiduciary clients. We are entrusted to provide wholly impartial investment insights and judgement, so active and successful management of conflicts of interests within our business is paramount.
In recent years we have refocussed the Enhance proposition around three core services, which we underpin with proprietary technology and a talented team of investment professionals. Whilst strategically simplifying and specialising our business, we have proactively sought to address potential conflicts of interest so that we can move forward and service our growing client base with the utmost integrity. Resultantly we believe that we have a very clear, transparent and unconflicted investment oversight offering.
There are two areas of our business that our clients and prospects typically seek clarification on potential conflicts of interest when undertaking due diligence on our firm. A summary note on each as follows:
COMPANY OWNERSHIP
Enhance is a privately owned Jersey registered company with the majority of issued share capital owned by staff. We have Private Equity backing through the Financial Services Opportunities Investment Fund Ltd (FSOIFL) which is a Closed Ended Investment Vehicle listed on The International Stock Exchange (TISE). The Fund has the has the investment objective of delivering long term capital growth and income through a diversified portfolio of investments principally in financial services businesses - Enhance is one of a handful of investee companies all of which have operations in the Crown Dependencies. The Fund is managed by Ravenscroft Specialist Fund Management Ltd, which forms part of the corporate finance arm of Ravenscroft Group.
FSOIFL have a minority ownership stake in Enhance with single seat representation on our board for governance purposes. It’s investment in our business has facilitated owner manager succession planning, Enhance’s ongoing investment into technology and people and increased the robustness of our operations and governance by being held to account by a professional investor. Whilst FSOIFL is a listed vehicle subject to the independent checks of TISE, Ravenscroft’s appointment as Manager and their broader activities as a Stockbroker and Wealth Manager gives rise to a potential conflict of interest at Enhance – being how can we objectively and impartially assess and appoint Ravenscroft investment solutions on behalf of our fiduciary clients i.e. will Enhance be biased in the provision of our monitoring and advisory activities.
The answer to this question is a very firm no. Our Monitoring service applies the same analytical framework against all investment providers using review parameters directed by our fiduciary clients. Our output is pre-agreed and standardised, including how we calculate our Enhance Rating, taking into account the investment policy and/or management agreement that each client has in place with the investment provider to deliver a client specific assessment. Put simply, our process (which is largely quantitative in nature) provides no latitude to favour one investment provider over another and the transparency provided to fiduciaries through our additional Management Information Reports and Client Portal clearly highlights positive and negative investment provider outliers from a returns and holdings based perspective.
Through our advisory services, Portfolio and Consultancy, our provider selection activities are purposefully governed by an independently chaired Investment Committee. All approved investment solutions must pass our rigorous ‘5P’ research framework (Performance, Process, People, Price, Planet) and secure a majority committee vote including the Chair, who has the power of veto. This process, coupled with the fact that our clients pay us to source best of breed investment solutions and will not tolerate a substandard or non-performant outcome, ensures that we apply an independent approach. Ravenscroft is an approved investment provider on both our Portfolio and Consultancy white lists and this is based purely on merit, with the potential conflict flagged to clients that we recommend investing with them.
FEE INCOME
Conflicts of interest are at their most powerful when there is a commercial incentive in play to favour one outcome over another. Such a commercial conflict has the ability to completely undermine the independence and integrity of a business, which would be particularly damaging for Enhance as a core component of our value proposition to clients is the provision of independent, unconflicted investment monitoring and advice. For this reason we have prioritised removing any potential conflicts of interest that may arise from the fee income generated by our group of companies. We are pleased to say that 100% of our group revenue is now derived from our fiduciary clients, with no income or services whatsoever provided to the investment management community.
Historically Enhance provided a range of services to investment managers, who turned to us for the insights we are able to provide by virtue of the helicopter perspective we enjoy of the investment industry at large. This was principally in the form of a paid subscription to a peer grouping initiative called MPI that we managed on behalf of STEP as a free member service. In return for their subscription fee, investment managers received quarterly peer grouping analysis of their portfolios versus a cross-section of the discretionary management community offering similar strategies to fiduciary clients. This analysis and the associated marketing material that it created enabled investment managers to demonstrate their performance and commitment to transparency to prospective investors.
Whilst Enhance’s primary objective was to deliver a useful and free STEP member service to the fiduciaries that we also serve through our Monitoring, Portfolio and Consultancy services, it was not economically viable for us to deliver MPI without receiving some compensation for the resource it required and hence a subscription model was adopted. As subscriptions to MPI grew (there are now c50 participating investment managers), the subscription income generated became a greater share of our group’s revenue and the associated requirements of the investment managers placed an increasing demand on our business. This dynamic begged an obvious question as to whether or not Enhance would favour subscribing MPI investment managers in our monitoring and advice activities to protect the MPI revenue stream.
Notwithstanding that MPI operated as a separate registered company with dedicated staff and appropriate Chinese walls, we felt that this conflict of interest could be perceived to compromise the independence and integrity of our core services. For this reason, we sold MPI in 2020 to a consortium of investors with the industry expertise and financial means to develop this useful service for STEP members separately. We continue to refer to MPI research and use the peer group indices in our client reporting where appropriate, but have no commercial interest to do so. MPI is now a useful tool in our analytical armoury, in the same way as Morningstar, Lipper, Refinitiv and Bloomberg are deployed to deliver the best independent monitoring and advice possible to our clients.
The removal of this conflict of interest sets us apart from many of our main competitors, who either operate similar peer grouping initiatives for profit or provide one or more services to the investment management community. We believe that this exemplifies the integrity of our service proposition and business strategy in a way that makes Enhance an uncompromised service provider partner for global fiduciaries seeking to outsource various forms of investment oversight. We would suggest that ascertaining the source of income is a key due diligence question that fiduciaries ask of any potential investment services provider before engaging them to provide a monitoring or advice activity for their clients.
As we head into 2022 Enhance is very proud to have strong financial backing from a listed Private Equity partner and to have a business that we can confidently claim to be truly independent and operating in the very best interest of our clients. Should any conflicts of interest arise in our business in future, we expect to manage and remove those in a similar way to preserve our integrity and differentiate us from the crowd. We’d naturally be very happy to discuss our business in more detail with existing and prospective clients and have experience of satisfying the most rigorous due diligence requirements of leading fiduciary businesses. Our Client Services Director. Richard Sayers, would be pleased to engage with you:
