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Managed Portfolio Service

- Due Diligence Information

S t e v e T h o m p s o n D i p P F S , C e r t P F S ( D M ) , A C S I ( I O C )

I n t e r m e d i a r y S a l e s M a n a g e r

T : 0 7 9 6 6 2 7 6 3 6 0 E : s t e v e . t h o m p s o n @ c h a r l e s - s t a n l e y . c o . u k

mailto:[email protected]

Managed Portfolio Service - Due Diligence Information

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Contents Basic company information ........................................................................................................................ 4

Ownership and development ..................................................................................................................... 5

Funds under Management ......................................................................................................................... 5

Managed Portfolio Service ......................................................................................................................... 6

Fund Research Process ............................................................................................................................... 7

Portfolio construction and decision making process for Managed Portfolio Services ............................15

Performance .............................................................................................................................................18

Risk management and monitoring ...........................................................................................................19

Platforms ..................................................................................................................................................23

Investment expertise, people and culture ...............................................................................................24

Key Personnel ...........................................................................................................................................25

Communication ........................................................................................................................................27

Summary of fees and charges ..................................................................................................................28

Systems .....................................................................................................................................................29

Compliance ...............................................................................................................................................29

MiFID II .....................................................................................................................................................29

Treating customers fairly..........................................................................................................................30

Conflicts of interest ..................................................................................................................................30

Risk identification, avoidance and mitigation ..........................................................................................30

The advantages of choosing Charles Stanley ...........................................................................................31

Our Intermediary Sales Team ...................................................................................................................32


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Welcome to Charles Stanley

Dear Intermediary

I want to thank you for considering Charles Stanley.

Our focus on clients has endured since the foundation of Charles Stanley in 1792, a heritage that has helped to make us one of the UK’s leading Wealth Management firms. We have a commitment – better support for you, better investment solutions for your clients.

We understand the challenges that face financial advisers in today’s fast moving, interconnected world. Our commitment to you is to provide the investment support you need to be able to focus on what you do best: managing client relationships.

Please find our Managed Portfolio Service (MPS) Due Diligence document which sets out the various MPS services available, our investment process and rationale, the team behind the process and your potential relationship manager.

I hope this document provides you with a clear and transparent approach but should you have any queries or have any further questions then please don’t hesitate to get in touch with your contact at Charles Stanley.

Paul Abberley

Chief Executive


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Basic company information

Company name: Charles Stanley & Co. Limited Head and registered office: 55 Bishopsgate London EC2N 3AS T: 020 7739 8200

www.charles-stanley.co.uk

Financial Conduct Authority (FCA) No. 124412

http://www.charles-stanley.co.uk/


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Ownership and development

Charles Stanley is one of the UK’s leading independently-owned wealth management groups, with £23.8 billion of funds under management and administration as at 31st March 2018.

Charles Stanley has been providing services to financial advisers and their clients, for many years. To reflect the increasing importance of this sector to our business, in 2010 we established a specialist Intermediaries support division. This division works closely with financial advisers, ensuring that they are aware of the range of services we offer and how these services can be of mutual benefit. To complement the work of the division we have a dedicated intermediaries website, which allows for easier access to documents, research and news: www.charles-stanley.co.uk/intermediaries

Charles Stanley can trace its origins directly back to 1792 and was first registered as a member of the London Stock Exchange in 1852. Charles Stanley has grown significantly over the years, predominantly through acquisitions. The Group has developed its regional presence and currently has 21 offices across the UK. The Group has no international offices.

Charles Stanley & Co. Limited (“Charles Stanley”) is a wholly owned subsidiary of Charles Stanley Group PLC (the Group), a public company whose shares are listed on the London Stock Exchange (CAY).

A large percentage of shares in the Group are owned by the Directors and employees, giving a strong base of stakeholders, all working to deliver success through a wide range of bespoke high quality services.

Financial stability

Details of Charles Stanley’s financial stability, corporate governance report and capital structure may be found in our Report and Accounts. Copies of these documents, together with a five year summary, may be found online at: http://www.charles-stanley.co.uk/investor-relations

Funds under Management

The Asset Management division provides bespoke and pooled solutions to a range of clients, from institutional investors with multi-million pound portfolios to managing the assets of valued retail clients. As shown in the chart below the managed portfolios represent over 30% of the division’s assets under management.

http://www.charles-stanley.co.uk/intermediaries

http://www.charles-stanley.co.uk/investor-relations


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The Managed Portfolios have £405m funds under management as at 31st March 2018.

Charles Stanley Group PLC as a whole has £23.8bn funds under management and administration as at 31st March 2018.

Managed Portfolio Service Multi-Manager Portfolios – is a Managed Portfolio Service investing predominantly in actively Managed Funds and provides clients with managed exposure to third-party Fund Managers. The funds that the Multi-Manager Portfolios service invests in are identified through extensive research carried out by our dedicated team of investment managers and analysts. This Managed Portfolio Service comprises of five income strategies and five total return strategies, each managed within pre-determined volatility parameters, dependent on the level of risk the client is prepared to take. The minimum investment for this service is depends on the Platform used but is typically £1,000.

The MMP can therefore be attractive to clients who want access to a diverse, risk-managed portfolio of carefully selected funds across a wide range of Fund Managers.

Our Multi-Manager Portfolios have been independently assessed and rated by financial research and software company Defaqto as 5 Star.

Dynamic Passive Portfolios – These specialise in the use of low cost index-tracking and passive investment solutions to implement investment decisions.

Each portfolio in Charles Stanley’s Dynamic Passive range targets a specific ‘total return’, with our primary investment objective being to offer prospects of real growth whilst preserving capital in adverse markets. The five DT risk mapped model portfolios, in addition to being available across all major platforms, are compatible with tax wrappers such as ISAs, SIPPs and offshore bonds.

The Dynamic Passive team can also provide larger clients such as pension schemes with either a full investment management service or specialised advice on asset allocation or passive investment selection.


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PanDYNAMIC Portfolios - Charles Stanley Pan Asset specialises in asset allocation research using low cost index-tracking and passive investment solutions, such as Exchange Traded Funds (ETFs), to implement investment decisions. The Portfolios are available to Intermediaries on a wide range of wrap platforms (covered later in this document) and to Charles Stanley clients via their investment manager.

The PanDYNAMIC range has a five year performance record and uses a combination of ETFs and conventional funds with a total cost, including Pan Asset’s fee, of approximately 50bps.

Fund Research Process Our research is split monthly by asset class/region. This allows us to have a ‘deep dive’ on a sector and compare fund managers directly alongside one another at the same point in time.

Month Sector Review

January Alternatives

February US and Japan Equity

March European Equities

April Asian Equity

May Global Equity

June GEM Equity

July Property and Infrastructure

August Specialist

September Global Fixed Income

October

November UK Equities

December

The monthly reviews take in three distinct facets:

Firstly, we review all of the funds currently on the Preferred and Covered Lists to assess their ongoing suitability

Secondly, we seek out potential new funds, particularly in areas where we have identified a gap from a specific style/factor/market cap perspective. Each member of the team is invited to pitch at least one new idea. We are aiming to avoid confirmation bias.


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Thirdly, we have a collectives committee which was set up in 2016 to bring new ideas to our attention, with representation from all branches at CS. We are acutely aware that we don’t have the monopoly on good fund ideas. For a collectives Committee suggestion to be included in the review, the sponsor has to fill out an ‘Idea Generation’ form stating their assessment of the fund’s USP, three reasons why the fund should be on the Preferred List and finally, which incumbent it should replace.

Each of the funds that appear in the sector review are sent a DDQ which is completed and returned to us ahead of the meeting date. The DDQ contains a number of broad sections:

Organisation

Product Details

Investment Personnel

Investment Philosophy and Process

Risk Management

Reporting Capabilities

Performance

Fees

ESG

Other

We will conduct meetings lasting around one hour, in the month of our review cycle. New funds will often require multiple meetings with the manager and key investment personnel before investing. We need to meet these people in person and not a product specialist. We meet with around 350 fund managers each year but this number is entirely dependent on the amount of ideas generated.

Sector Review

Once we have met with all funds in a monthly review, we publish the findings.

Collectives Research Portal hosted by Morningstar

All our output is hosted on a Collectives Research Portal accessed via the intranet. Funds also are added and deleted by adding details on the Morningstar Integrated Web Tools Administration website.

Fund Selection Process – Active managers

When constructing our Preferred List, we try to cover as many bases as possible from a style perspective. It is not designed to reflect our own personal views on the most optimal investment style to harness. Elevation to the Preferred List involves a fund doing something better or different than incumbents. An identifiable ‘USP’ is sought. Otherwise, we run the risk of accumulating a number of independently solid ideas that over time can dilute the overall impact of the list.

When it comes to selecting funds, our starting point is to consider whether an actively managed fund is better than a passive alternative. This may be a market cap weighted ETF or a style/factor based vehicle which captures similar exposures to the actively managed fund, but for a lower cost. Given evidence suggests the vast majority of active funds fail to beat their benchmark, this question is vital to answer in the affirmative before recommending a fund.


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Investable universe

We are style and structure agnostic, meaning we do not have an inherent philosophy that favours one particular style or set of factors exposures. However, we have a number of strong preferences that we prefer to see in the fund managers we meet. These include:

Manager experience. We are big believers in the value of experience, particularly in distressed markets as this is when the most extreme valuation anomalies tend to present themselves. We favour managers that have run money through a full market cycle.

Adequate resource and understandable process. We need to be able to understand how the manager operates, and have confidence that he/she is sufficiently well resourced to follow their process

A focus on long term absolute returns. We don’t want our manager obsessing over short term relative performance versus a benchmark/peers.

Honesty. We want managers to be open when the make stock missteps and to recognise what is and isn’t in their control. This is crucial.

Appropriate fees. Excessive fees will quickly erode alpha. We don’t mind appropriately structured performance fees and will pay up for ‘quality’.

High active share. We don’t mind funds that temporarily exhibit low active share, but if it’s consistently low we take issue. Closet trackers are extremely easy to identify…

The right structure. Investment trusts are appropriate for illiquid asset classes, e.g. property, private equity. We are very wary of illiquid assets in open ended funds

Alignment with unitholders. Managers should invest in their own funds. We want remuneration aligned with long term performance, not short term asset gathering.

Our approach to fund selection is unashamedly qualitative as we believe measuring funds on quantitative factors only can lead to buying past performance.

We believe it is important to have a consistent and repeatable process for assessing funds and fund managers. This process needs to be applicable for all asset classes, and all fund types. We are making assessments of People, Process, Performance Risk & Style and Fees and Operational Information.

People

Investment Manager(s) – an assessment of experience and skill. The key consideration is ‘appropriateness’ and compatibility with the investment process.

How long has he/she been working at the firm, in their current role?

What is the level of analytical support available to the fund? Is the level of experience suitable? Are those analysts of high quality as far as we can assess? Is the team appropriately resourced for the investment process they apply?

How is the fund manager incentivised? Is remuneration aligned with the interests of the unitholders/shareholders?


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Ability of fund manager to not sacrifice investment principle for short-term investment performance is imperative. We look for strength of character to maintain your investment principles in times of stress for your investment approach

Fund managers have to be aligned with shareholders. We want them to have ‘skin in the game’

Process

What is the investment philosophy of the fund manager/group? What do they believe drives share price movements?

‘How and why does a stock/bond/asset enter and leave the fund?’ is the key question we aim to answer

How is the investible universe defined, filtered and analysed? How is value assessed?

How is a portfolio constructed? How are position sizes assessed? Are price targets set if appropriate? How are they reviewed? How and when will an asset be sold?

Is the process repeatable, and appropriate for the funds mandate? Is it consistent with the firm or manager’s stated investment philosophy? Is the process appropriate for current and future expected market conditions?

Does the fund have a consistently high active share?

We do not penalise funds or fund managers when the investment style is out of favour. However, we dislike style drift, and clear evidence of changing an approach after a period of poor returns simply to improve returns.

We do not need to see a 3-year track record with the current employer (industry standard is for 3-year track record with current employer, minimum £100m if assets). This is where we have an advantage and a chance to invest in smaller, less well known managers.

Performance, Risk and Style

How has the fund performed? Is it consistent with the stated or implied style of the manager or fund management group?

Does performance attribution analysis show performance is in line with what would be expected?

Do we think future performance is likely to be better or worse than history? Why?

What are the biggest risks to the fund? Is the asset growth dilutive to future returns? What is the concentration of ownership? Are suitable succession plans in place?

Minimise potential liquidity mismatches by matching the asset class to the structure. WE are wary of buying illiquid asset classes within daily dealing funds (open ended commercial property, life settlements, elements of fixed income)

If an investment trust, how does gearing affect the fund’s risk and return?

Fees and Operational Information

What are the fees (management, performance and all in OCF) of a fund? In a potentially lower return world we have a sharp focus on costs


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What are the other costs to investors?

We dislike paying for ‘beta’, and we look unfavourably on fee structures that rewards fund managers for good returns but fails to penalise them for bad returns. The fee structure must always be ‘appropriate’ for the manager, the style and the mandate.

The lower a fund’s Active Share, the higher the hurdle that the active manager must overcome with the portion of her portfolio that is different (i.e., the Active Share) to achieve relative outperformance. We are assessing the alignment of active share and fee.

Does the fund stock lend? If so how much of the revenue goes to the fund, and how much to the group/3rd parties

Does the fund have a dilution levy?

Are there any third party links to the fund or trust by connected parties that investors should be aware of?

If an investment trust, how is it geared, and at what cost/terms?

For each Fund that we meet, a research note is completed by the relevant analyst.

Fund Selection Process - Passive products (Index Funds and Exchange Traded Products)

Although the main process of active fund selection is followed, there are some differences in selection criteria for a passive product. There is no monitoring of an individual investment manager but rather the ETF/index fund provider is monitored along with the index being tracked.

Index-trackers are funds designed to replicate the performance of an index as closely as possible and may be either:

A conventional collective fund with an open-ended structure (ie passive index tracking fund)

An Exchange Traded Product (ETP) which are listed on stock exchanges but have the open-ended characteristics of a unit trust – these include exchange traded funds (ETFs) and exchange traded commodities (ETCs)

There are three basic types of tracking products:

Full physical replication – where all the underlying stocks in the index are owned

Optimised/Sampled physical replication– the optimisation/sampled strategy aims to provide a return comparable to that of the index being tracked. This strategy may be used when the underlying index is too broad to replicate where there are too many shares/bonds and/or where the underlying instruments being tracked may be difficult to purchase in the open market (illiquid). An ETF/fund using this strategy will typically hold only a subset of the shares included in the index

Synthetic replication – a total return swap is used, backed by possibly unrelated collateral (cash/bonds/equities) – this strategy tends to be for commodity related products or difficult to hold/trade equities (ie Indian or Vietnamese equities)

There are a number of selection criteria to look at before adding a product to our Preferred or Covered Passive Lists:

Only European domiciled passive products are added – predominately UCITS products for all equities and bonds although there are non-UCITS products for commodities (these type of


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products do not satisfy the UCITS criteria where they are only tracking one or two commodities).

Product selections range from straightforward market cap weighted products to style based/sector based products, including a range of GBP currency hedged products in both developed and emerging markets.

We tend to only include GBP share class where available and also opt for London Stock Exchange listed products where available.

Our preference is for ETPs which are physical replicated. Synthetic ETPs are added to the list occasionally (along with the swap charge if relevant) but only where there are no other available options.

There are no leveraged products on our list.

Passive products are not selected on cost alone, there are a number of details that need to be assessed before a product can be added to the lists. A product may have a low TER but not necessarily perform in line with a requisite product with a higher TER following the same index. In order to assess this, we look at a number of criteria:

Costs – OCF/TER (total expense ratios/ongoing costs).

Index criteria procedures and any proposed changes likely to affect the way the product is managed.

The number of Multiple Authorised Participants / Market Makers – these brokers create/redeem new units in ETPs and also offer bid/offer trading spreads/prices on stock exchanges

Bid/offer trading spreads are monitored to ensure they are in line with how the underlying holdings might also trade separately

Domicile of the passive product and the withholding tax treatment. Different domiciles may have different tax treaty agreements with other countries

Size of the assets under management in a product is important as a product that has been launched for some years with a small AUM may run the risk of closure

Synthetic replicated ETPs can also include a swap cost which is not included in the TER/OCF so these are clearly shown on the spreadsheet

Indices may be limited to large-cap stocks which can leave exposure to some mid and small cap companies out of reach so a clear look through of the index is essential. There are products added that track other indices, say small and mid-caps

Large tracking difference due to how the index calculates withholding tax, dividends or even rebalancing costs which is not included in the index calculations can show some wide differences between products so these need to be monitored. We generally receive these on a monthly or quarterly basis from providers

Whether the passive product provider website give all the details necessary to make an assessment of a product

Whether the passive product provider is accessible to any questions required and available for regular meetings

DDQs are currently requested annually


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Fund Summary and Our View

This section describes briefly what the product is intended to do, which index is being tracked what the performance has been and whether it has tracked the index correctly and if not why. It also includes what the average bid/offer trading spreads should be, what the trading turnover in the ETF or the index is on an annual basis. Income distribution or accumulation details and what generally the index yield is. The size of the AUM and the inception date of the product and lastly what lending revenue in % has been returned to the product over the past year from securities lending, if applicable. This is essentially what we describe but there may be more depending on what type of product is being tracked and how the index methodology is done.

Index

This section should describe the index/product methodology is. It will also give more details of what the sector/country weights currently are and a note of when the rebalance dates of the underlying index/product are.

Replication Method – lists how the passive product will track the underlying index either via physical full replication, optimisation/sampled, swap contracts.

Other Information – lists the custodian and the authorisation bodies involved in the passive product.

Fees and Operational

Currently includes the TER of the product and whether any stock lending is incorporated by the provider in the passive product. Includes identification codes for the passive product (ticker/sedol/SIN) and where the product is listed. Many ETFs have a different number of share classes (and identification details for each) depending on which currency share class it is and which European stock exchange it is listed on.

Covered List for a passive product

A full analysis note is not produced currently for the ETP Covered List although a brief description of each product is being added as a “note” for each product shown. Other details on this Covered List are as below:

ETP / passive fund name and brief description of what the product is designed to do

Whether it is an ETP or index fund

Benchmark methodology

Replication Method – physical / synthetic

TER/OCF

Whether the product is UCITS or non UCITS

Whether there are any charges for a synthetic product – these can be either positive or negative

AUM

Ticker

ISIN

Average bid/offer trading spreads


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Global Category asset class – fixed income/equities etc.

Index being tracked

Income or accumulating share class

Inception date of product

Where the product is classed as “Smart Beta” (selecting underlying holdings based on other criteria rather than just market cap) and the attributes

Share Class currency

Socially conscious – ESG/SRI selection criteria

Link to the product website

Passive products are not selected on cost alone, there are a number of details that need to be assessed before a product can be added to our investment lists. A product may look cheap with a low TER but not necessarily perform in line with another product which has a higher TER and follows the same index. In order to assess this, we look at a number of criteria as below some of which are:

Costs – OCF/TER (total expense ratios/ongoing costs)

Index and selection criteria methodology to ensure we are getting the exposure we are looking for

Tracking difference of the passive product versus the returns of the index it is tracking – a product should in general return the same as the index less the cost of TER/OCF

The number of Authorised Participants / Market Makers – these brokers create/redeem new units in ETPs and also offer bid/offer trading spreads/prices on stock exchanges

Bid/offer trading spreads are monitored to ensure they are in line with how the underlying holdings might also trade separately

Domicile of the passive product – in terms of withholding taxes etc. as different product domiciles may have different tax treaty agreements with other countries

Size of the assets under management in a product is important as a product that has been launched for some years with a small AUM runs the risk of closure

Summary

We are long term investors. We do not think it is possible to assess a manager for ‘skill’ over anything less than 3-5 year periods, ideally even longer.

We do not believe risk can be measured by one single statistic (volatility, VAR etc). Risk is multi-faceted, and will be different over time and for different fund managers and investors. We seek to understand what risk means to a fund manager, and how they manage it with the best interests of their underlying investors at heart.

We run quant screens but it isn’t formulaic. Fund selection often involves redeploying assets from underperforming to outperforming funds, driven in no small part by the industry’s obsession with recent performance history. Looking at short-term performance alone disassociates process from outcome and lures investors into strategies with a high probability of mean reversion. We keep up to speed with performance on a monthly basis. In terms of new idea generation, we will often be drawn to funds whose short-term performance has been challenged. We call it ‘buying good fund managers going through their own bear market’. We are always aware that it is an ‘Art not a science’


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Portfolio construction and decision making process for Managed Portfolio Services We offer your clients a Managed Portfolio designed to achieve their objectives, and/or the best possible return while keeping the overall level of risk within an acceptable range.

What do we believe is the best way to achieve this?

Investing globally, seeking attractive investments wherever they are

Diversifying widely and carefully to reduce risk

Focusing on investing in the right regions and the right types and mix of assets

Being vigilant, pro-actively monitoring changing market conditions and adapting the portfolio as necessary

Using a clear, consistent process – and implementing it with intelligence

We combine expert asset allocation with specialist research to identify global investment opportunities.

Why this may work for you and your clients

We build carefully constructed portfolios designed to achieve your or your client’s specific objectives that adhere to your preferences

We manage risk rigorously, weighing up each decision for the potential upside versus any possible downside

We actively seek to maintain the optimal mix of different assets

We monitor constantly – making sure that every portfolio and the investments in it remains fit for purpose


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Process Overview

1) Global Optimisation Process

The biggest driver of long-term investment returns is getting the overall asset allocation right.

The optimal long-term portfolio

Through a sophisticated and comprehensive process, we analyse and interpret a range of data sources looking as far ahead as we can. We build a Global Market Portfolio to derive expected returns for all asset classes based on what’s happened in the past. We adjust for our investment team’s outlook for the future, optimise for risk, and construct a range of optimal portfolios. They are designed to produce the optimal outcome for a variety of Risk Budgets.

Covering all countries

Our model analyses all countries: from the developed economies of the UK, US, Europe and Japan to the emerging markets of Latin America and Africa

Covering all asset types

Our model analyses all asset types including cash, fixed income, equities, hedge funds, property and other alternative assets.

Analysing the investible universe

Our Global Market Portfolio contains all investible assets across the world and is the starting place for our investment process. It tells us the long-term expected returns for all possible investment options. Based on decades of experience and detailed analysis of current market conditions, our investment team adjusts the Global Market Portfolio outputs to reflect our expectations for the coming five years. Armed with this information, we optimise to construct a series of risk-adjusted portfolios.

These global portfolios form our Strategic Asset Allocation. They are judged by our investment team to be the most effective portfolios for their Risk Budget. But just like the markets we invest in – our


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portfolios don’t stand still because market conditions are continually evolving. We constantly review and adjust them to meet new opportunities and challenges as they arise.

2) Dynamic alignment

Quantifying short-term factors

Financial markets are heavily influenced by short-term factors which our investment team are continually monitoring.

Political, economic and even natural events can all have a real impact on investments in the immediate term – even if the longer term outlook remains unaffected. Our experts review and analyse a wide range of global financial, economic data and political newsflow every day.

Tilting the strategic view

Using deep insight and experience our investment experts assess how short term, tactical, factors might impact longer term risk and return, and adjust the overall asset allocation accordingly.

Typically, these are not dramatic changes, but rather a process of ‘tilting’ our strategic view to align with the latest information. But if conditions change drastically our teams can react quickly to seek new opportunities or protect client portfolios.

3) Implementation

Choosing the right instruments

Once we’ve determined which assets should go into a portfolio, and in what proportions, we look to invest in that specific asset in the most efficient way possible.

The instruments we use may depend on the product that has been chosen and the client’s unique circumstances. But whatever the product, we will consider the most effective vehicle, whether that is an active fund, passive fund or a direct security. We take into account costs, the size and liquidity of each market and whether there is scope for active management to add additional value.

Expert individual fund selection

The quality of different instruments, even those that appear to be similar, can vary dramatically. Our research teams conduct detailed due diligence into all the investments we put into our clients’ portfolios. And our product teams work closely with our researchers to identify the most suitable option.

We aim to answer two main questions:

Is an active or passive approach best suited to that asset?

Which individual instrument with the chosen approach provides the best combination of price and future performance potential?

Our method combines both quantitative and qualitative elements so that decisions are not based solely on historic data. Investments within each portfolio are constantly monitored so that any that are under-performing or changing significantly can be replaced if necessary.


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4) A constantly evolving process

Each stage of our investment process combines powerful data-led quantitative modelling with a high level of individual intellect and expertise.

Our unique, proprietary process has been designed to be an effective way of combining a robust long term strategic view with short-term tactical initiatives.

Our process is constant. Not only are the outputs within each stage being constantly monitored, refined and adapted as financial markets move over time, but they are also informing the other stages.

This high level of pro-active and dynamic oversight is one of the key benefits of working with Charles Stanley Asset Management.

Retail or Institutional funds

Following the Financial Conduct Authority (FCA) guidance on RDR, from 6 April 2013 our Investment Managers and Research Team may only buy ‘clean’ fund classes; if a fund does not have a ‘clean’ class, it cannot be purchased.

Rebalancing

We do not have fixed rebalances but will rebalance at least six-monthly and we monitor deviations away from the target asset allocation and take action as needed. The Investment Strategy Committee meets every six weeks and changes to the asset allocation are carried out after these meetings.

Capital Gains Tax

We manage the portfolios at the model level, so we don’t factor capital gains tax into our portfolio decisions. The trading in each portfolio may use some of the capital gains tax allowance where relevant. This could result in a chargeable gain if the investor has gully applied his or her allowance elsewhere.

Performance Monthly Fund factsheets are available for each of the Managed Portfolios. Please ask your Charles Stanley representative for the latest version (details at the end of this document).

The Models are designed to have the potential to perform in different market conditions. As they are well diversified, multi-asset portfolios there are no particular circumstances in which we would expect them to under-perform any other multi-asset approach to investing.


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Risk management and monitoring Multi Manager, Dynamic Passive and Pan Dynamic Managed Portfolios have all been designed to cater for different levels of risk appetite and to maximise potential return given a certain level of risk according to our assessment of the investment environment.

The Models are monitored on a continual basis to ensure that they are managed to a risk budget. We use independently developed software (BITA Monitor) to calculate the overall risk of a portfolio by reference to the 12 year rolling volatility of each holding. Concentration risk and tracking errors are monitored to ensure models remain within the appropriate bands.

We are subscribers to Distribution Technology (DT). DT is a software provider and creator of Dynamic Planner® which provides risk profiling, financial planning and integrated front office technology. We have the availability to map the models of our managed portfolio services to this system which are risk profiled on a quarterly basis.

This information should not be considered as a defined or approved comparison, and the content should not be relied upon when making investment decisions. Figures are based on the latest asset allocation data provided by DT and Charles Stanley, as at February 2018. Please speak to your Charles Stanley representative for more detail on the methodology behind the BITA Risk system.


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DT rate Funds on a scale of 1 to 10, with 1 being cash and 10 being the highest risk. All our strategies fall into the range of 3 to 8 which encompasses the most common outcomes from the DT client profiling tool. The diagram below illustrates where the Charles Stanley portfolios fit:

Rating Portfolio

Multi Manager Dynamic Passive PanDYNAMIC

CS Multi

Manager TR1 CS Multi

Manager Inc1 Dynamic Passive

1 PanDYNAMIC

Defensive

CS Multi



2 PanDYNAMIC

Cautious Balanced

CS Multi



3

PanDYNAMIC Balanced &

Income

CS Multi



4 PanDYNAMIC

Moderate Growth

CS Multi



5 PanDYNAMIC

Growth

PanDYNAMIC

Aggressive


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Additionally, we are risk rated by Defaqto, providing a useful tool to help advisers match suitable multi-asset risk-bound funds with their clients’ mandates. The diagram below illustrates where the Charles Stanley portfolios fit:

Rating Portfolio

Multi Manager Dynamic Passive PanDYNAMIC

Dynamic Passive 1

PanDynamic

Defensive

CS Multi Manager TR1

CS Multi Manager Inc1

Dynamic Passive 2

PanDynamic

Cautious Balanced

CS Multi Manager TR2 Dynamic Passive

3

PanDynamic Balanced &

Income




Dynamic Passive 4

PanDynamic Moderate Growth



Dynamic Passive 5

PanDynamic Growth


PanDynamic Aggressive


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We are also risk mapped by FinaMetrica.

FinaMetrica uses a three factor risk profiling methodology as recommended for use by advisers. It's been designed to be of assistance to fund manager's field staff. A more detailed explanation can be found at http://www.riskprofiling.com/Downloads/QuickStart_Guide.pdf

Portfolio constraints

The Portfolios only invest in funds which offer daily dealing. We carry out operational due diligence monitoring a fund’s policy and procedures for liquidity management, best execution, trading costs, affiliate brokers, derivative strategies, compensation schemes etc.

Benchmarks

Model Benchmark

Dynamic Passive

Dynamic Passive Model 1 CPI

Dynamic Passive Model 2 CPI+1%




http://www.riskprofiling.com/Downloads/QuickStart_Guide.pdf


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PanDYNAMIC

PanDynamic Defensive 1 x £ Cash LIBOR

PanDynamic Cautious Balanced 1.25 x £ Cash LIBOR

PanDynamic Balanced 1.5 x £ Cash LIBOR

PanDynamic Moderate Growth 1.75 x £ Cash LIBOR

PanDynamic Growth 2 x £ Cash LIBOR

PanDynamic Aggressive 2.5 x £ Cash LIBOR

PanDynamic Income 1.5 x £ Cash LIBOR

Multi Manager

Multi Manager Income 1 CPI

Multi Manager Income 2 CPI+1%




Multi Manager Total Return 1 CPI

Multi Manager Total Return 2 CPI+1%




Platforms Both Multi Manager and Dynamic Passive ranges are available on the following platforms:

AEGON Nucleus

Ascentric Standard Life

Aviva Transact

Fusion Zurich

Novia


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Pan Dynamic range is available on the following:

Ascentric

Aviva

Novia

Nucleus

Standard Life

Transact

Investment expertise, people and culture Charles Stanley has a long history of providing investment advice across the widest range of asset classes and we would describe ourselves as experts in all stock-market related asset classes.

In addition to our own description of our expertise, we are pleased to advise of third party assessments.

Charles Stanley Dynamic Passive 2 Charles Stanley Dynamic Passive 3 Charles Stanley PanAsset 6

The independent ratings organization, Defaqto, looks at areas such as key features, benefits, terms and conditions of products and services.

As at June 2018, the Group had 271 CF30 qualified investment professionals.

The average length of service for our CF30’s is 10 and-a-half years.


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Key Personnel

Directors of Charles Stanley Group PLC and Charles Stanley & Co. Limited:

Governance & Oversight

Director Position

Paul Abberley CEO & Director

Sir David Howard Chairman & Non-Executive Director

Gary Teper Head of PCIM & Group Director

Ben Money-Coutts CFO & Director

Bridget Guerin Non-Executive Director

Andrew Didham Non-Executive Director

Hugh Grootenhuis Non-Executive Director

Marcia Campbell Non-Executive Director

Key investment strategists:

Christopher Aldous - Head of Asset Management Christopher has been involved in wealth management since joining Cazenove in 1981. He is a Fellow of the Chartered Institute for Securities and Investment. Christopher joined Charles Stanley as Managing Director of Pan Asset in 2013 and became Head of Distribution in January 2014 and Head of Asset Management in October 2015.

Jon Cunliffe - Chief Investment Officer Jon Cunliffe joined Charles Stanley in January 2016, having previously worked at Tesco Pensions Investments where he was head of fixed income and multi asset investment strategy. Jon also has over 27 years of industry experience which includes stints at Aberdeen Asset Management, Lombard Odier and Brown Shipley. This incorporated positions working within fixed income and currency markets, utilising unconstrained, absolute return and multi asset investment strategies.


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John Redwood - Chief Global Strategist John Redwood has held senior investment roles at Robert Fleming and NM Rothschild in the 1970s and 1980s. More recently he has been a Pension trustee, Investment Committee member for an Oxford College, Chairman of an investment company and a non-executive Director of a hedge fund and an Investment Trust. He holds the CISI level 6 qualification, the IMC and is a Distinguished Fellow of All Souls College Oxford.

Jane Bransgrove - Head of Portfolio Management & Model Portfolios Jane Bransgrove worked at Pan Asset for over 7 years prior to Charles Stanley’s acquisition, having previously been an investment manager at Sarasin Chiswell (formerly Cantrade) for more than 13 years with responsibility for private clients, charities and investment strategy implementation. She is an Associate member of the CFA Society of the UK, a Chartered Member of the Chartered Institute for Securities & Investment and holds a degree in Accounting and Financial Management rom Loughborough University.

Morgan Bocchietti – Associate Portfolio Manager Morgan joined Charles Stanley in January 2017, having graduated with a Bachelor degree in Finance from EDHEC Business School in France and a Master of Science in Investment Management from Cass Business School in London. He passed the CFA level 1 and is currently studying towards the CFA level 2.

Pippa Lyons – Associate Portfolio Manager Pippa joined Charles Stanley in February 2014, having graduated from the University of Birmingham with a degree in International Studies with Economics. She is an Associate member of the CISI, and holds the IMC, CFA Level I and is currently studying towards CFA Level II.

Quality of staff

As a service-focused organisation, the quality and competence of our staff is of the utmost importance. All investment staff have passed the required level of professional examinations in order to undertake their roles as Investment Manager or Investment Advisor.

To ensure that their expertise in and knowledge of legal and industry-specific developments remains up to date, all of our regulated staff also fulfil their mandatory Continuous Professional Development (CPD) regime and complete their specified amount of ongoing training each year. The Group also has its own permissions structure. This ensures that every client-facing person is signed off, on an annual basis, as competent to undertake specific types of business. Staff training is conducted regularly, all staff are reviewed annually. Training and competency forms part of the appraisal process.


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Communication The vast majority of our Managed Portfolio Service relationships will be via 3rd Party Platforms and therefore the platform will determine what communications are sent out and how frequently.

Documents/reports available for Adviser to use:

Portfolio Factsheet

Quarterly Reports

Managed Portfolio Service brochure

Monthly Market Commentary

Multi-Manager Total Return/Income Portfolio brochure

Dynamic Passive Portfolio brochure

Pan Dynamic Portfolio brochure

Portfolio Change Rational

Monthly Performance Reports

Sample Reasons Why documents

Investment Policy Statements (Active, Passive, Income)

Economic Updates

Monthly In-depth Performance Reports

FE Reports

Client Illustrations for adviser Due Diligence

How often are representatives of the firm available to meet?

Each adviser is given a designated contact (Intermediary Sales Manager) who can field questions daily. Meetings with Intermediary Sales Managers can be arranged based on individual requirements. Access to the portfolio managers is available on request.

What communication do you have with the client?

Our relationship is with the financial adviser as an agent of the client. We do not sell our portfolios directly to investors. We will provide the financial adviser with information that can be passed onto the client, but Charles Stanley does not engage with the client directly. All individual reporting and suitability will be done by the financial adviser or the platform. It is the responsibility of the adviser to ensure the investor is aware of the responsibility of each party.

Data Protection

Charles Stanley complies with the General Data Protection Regulation (GDPR) and the Data Protection Act 2018. Please also refer to: http://www.charles-stanley.co.uk/privacy-policy/

http://www.charles-stanley.co.uk/privacy-policy/


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Summary of fees and charges Model AMC % OCF % Total %

Dynamic Passive

Dynamic Passive Model 1 0.25 incl. VAT 0.15 0.40





PanDynamic

PanDynamic Defensive 0.25 incl. VAT 0.20 0.45

PanDynamic Cautious Balanced 0.25 incl. VAT 0.23 0.48

PanDynamic Balanced 0.25 incl. VAT 0.26 0.51

PanDynamic Moderate Growth 0.25 incl. VAT 0.26 0.51

PanDynamic Growth 0.25 incl. VAT 0.29 0.54

PanDynamic Aggressive 0.25 incl. VAT 0.30 0.55

PanDynamic Income 0.25 incl. VAT 0.29 0.54

Multi Manager

Multi Manager Income 1 0.36 incl. VAT 0.58 0.94





Multi Manager Total Return 1 0.36 incl. VAT 0.57 0.93





*As at June 2018

Our fees are the same across all the different platforms and wrappers.


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Systems We use a variety of different portfolio monitoring tools including Morningstar, APX and BitaRisk. The models are monitored on a continual basis to ensure that they are within targeted risk levels. We have links to Intelliflo and IRESS Adviser Office set up.

Compliance As required of a firm authorised and regulated by the FCA, the Group has invested substantial resources in its systems and controls along with comprehensive compliance procedures. The company has a dedicated Compliance Department of over 20 staff advising and monitoring the Group, including teams focused on Complaints, Financial Crime, Monitoring and Advisory.

Regular Compliance reviews are undertaken within the firm. We adopt a risk-based schedule of routine and thematic monitoring and surveillance, which consists of periodic and ad-hoc reviews. Any issues identified are escalated as required, reported in standard management information and assigned a target date for remediation, which is followed up by the Compliance Department.

Compliance oversees the ongoing review of Group policies, and supports the Policy Review Committee.

MiFID II Depreciation reporting

Where mandates are managed on an investment platform, we will not have all the information required for a depreciation report, because only the platform will know the actual performance of each actual portfolio, when taking into account the proportion of each held in cash, as well as differences in investment timings, transfers, allocations, and other adjustments, including for other mandates that may be held within the same portfolio. This information will not be available to Charles Stanley and, as a result, we believe that platforms are best placed to issue these notices. We are engaged with them to ensure that this meets with their own plans for MiFID II.

Costs & charges disclosures

Under MiFID II, there will be two principal changes to our client reports:

At client on-boarding we will provide an illustration of total annual costs. Intermediaries will be able to incorporate this into their own proposals.

Our standard periodic investment report, which is provided quarterly, includes a summary of total annual charges - our own service charges and any product charges, plus other costs such as stamp duty. As with all our reports, these would be sent to intermediaries, although copy reports direct to clients can also be provided on request.

Intermediaries and LEIs

Where a Financial Adviser has client accounts with Charles Stanley on an ‘Agent as Client’ basis, we require the LEI of the Financial Adviser’s firm. This will be transaction reported to the FCA in place of the details of the underlying client, which has the advantage that your clients do not need to obtain


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separate LEIs themselves. This may differ at other DFM firms, depending on whether they have direct contractual relationships with the underlying investor.

Financial Advisers are responsible for obtaining their firms’ LEIs and Charles Stanley will be unlikely to be able to assist in obtaining them. For accounts introduced to Charles Stanley where we have a direct contractual relationship with the mutual client, we do not require the LEI of the Financial Adviser’s firm. In such instances, we will require and report the identifiers for the client, be the client a natural person (the NPI, plus full first name, surname and date of birth) or a Trust or other entity (the LEI).

Charles Stanley’s LEI

Should you require it, the LEI for Charles Stanley & Co Limited is: 213800R62RPGBBLQRT21.

Compliance of the funds in which the portfolios are invested

Charles Stanley will only monitor and control the portfolios. We will not monitor or control the external funds held within the portfolios.

Treating customers fairly The Group is committed to ensuring that the principles of Treating Customers Fairly are applied to all parts of the business and it recognises that fair treatment of customers is about adding value to its service by protecting the interests of the customers and meeting, as far as possible, the needs of each customer by offering a transparent, efficient and professional service.

Conflicts of interest The Group maintains and operates effective organisation and administrative arrangements with a view to taking all appropriate steps designed to prevent or manage conflicts of interest from constituting or giving rise to a risk of damage to the interests of our clients. The Group’s staff are required to act in the best interests of each individual client and to comply with a policy of independence when acting on behalf of clients and advisers.

Risk identification, avoidance and mitigation The firm’s Internal Audit and Compliance Departments take a proactive approach to reviewing procedures and processes in order to identify potential risks and establish mechanisms for avoidance or mitigation.

Our Compliance Department carries out a risk-based rolling programme of routine and thematic monitoring and surveillance, including visits to regional offices and London-based teams of investment professionals to conduct reviews.

Staff across the Group are also actively encouraged to identify any risks and/or efficiencies that can be effected and report these through an on-line interactive suggestions forum. All suggestions are reviewed by business operations staff and allocated to various departments across the firm to action as necessary.

The Group has comprehensive business continuity plans and facilities, including continuous off-site back-up of systems to a dedicated disaster recovery site in Essex (outside the M25).


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The advantages of choosing Charles Stanley We believe that the advantages of Charles Stanley over our competitors are:

Active management

Proprietary and well-proven dynamic asset allocation approach

Deep experience of researching and using passives

Experienced asset management team

Depth and strength of research resources

Efficient administration provided by our own operations teams

The attraction of using a well-established and independently-owned organisation (founded over 200 years ago)

We are independently-owned and unlike many of our competitors, not part of a bank or life company.

There is a level of staff continuity that translates into the delivery of personal service by staff with a good understanding of clients’ needs.

For further information and forms, please visit our website dedicated to financial advisers at: https://www.charles-stanley.co.uk/professional-adviser-services#

https://www.charles-stanley.co.uk/professional-adviser-services


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Our Intermediary Sales Team

Steve Hill – Head of Intermediary Sales

T: 07867 908 638

E: [email protected]

Becky Hancock – Intermediary Business Manager

T: 0207 149 6416


Chetan Mistry – Greater London

T: 07989 704 063


Darrell Dymond – West and Wales

T: 07989 704 041


Keith Arnold – East Anglia

T: 07415 427 232


Mark Duggan – South

T: 07989 704 022


Nick Minto – North

T: 07989 704 039


Simon Lloyd – South West

T: 07583 013 221


Steve Thompson – Scotland & NI

T: 07966 276 360


Sarita Kattoju – Midlands

T: 0797 0127 064















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Regional Presence


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Direct Clients The above mentioned services can be delivered on a ‘Direct’ basis, where we report to the client and copy-in their financial adviser. For direct accounts we have an investment minimum of £150,000 and for this service we will be able to provide regular updates regarding our managed portfolio service including market and portfolio commentary, asset allocation and performance information on a quarterly basis. We are also happy to discuss regular meetings.

This document is issued by Charles Stanley & Co. Limited

The information given in this document is based upon sources we believe to be reliable, but its accuracy cannot be guaranteed. The information does not constitute advice or a personal recommendation and you are recommended to seek advice concerning suitability from your investment adviser. Charles Stanley & Co. Limited and connected companies, their directors, members, employees and members of their families may have positions in the securities mentioned. Tax reliefs are those currently applying and the levels and bases of taxation can change. Investors should be aware that past performance is not a guide to the future and that the price of shares and other investments, and the income derived from them, may fall as well as rise and the amount realised may be less than their original sum.

Charles Stanley is a trading name of Charles Stanley & Co. Limited, which is authorised and regulated by the Financial Conduct Authority. A member of the London Stock Exchange and a wholly owned subsidiary of Charles Stanley Group PLC.

Charles Stanley & Co. Limited is registered in England No. 1903304. Registered office: 55 Bishopsgate, London, EC2N 3AS

LEI Codes:

CHARLES STANLEY & CO. LIMITED - 213800R62RPGBBLQRT21

CHARLES STANLEY GROUP PLC - 213800LBSEGKE5MCYC90

ROCK (NOMINEES) LIMITED - 21380068ITD1VFHVDD24

EXEMPT NOMINEES LTD - 213800RH7BSD6EI1Q917

Details of Charles Stanley group companies and their regulators (where applicable) can be found at this URL: http://www.charles-stanley.co.uk/contact-us/disclosure

http://www.charles-stanley.co.uk/contact-us/disclosure/