Russell Davidson has made Glasgow-based Davidson Asset Management (DAM) a frontrunner in providing employer pension schemes to the hospitality sector.
What do hotel groups such as the Dorchester, Malmaison, Radisson Blu, Four Seasons and Hotel du Vin have in common? Beds, showers, complementary mints? All good and probably correct guesses, but what you might not know is all their corporate pension schemes are handled by Glasgow-based Davidson Asset Management (DAM).
The firm has carved out a desirable and trendy niche over the past 14 years, led by managing director Russell Davidson, who shamelessly plays up to the company acronym with the website URL, damgoodpensions.com. Clearly some big names agree.
RUSSELL DAVIDSON CV
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2003-present Davidson Asset Management, managing director
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2000-2003 Stewart Hastie & Co, IFA/consultant
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1996-1999 Scottish Amicable, account manager
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1995-1996 Clark Boyle Solicitors, IFA
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1995 Douglas Baillie, IFA
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1991-1995 Scottish Amicable, account manager
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1991 Bain Clarkson, IFA
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1987-1991 Lewis Wotherspoon insurance brokers, account manager
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1983-1987 Commercial Union Assurance, trainee and broker consultant
Accumulating clients
The hotel niche came about by chance. Having joined Glasgow-based Stewart Hastie & Co as a self-employed IFA in 2000, Davidson took on as much private client work he could. Mortgage, protection, pensions or, as Davidson bluntly puts it, ‘anything I could lay my hands on’.
From this work he developed a deeper knowledge of the stakeholder pension schemes all employers needed. An opportunity beckoned, or did it? ‘The [stakeholder] was a bit of a white elephant,’ he says, but after a year of exploration it led to the initial meeting with up-and-coming hotel business Malmaison. The group only had five hotels at the time, but had developed a strong reputation.
Having secured the Malmaison contract in 2001, the renowned Radisson group approached. Impressed with the work he had done for Malmaison, they asked him to assist as they opened a new hotel in central Glasgow. The relationship got off to a flying start, but Davidson cemented it with his handling of two death-in-service claims, when surviving dependents had been let down by their existing broker.
The claims had been outstanding for more than a year, but Davidson ensured they were settled for Radisson within a week. Radisson promptly became a client of Davidson’s and he began to work with the broader company, rather than just the Glasgow hotel.
Hotel perks
By 2003 Davidson realised it was time to go it alone, leaving Stewart Hastie & Co and founding DAM. With two key contracts secured, he continued to expand his network and work with a broader range of firms. In turn he advised staff at those businesses too.
‘In one way, people will say hospitality is not a great industry to get into,’ Davidson says, highlighting the low profit margins and high turnover of staff. Focusing on the 25% (his estimate) of staff who earn well above the industry average, and can be converted to private clients, is the sweet spot from a business perspective.
The nature of the sector has other perks. Davidson has found when employees do move jobs in the sector, they rarely leave the sector completely. His existing industry contacts have introduced him to new clients with similar requirements, and his reputation has opened doors. Davidson has benefited from working with hoteliers who do more than the minimum for their employees, which means higher pension contributions, a greater demand for face-to-face advice and protection arrangements from the staff.
FEES
For private clients DAM charges initial fees starting at 3% for clients investing or transferring up to £50,000. A rate of 2.5% is charged on the next £50,000, and 2% on the next £100,000. From this point, 1.5% is charged on all further assets. DAM’s ongoing fees are 0.5%. There is a minimum fee of £500 for implementation, and a minimum annual ongoing fee of £500.
DAM is able to offer its services at an hourly rate, with the amount relating to the member of staff handling the request. Davidson charges £200 per hour, while an adviser will cost £175 per hour. Paraplanners, senior administrators and junior administrators can be called upon for hourly rates of £100, £75 and £45 respectively. DAM also offers an additional services menu, with various services available at fixed or hourly rates.
For corporate schemes, DAM charges an administration fee per member of the group personal pension scheme, and an annual flat charge for issuance of a governance report and face-to-face review. Besides this, DAM charges separately for any ad hoc work agreed outside of the standard contract terms. Charges vary depending on complexity, and are tailored to each particular scheme.
DAM arranges worksite meetings, in which they discuss pension schemes and financial issues with staff who are enrolled. For this, DAM charges £750-£950 per day, dependent on the number of days booked.
Service standards
DAM has started to bulk up its private client offering and the proposition still centres on investments. The firm still receives income from the group risk element of the offering (private medical insurance, death in service, and critical illness cover). However, with the private client bank growing, Davidson says it is time to ramp up the level of service with cashflow modelling and holistic planning likely to be key features of future advice.
‘What we’ve provided our clients over the past 10 years has been sufficient for their life stage,’ he says. ‘Now they’ve got more funds under management, they’re a different age, and they’re earning more.’
Davidson wants to build a business culture that provides fair outcomes for clients. ‘Charging reasonable fees, being upfront with clients, and if they call, someone will pick up the phone and you don’t have to press 10 buttons to get through to whoever,’ he says. DAM’s decision not to charge initial fees to private clients who enter from an existing corporate book is an example of this ethos in action.
Davidson makes the point that quality service is paramount for his employer clients: what else would you expect in hospitality? ‘These people like service, and they like to speak to a person. They like face-to-face contact,’ he says.
DAM keeps it all in house and boasts little passive or active preference
DAM’s typical private client has between £200,000 and £500,000 to invest. The funds are split relatively evenly between active and passive, and the firm does not outsource. DAM had predominantly used active funds in previous years, but Davidson says tracker funds have been a useful and necessary addition as the business has grown.
On the private client side, platforms used by DAM include Scottish Widows and Aviva for pensions, and Fidelity FundsNetwork for individual investments. On the corporate side, DAM uses Scottish Widows, Aviva and Aegon, while FE Analytics is used for assessing risk tolerance.
DAM does not run model portfolios, and utilises asset allocation models while structuring portfolios. Private clients receive dedicated and bespoke portfolios, and this service is available for those on corporate schemes. Those on group personal pension schemes are typically invested in a default fund, which usually contains trackers.
Navigating obstacles
Since 2003, the firm has continued on an upward trajectory. The only forks in the road were the credit crunch and implementing the retail distribution review (RDR). The former caused stress, but ultimately had no major effect as none of DAM’s hotel clients went under. However, the lingering effect of this was felt when Davidson made the business model less dependent on commission, in anticipation of RDR, which banned commissions on group personal pensions. When faced with the prospect of paying more up front for advice, employers asked for a stripped down service: a choice that seemed more attractive in the recession and low hiring environment.
‘It was a transformational moment. We realised it was a challenge, and we’d either survive, expand and prosper, or we’d go backwards,’ Davidson says.
In 2012, the London office was opened. Initially this was run out of corporate benefits consultant Alex Keddie’s house, but a serviced office followed two years later and the firm now has a permanent office. The service as a whole continued to evolve and DAM increased its focus on private client work.
Another key moment was the introduction of auto-enrolment, although it did not create the boom in business expected for a firm focused on workplace pensions.
Wake-up call
Looking at the leadership of the firm, Davidson’s story is not as simple as ‘man finds a niche’. Having spent much of the 1980s and 1990s as a broker consultant in insurance, the Glaswegian harboured ambitions of becoming an IFA for some time. However, short stints at Bain Clarkson and Perth-based Douglas Baillie failed to pan out as expected, with promised client banks not materialising.
‘It made me more determined in some ways,’ Davidson says. ‘You recoil into the safe haven of a big company and realise there’s no security at all.’
Persistence is an admirable trait, and Davidson, a keen reader of Richard Branson’s books, believes the alternative was worse. He grimaces as he recalls the phone calls he used to receive on Christmas Eve while working for Scottish Amicable, which would inform him whether he still had a job. Davidson still sees those former colleagues, many of whom seem destined to live out an uninspired career in return for the final salary pension scheme that awaits. ‘Life’s too short. Why not create something?’ he says.
Staff numbers have not really changed as DAM has grown. ‘We’re lucky we have a lot of staff that are dedicated beyond the nine-to-five,’ Davidson says. ‘Mainly it’s been good recruiting specialised people, and we don’t micromanage our staff. We let them work flexibly.’
The long-term plan for DAM is to continue growing profitably and improve the length of its contracts. The firm’s income stalled last year, due to a loss of commission relating to the onset of the sunset clause, which saw a temporary blip in income as the business shifted its earnings model. Another ambition is to attract more clients from the Hoteliers’ Hotels Top 100 list (put together by online hotel magazine The Caterer), which highlights the top hotels in the UK in terms of quality and experience. DAM currently has 20% of the hotels on its books and hopes to see this number grow.
Davidson is heavily involved in the hospitality sector, and his work running the committee for Hospitality Industry Trust Scotland helps with this. The group provides scholarships and bursaries for those working in the sector in Scotland, and Davidson views it as his opportunity to give something back. After all, he enjoys working with his clients, and takes a lot of pleasure from staying in top hotels and experiencing new restaurants.
Happy hunting grounds
Davidson’s favourite hotels are The Pig in the New Forest, and the Coworth Park Dorchester Collection hotel in Ascot. He has a soft spot for the local feel to Glasgow’s Malmaison, and was married at the nearby Radisson Blu. His career trajectory may have been unplanned, but it shows what can be achieved by those willing to overcome setbacks and follow through on an opportunity.
Young IFAs might want to reflect on how Davidson has found success in an area he enjoys, with clients who share one of his passions. This is beneficial to adviser and client, and lends itself to a satisfying working career. Dare I say it, it is a DAM good idea.
FIVE TOP TIPS
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Treat everyone the way you expect to be treated.
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Manage your time properly as everything takes longer than expected.
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Build a team that works for each other.
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Try not to complicate things.
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Create a good working environment.