Former Income AM director launches fixed income advisory

A former Income Asset Management executive director has launched Ancora Fixed Income Advisory (AFIA) for high-net-worth (HNW) clients targeting the defensive asset class.

After a two-year stint at Income Asset Management, and close to 30 years' experience across New Zealand, the UK and Australia, Darryl Bruce has decided to open his own shop in Perth serving HNW investors, with a focus on changing the performance fee model.

Bruce believes charging performance fees is creating an "asymmetric" environment where an adviser or fund manager is rewarded for outperformance, "but in no way do they bear any of the damage of underperformance."

He understands the fee-for-service model is prevalent across much of the local wealth management sector, but the story comes a little different in fixed income and, hence, does not apply a performance fee on his offering.

"I am not convinced that models based around transactional volumes and/or ones that charge performance fees consistently put investors first," Bruce said.

"My philosophy around fixed income investing is to buy assets where you are being well paid for the risk and hold on to them. I realise that doesn't sound revolutionary however it is inconsistent with a model that requires consistent turnover.

"Whilst fixed income portfolios do require careful oversight, if you have a well-constructed portfolio, very often, the best thing to do is sit back and collect the income.

"My model, whereby I charge an annual management fee, doesn't unduly incentivise me to trade and allows me to do nothing when it is the right thing to do for clients."

Bruce also believes the fixed income market has grown significantly recently, with new issuance reaching over $300 billion in the past financial year. It also comes with better accessibility with lower barriers to invest.

"Historically, to access [the fixed income market], the minimum individual parcel size was half a million dollars... If you wanted to have a portfolio of 10 or 20 bonds, you needed to allocate $5 million or $10 million, which most people cannot afford," he said.

"If you think of fixed income comprising 20% to 30% of an overall portfolio, your market size was very small. Groups like FIIG Securities and Income Asset Management that I worked for - in no way would I want to be seen as being critical of either of them - they've been instrumental in opening the market, reducing the parcel size.

"You can invest from a $10,000 parcel and it just makes it a lot more achievable to have a 10 or 20 bond portfolio... That's why [the sector has] been overlooked historically, but it is starting to change."

Bruce also highlighted despite the lower risk appetite from investors due to higher inflation and volatility, many local investors would "like to have a nibble" at high-yielding bonds. Still, it depends on their ability to wear losses.

"With a decent-sized portfolio, if it's a small position within the portfolio, people can wear those losses. Some people are very aware that high-yield bonds are riskier, and that other people tend to look through the lens of 'well, if it's bond, it's got to be safe', and I try to talk them out of that mentality," he said.

Bruce said he is now focused on serving his existing client base and the expansion of his business footprint will follow in due course but asserted he is no "megalomaniac" to rapidly grow his presence across the country.

AFIA is operating as a corporate authorised representative under Alethia Partners' Australian financial services licence.

Bruce was the executive director of capital markets at Income Asset Management for over two years and spent close to a decade stationed at FIIG Securities in Perth, as well as Brown Shipley, Credit Suisse and UDC Finance across the UK and New Zealand earlier in his career.