February 24, 2018

Jesmond Mizzi Financial Advisors (JMFA) is aiming to hit the €100 million mark within their Merill SICAV within the next 18 months- the company acts as investment advisor and promoter of the SICAV. The company, which is one of Malta’s most well-known and recognisable financial service providers, has raised  over €63 million worth of assets under management in a very short time since the launch of the Merill funds, and is hoping to achieve its target of €100m in order to expand its service offering and be able to market its products internationally.

The company was set up by Jesmond Mizzi – who is both the name and the face of his company, thanks to his visibility in the local media – 15 years ago, along with two other partners, John Catania and Dr Mark Azzopardi. “We applied for a license and Jesmond Mizzi Financial Services, as it was then known, was licensed by the Malta Financial Service Authority (MFSA) in 2002,” says Mr Mizzi. “A few years after, we acquired the  client base of a very well-established stock broker, Paul Azzopardi, and that meant that within three years, our client base increased substantially. Later on, Atlas Investments expressed their interest in merging their investment arm with our company. Atlas Investments  which was set up in 1996     was managed by Jean Gaffiero, who still forms part of the team today.  For a time after the merger, the company was called Atlas JMFS, which linked our brand with a more well-known household name. They had an investment arm and wanted to grow it – we saw it as a progression to gain a bigger client base, allowing us to provide a more holistic service to our clients. We felt that with Atlas, that could give us more exposure in the market and exposure with their insurance client base.”

“We were always great believers in the fund business – we set up strong relationships with respectable fund houses such as Janus Henderson, Legg Mason, and Pictet, which allowed us to provide clients with the best possible products. We sought out relationships where we felt we could add something to that partnership, rather than just buying funds from these people. We did not stop there – we’ve worked with Invesco and Kames; we have investments with Fidelity, with Schroders, with Franklin Templeton, Lloyds and more. At one point, 80 per cent of our revenue came from fund business. Then, the market changed. For a time, people did not want to buy funds, owing to the conditions of the market during that period; therefore, we had to change the business model. We came up with more direct investments, creating discretionary portfolios, and introducing more active management of the client business, but always trying to convince clients that it’s in their best interest to invest in funds. We have always believed – and still do – that funds reduce the risk that investors take. Investors can find the fund that best fits their needs, and even if you have small amounts to invest, you can easily diversify via the fund structure.”

In keeping with the company’s own confidence in the efficiency and safety of funds, JMFA decided that one of the best ways to further the business would be to create its own SICAV – investment funds with variable capital. “The first fund was created in 2016, where it was more of a total return fund, which I believe is a good core holding that every client should hold – a mix of investment grade bonds, local bonds and equities,” says Mr Mizzi. “That was set up with seed capital from Atlas. We kicked off at €14 million – today it’s worth more than €30 million. Last April, we launched two new sub-funds, a high-income fund and an equity fund. All three funds pay income, which is something that Maltese investors seek. Whereas the first fund produced a lower income, because it was total return, through the high-income fund we widened the exposure we can have to third-party funds. With the total return, the maximum we can invest in third parties is 35 per cent – in the latest, we can invest up to 60 per cent. We are always seeking to diversify the products we can offer our clients.”

“Our latest development has been strengthening the asset management team – we recently employed a chief investment officer who has more than 18 years’ international experience. The company is now looking to go to new places; our client base has always been predominantly local, and with the development of our new SICAV, we feel that we will be better placed to try and internationalise the company by joining forces with overseas companies, to offer our services and products overseas. Pensions are also in our sight in the near future – our funds will be part of a pension product that will be boosted by the incentives on offer for both the employee and employer, which we hope to offer to companies.”

The company has also made major headway in acting as stockbrokers for other institutions and taking companies to market. “We are the sponsoring  stockbroker of Bank of Valletta and have been jointly  involved with BOV in their recent rights issue,  and  their more recent bond issues. We have also acted as stockbrokers for Mediterranean Bank’s (now MeDirect) bond issues for the last number of years. We have also been involved in PG plc’s IPO, which was a very big success for the local market – we hadn’t had an equity issue for a number of years. We have also taken an active role in the Prospects  MTF business; although we are not corporate advisors, we have been assisting them in effectively selling or advising clients to buy the bonds which are being issued under Prospects. We are seeing huge demand both locally and internationally for Prospects.”

JMFA’s investors are very diverse, ranging from institutional and corporate clients, to high-net-worth and wealth management clients, to retail clients. Mr Mizzi voices his concerns that with the changes in regulations that will come as a result of the new MiFID II rules, and its accompanying regulation (MIFID II) will make it challenging for companies to service retail clients at the lowest cost for them while ensuring that it’s feasible for the company. “What MiFID will offer is better client protection, such as more visibility on fees and ongoing assessment of their risk profile. However, measures such as providing more regular information, implementing anti-money-laundering directives, enforcing data protection – all this comes at a cost. If a big client is generating more income for the company, the firm will have to decide how much time it can afford to spend on its smaller clients. What the European authorities have set out to do with MiFID may backfire, ending up with smaller clients not being serviced as well as they could be. That is a big challenge for the industry.”

However, Mr Mizzi adds that thanks to the MiFID II rules’ emphasis on constant updates and information, no investor will ever be able to claim ignorance when the market takes a tumble. “‘I didn’t know’ is something that you only ever hear when the markets are doing badly. The industry always wants people to thrive, and that is why some aspects of MiFID are so strong. People have to understand what they want from their investment, what risk they want to take, and that the return needs to be adjusted to those risks. You can’t have very low-risk and very high income – the two don’t match. If someone promises you that, it just won’t happen.”

Honesty and the personal touch are two elements that are very important to JMFA. “Our staff has very low turnover rate, so there’s a lot of stability for our clients in terms of who they communicate with. Although today I don’t meet as many clients as I used to, they still get the peace of mind that the strategy of how they should be investing is being planned out at a higher level,” Mr Mizzi says. “Our philosophy is that we’re here for the long-term –we’ve been here for 15 years and we plan to be here for much longer. We won’t advise our clients to do anything if we don’t believe in it. If we can’t cater to you – in the instance of short-term investments, for example – we won’t do it. This honesty and integrity has served us well as a strategy to grow and maintain our client base.”

“I think crucially, investment is about the long-term. We are not into speculation – we look at advice in the long-term. We provide clients with the comfort that there is someone looking after their money, and with our own funds we can do this better. We do not promise things which are unlikely. There will be years when you do better, and when you do less well, and that’s why you need to be there for the long-term. It’s a cycle.”

“We also keep close contact with our clients, especially through the media. Over the past 15 years, most of our marketing budget has been spent on educating the public through media appearances. I’m on TV at least four times a month, and clients can get a view of what’s happening by tuning in and listening to me talk about what happened during the previous week or read my weekly articles in The Sunday Times. I can’t meet all our clients so I try to do it through the media. We have tried to make something which is complicated and inaccessible to many people more accessible, by bringing it down to the nitty-gritty of layman’s terms. We want to let people know that everyone can invest, and I think the public appreciates that.”

Mr Mizzi says that prospects for the global financial market appear to be good for 2018,  this despite the recent correction in the US  equity indices which had a global impact.. “The US continues to grow steadily, and markets have had a good year in 2017, despite the Trump effect. The European economy is expected to continue to grow too – hopefully, Germany will have a stable coalition government soon; Italy has elections coming up too. We’re also hoping that there will be a good conclusion to Brexit, which will benefit both sides.” On the other hand, Mr Mizzi questions how quickly interest rates will go up as a key factor which will have a major impact on the market. “It’s kicked off already in the US with the new chairman of the Federal Reserve, Jerome Powell. Inflation has gone up and  higher interest rates should follow soon.  The monetary policy in Europe is very loose at the moment – how quickly will that change, and how will it impact the economy? I’m wary of the fact that we’ve had several good years in a row – now people have to be more realistic when it comes to expectations of double-digit returns.” The recent volatility in the markets could be a sample of what we can expect in 2018.

“We also want to revive the culture of regular savings. The Maltese used to be a nation of savers, but there’s been a cultural change – our parents were better savers than us, because nowadays we spend far too much money to have the best of everything. Making regular savings payments is something that needs to be ingrained into people’s minds as a good habit.”

Mr Mizzi also remains sceptical of cryptocurrencies as an investment. “It’s early days for cryptocurrencies, but as we go along, people have to be aware of what they’re getting into. Some people have made quick bucks, others have lost a lot of money. Every day you hear about banks losing their counterparties because they’ve been warned not to trade in bitcoins. At some point, I believe cryptocurrencies will become much-more widely accepted, and when that happens, I hope that they are well-regulated. Today, the word investment is being used very loosely, and when you have unregulated investments being placed on the same level as the regulated ones, it skews the playing field. It makes it very difficult for those who play by the rules.”

 

Photo credit: Alan Carville