Trust growth with Gareth Howlett

In episode 2, Malcolm interviews Gareth Howlett, trustee and Investment Strategy Group chair with The Golden Charter Trust. Gareth reveals new trust growth rates, and explains the inner workings of a funeral plan trust and how the trustees steward plan holder funds.

Transcript

Malcolm Flanders [00:00:04] Welcome to the second ever Partnership Podcast. I'm Malcolm Flanders from Golden Charter, and I'm here to talk you through the latest developments in the funeral profession. This time, we're diving into the world of trusts. They're vital for funeral directors and plan holder alike. And like anything else, there are plenty of developments to keep pace with in understanding a trust’s position, from the bottom line to regulation and, of course, the growth rate for funds held in trust. 

Malcolm Flanders [00:00:31] So this month, we're going to be speaking to Gareth Howlett, who is not only a trustee on the Golden Charter Trust, but also chairs the Investment Strategy Group. Those funeral directors who have attended AGMs in recent years will know that Gareth is a font of knowledge on the Trust and the broader forces that interact with it. In this episode, we have the chance to dig into the areas Gareth discusses at each AGM. 

Malcolm Flanders [00:00:57] So Gareth, delighted you could join us today for the podcast. It would be really helpful if you could just talk a little about the role of trustees, but also just explain a little about the Trust's independence from Golden Charter itself. 

Gareth Howlett [00:01:11] Thank you very much, Malcolm. Very pleased to be here. Those of you who've heard me at the AGM know that I do tend to witter on a bit about numbers, but I also tend to try and make the point that beneath the numbers and beneath the structures, the purpose of the trust is to support the funeral directors. The key actors in this are the funeral director, and the plan holder and their families. The rest of us are really just the supporting cast. The trustees’ role in this supporting cast is to look after the money; to ingather, which is a rather nice Scots legal term, the money, look after it and pay it out and, in the interim, to make sure that it's been properly invested, so as to produce a return that gives the funeral director a decent margin on the business when they eventually come to carry out the funeral.

Gareth Howlett [00:02:07] We do this using our professional experience and there is a blend of experience within the existing trustee board. There are a couple of accountants, Iain Webster and Geraldine Gammel; a senior corporate lawyer, Gordon Brough; Ian Barnett, who many of you will know, apart from being a Golden Charter veteran, is a senior banking person; Paul Stevenson, very importantly, who represents the funeral directors; and myself, Ian Blackford, and David Kidd, who are all investment specialists. And we, the last three named, sit on the Investment Strategy Group, which I chair. 

Gareth Howlett [00:02:46] We are completely independent of Golden Charter Ltd. Although we work together very closely, we work hand in glove, we are not financially linked to them. Our balance sheet is not their balance sheet and vice versa. So that gives a great deal of comfort to people who have a vested interest in the Trust, that their interests are going to be looked after first and foremost. 

Malcolm Flanders [00:03:14] Excellent. Thank you, Gareth. Now, another sort of topic that comes up quite frequently is the actual rate of return, in terms of the growth. Can you explain how that is determined, the process you go through and what that rate is for this year? 

Gareth Howlett [00:03:30] We start by trying to ensure that anything we do maintains the funding level and ideally we want the funding level, that is the ratio between our assets and our liabilities, to be over 100%. The colloquial way of putting that is jam today versus jam tomorrow. We could pay out a substantially higher increase in any given year, but at the cost of crimping returns for future years and reducing the funding level. So a balance has to be struck. And I think most people in their own businesses will recognise that these are the kind of calculations that they will have to do themselves.

Gareth Howlett [00:04:15] This year, I am pleased to say that we've been able to maintain the funding level at above 100% while matching inflation, and we're paying an increase of 2.4%. So those are the calculations which we go into. We do not aim at getting the maximum possible return irrespective of risk. We look at it in a different way. We want risk-adjusted returns. What we ask ourselves is, what is the way of investing these funds that will generate the returns that we need at the lowest possible risk? There are investment policies out there that would probably give you higher returns, but they would equally probably, or even more probably, bring with them much higher risks. It's what I like to call percentage golf. You can either get out the driver and go for the green or you can hit a couple of safe iron shots down the middle. We don't need to play aggressive, high stakes, high risk golf. And that's not what we're here to do. 

Malcolm Flanders [00:05:26] Understand, and I like the analogy. And I guess that kind of approach is a sensible, given what's happening around the world today in terms of volatility, and we just don't know what's happening. But from your perspective, do you see a more stable outlook, or do you think it remains as volatile as it has been? 

Gareth Howlett [00:05:42] I've been an invest manager for over 30 years, and the one constant is that there is always something to worry about. And proverbially, markets climb a wall of worry. Whether you're talking about the 1980s and everything that we were worried about then, when I started my career, or the 2020s, the new decade that we're now moving into. There are always things that are likely to throw markets into turmoil. However, underlying that, what drives returns on assets is the income from these assets. So long as company profits keep going up, as long as rents keep going up, as economies keep on expanding, broadly speaking, financial assets should do okay. We've had a pretty good run in asset markets. Better, I think, than many of us, certainly the more cautious people, and I would count myself in that number, were expecting. 

Gareth Howlett [00:06:45] So it would be prudent to expect at some point, within the next year or so, a bit of a pothole in the road. We don't know when that's going to happen. We don't know how bad it's going to be. All we can do is invest the money prudently on a diversified basis, and making sure that in each case the people looking after the money are specialist at what they do. And we believe that that policy will carry us through without too much damage. 

Malcolm Flanders [00:07:20] If I look back on the history of the trust, there was the point when it wasn't quite as robust. Where are we now, just in terms of the actual valuation of the trust? 

Gareth Howlett [00:07:31] Well, the valuation now, as at the end of December, was just a whisker short of 1.2 billion pounds, which of course is a very big number. And it's almost doubled in the five years that I've been a trustee. And of course, much of that has come through increased cash flow. Funeral directors selling more plans. A fair amount of it has come through investment returns. 

Gareth Howlett [00:08:02] Overall, the most satisfying thing is that the funding level has remained over 100% over all that period. And there are a number of metrics we carry out: could we pay out on all the plans if everyone cancelled? Could we pay out on all the plans if everyone were to die at the same time? And the answer to this, according to our actuaries, is yes in both cases. More realistically, we also project into the future what our liabilities are going to be based on an expectation of mortality – how many plan holders are going to die? And on inflation. And then we measure that against the expected investment returns. Inevitably, there is a degree of guesswork in that. Now, those guesses are very scrupulously calculated, but they are not absolute guarantees. To the extent that they have been fairly rigorously carried out, the number now is over 100%. 

Malcolm Flanders [00:09:14] And if we project forward five years, does the governance, or the approach, or the investment strategy change if that fund gets significantly bigger? 

Gareth Howlett [00:09:26] I don't think so, because the core of what we are doing is to strengthen the relationship between each funeral director and each plan holder. And that's not going to change. We take in a sum of money from a plan holder and we make a promise to that plan holder, and whether there are a hundred thousand, three hundred thousand, half million plan holders, the calculations remain the same. 

Gareth Howlett [00:09:54] One of the things I would say is that having a big, well-funded trust has been very important in the sense of the infrastructure we were able to surround it with. If you go into the City of London with £3,500 or £4,000, you're not going to get very far. If you if you go in and slap down 1.2 billion on the table, you'll get a lot of serious attention. So we have got access to the best asset managers in the City of London, or globally, because some of our firms are not based in London, they're not based in the UK, we have got access to the best that money can buy worldwide. We couldn't do that if we were a small shoestring trust. We are a serious operation and we're taking it seriously. 

Malcolm Flanders [00:10:44] Excellent and I think that also differentiates us in the market, actually, if I'm honest from a business perspective. Okay, Gareth, just one final point. It has been confirmed, and we're now planning for it, the fact that the funeral planning sector will be regulated by the FCA. How do you see that impacting on the way the Trust is managed at the moment and what it seeks to do in terms of its objectives? 

Gareth Howlett [00:11:09] Well, I think this is, on the whole, a very positive development for the trust and indeed the company, because one of the motivations of the regulator has been to drive up standards in the industry and to align everyone else along the high standards that Golden Charter has always stood for. 

Gareth Howlett [00:11:31] This is going to be easier for us to adapt to than it is for many other people. I know from those within the company and the trust who've engaged with the regulator, that they've been very favourably impressed by the way we're set up, by our professionalism. This is no surprise to me, of course, but it's really quite reassuring, I think, for us outside people who have relevant interest here. 

Gareth Howlett [00:11:59] I've always thought that while investment managers like to complain about regulators, in a sense they are a source of free advice, they can help you raise your game. They are concerned with outcomes for the consumer. They're very concerned with fairness, transparency, professionalism, value for money, treating customers fairly. All of these things are so deeply embedded in the Golden Charter way of doing things, that I think it's really a very positive step forward for all of us, and that we should absolutely embrace it. It will obviously mean change, and we will have to adapt ourselves to that extent. But I think it's a really tremendously positive move. 

Malcolm Flanders [00:12:46] Excellent Gareth, thank you, that is reassuring. It's always a canter through these podcasts, but I think you've given us a really good insight into what the Trust is about and how it is managed. So thank you, appreciate that. 

Gareth Howlett [00:12:59] Thank you very much, Malcolm, it has been a great pleasure.

Malcolm Flanders [00:13:03] Thank you for listening to another Partnership Podcast. These will be coming to you regularly throughout 2020. Subscribe to us on Apple Podcasts, Spotify, or wherever you get your podcasts to ensure you get episodes as soon as they appear. Or keep your eye on goldencharter.buzzsprout.com for our full feed of issues. And of course, Golden Charter will keep you up to date with new issues by email. I'll talk to you next time on the Partnership Podcast.