By his own admission, Phil Castle, managing director of Kent-based Financial Escape, is argumentative, locking horns with the Financial Services Authority as well as the Chartered Insurance Institute in his transition to the Retail Distribution Review world.
Mr Castle’s firm has been in its current form since 2005 and getting RDR-ready was not without its issues. In fact, if it wasn’t for a skiing accident, it is questionable as to whether Mr Castle would still be in the industry.
Mr Castle, like many advisers, believes the industry should have a long-stop like most other professional industries. As we all know, the long-stop was removed in the Financial Services and Markets Act 2000, however, Mr Castle has added the long-stop to his client agreements despite the FSA’s disapproval.
“Because I put that in my terms of business for the client agreement, I thought I will actually get the belt and braces so I sent to the FSA, as it was then, and the FSA said that it was an unfair contract term. It can’t be because it is common law.
“We informed the FSA in writing that we would continue to put the statement about time bars and long-stops unless they wrote to us confirming any legal advice they had obtained informing us that the terms could not be used. They did not do this and five years later our terms remain unchanged post-RDR as we’d drafted them to be RDR ready at the same time.”
Mr Castle said the regulator’s attitude completely threw him and he decided not to stay in the industry “as I had enough of the people at the FSA”.
“I didn’t actually see the relevance of having to study things that were irrelevant so I argued for a rather long time and then I went on a skiing holiday in 2010 for two weeks and I had an accident within the first two hours of my holiday.”
Mr Castle said he normally takes his study manuals with him, but this time, unusually, he was forced to open them due to the accident.
“I spent the two weeks studying, sat the RO4 the week after I came back and passed it. I then decided to see how quickly I could do them. By July, I had 143 points - you need 140 for your diploma, but the CII disagreed.”
The CII who insisted that he did not have enough points to be level four, arguing that he only had 138 points and not 143.
“Theoretically I had 143 points, but in CII maths, 10 plus 5 equals 10. Equity release was 10 points and home reversions 5 points, the replacement exam only equals 10 points - they don’t add the two they take the higher of the two. I argued with them for a year and then thought what the heck, and sat R05 to get the points up by a further 10.”
Theoretically I had 143 points, but in CII maths, 10 plus 5 equals 10. We can’t do everything
Mr Castle is a one-man band but has two administrators. The maximum number of advisers he has had in the firm was two.
“We did have five admin at one point because we used to do a lot of group pension business which was very labour intensive and we backed off the group pensions in 2008 so we don’t need that amount of administrators.”
He also decided to do down the independent route, as opposed to restricted, but mentions both in his key facts, in case he does decide to become restricted if the independent bar proves to be too high.
“I contacted the FSA four years ago when restricted advice was being discussed and asked them and I got a reply in writing as to whether we can draft our key facts based on the independent and restricted quotas.
“Our key facts actually mention independent and restricted on the same document as I wanted to make sure that we had actually explained what a restricted adviser was before the RDR came in. I wasn’t sure if we were going to be able to remain independent and it turns out we were able to but if we had gone restricted our clients were informed about what restricted is.
“I haven’t got a problem about other advisers being restricted either as long as they make it clear what the nature of their restriction is and I may end up going restricted now as well, I just don’t know. It’s a simpler process as it is difficult to demonstrate your independence.”
One possible reason for going restricted is the cost of outsourcing. About two months ago, Financial Escape engaged with Defaqto paraplanners and Mr Castle has asked them to help demonstrate some of the processes for being independent.
“We use three different wraps but we need to justify why we have selected the wraps that we use and why we continue to select and use those wraps and if a new player comes into the market, we need someone to do some research on them. We’ve got a list of things that we have got Defaqto which they will be doing for us.”
However, as yet Mr Castle does not know how cost-effective this is, admitting that if a client asked him to look into something that he deems complicated, he will outsource it.
“I won’t be doing the research as I will outsource it, so that all the information is put in front of me and then I need to make sure that I understand it. I will need to see if is suitable for the client. I don’t know if this is cost-effective yet as I have only started doing it but it is quite costly.”
Segmentation
Mr Castle has segmented his client base into two groups - client and customers.
“Clients pay us a retainer and that is an ongoing contract whereas with customers they do not have an ongoing contract to service. We did this four years ago when we moved to a fee basis. Clients set up a monthly standing order which is £17 a month.”
He settled for £17 a month to make it affordable to his less wealthy clients.
“Some of my clients have lots of money and others don’t. The idea of the monthly retainer is we don’t do annual reviews, we do tri-annual reviews, which means we have a total of £600 over the three years. In the meantime they know if they are worried about something they can pick up the phone at any time and talk things through with us.”
Clients with larger investment portfolios pay a percentage of the funds invested, which is 0.5 per cent of the funds under management.
“We do reviews with them on a more regular basis, rebalance the portfolio and discuss their risk and change in attitudes so the frequency is brought forward from three years to two years, to one year to six months and some have quarterly reviews depending on the size of the portfolio.”
