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Orphan opportunity: Bank advisers, advice gap fueling growth

We all know how the story goes: In banning commission with the Retail Distribution Review, the Financial Services Authority forced advisers to edge up the value chain in order to remain profitable as clients balk at disclosed charges, cutting the bottom layer from the client pyramid.

Dave Penny of Somerset-based IFA Invest Southwest challenges this hypothesis, saying his business is thriving and could be set for major expansion on the back of those clients supposedly cast adrift by the RDR.

And it is not just those ‘orphan clients’ that are driving growth, on the advice supply side it is ‘orphan’ bank advisers that have been the main bulk of the new additions - and that are likely to be so in the coming months.

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Invest Southwest began trading in 2007 with two advisers. Shortly thereafter it bought a will writing business and since then has expanded to a team of 10 advisers covering the South West of England.

While other advisers bemoan the lack of talent in a pool flooded by ex-bank advisers, Mr Penny told FTAdviser he is counting on these advisers in order to expand, offering them the chance to be fully trained as IFAs as opposed to their previous guise as “laptop operators”.

“We expanded rapidly recently with the banks pulling out. I was an ex-regional manager for Lloyds Banking Group [so] I have a lot of contacts.

“In the last two years eight advisers have come from banks. We know how to train you into IFAs not employed laptop operators.”

Under the tutelage of Invest Southwest, ex-bank advisers learn to run their own practices and operate as fully-fledged IFAs.

“The bank advisers are often with the banks because they like having a salary and company car and benefits and feel naked without that. It is a really big leap for them to move across into the grown-up world in which we operate.

“Life is good when you don’t have someone looking over your back. I haven’t missed one of my three children’s school plays in the last six years.

“I have literally just had one of the guys come across from Britannia. He texted me this weekend to say ‘I’m so happy’. I as [a bank regional manager] never put friends and family in front of my advisers. I wished to refer them on to an IFA because you know what you are giving them isn’t the best product.”

To serve and protect

A defining characteristic of Invest Southwest is its focus on the lower end of the market, even while others are heading up stream.

“We are resolutely staying in the man on the street category. We do not and will not brand ourselves as wealth managers seeking high net worth clients.

“The big need that exists in the marketplace and if you stop being a navel-gazing IFA it’s the man on the street.”

The firm’s demographic is relatively low, typically serving clients with anywhere between £50,000 and £100,000 but sometimes going lower than that and still managing to turn a profit, according to Mr Penny. Fees might be a percentage of assets or an hourly rate or agreed fee, and the firm does not segregate clients.