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.
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.
“If it’s two-plus-one then for a client with 20 grand it isn’t worth doing is it? We might well do that on the basis we can see other opportunities in the future.”
These future services might include choosing a mortage or writing a will.
“Sometimes you have to invest in the long term and play the long game. There is no cross-subsidy going on, that client will come back to us.
“I had a client come to me, he had debt problems, he was in a council house, he had health problems. He should have gone bankrupt, that was my advice. He was being so pestered he said he would die.
“We crystalised his pensions, paid off 25 per cent of his debt. Two years later he hugged me and said I saved his life.”
Mr Penny says he sees a lot of “navel-gazing” going on in the IFA sector and not enough thinking about the “man on the street”.
“Let them scramble around for the high net worth individuals. [We are] making money with a promise that you won’t charge a client anything if we won’t benefit them. If the best product is at Lloyds, we tell them and charge no money.”
He added that as a result of this, 42 per cent of his approximately 6,000 clients was gained through referrals. Not only that, but business is booming.
“We need more advisers to cope with demand. We are so busy. It’s like building motor lanes; they fill up with traffic. At the moment we are sort of dreading the phone ringing because we are so busy.
“We could expand to 50 advisers relatively easily but I think we are more interested in organic growth.”
Auto-enrolment opportunity
The next big development on the horizon for Invest Southwest is a workplace pensions offering in time for auto-enrolment.
“It’s a crisis or opportunity. There is going to be a tidal wave of enquiries. It’s a matter of working out how you can deliver a service to clients who are similar and diverse. There is such a paucity of support that they are going to have to take on people to help.
“The guy at my local garage, his PC is covered in in oil.”
Along the theme of getting older generally is the company’s will writing business.
“The other thing which makes us unique is the 2,500 clients within the wills business. Most advisers say you do or do not have a will in place so I recommend that we make one and keep it up to date.
“The IFA has covered their ass and nothing gets done about it. I don’t see why an IFA should be in pensions or investments only if you are an independent adviser.”
