IFA: ‘Not our place to fill advice gap’

Cheshire-based IFA firm Equilibrium claims to do things differently: in some ways it gives clients more than the typical amount of control over fees, but on the other hand it admits sometimes having to explain to the client that what they think they want is not actually what they need.

Equilibrium provides a three-armed offering, with three different yet fully-fledged businesses operating out of the same building: a discretionary fund manager, a financial planning business and a tax planning business.

Although it charges a typical percentage of assets invested, it gives clients the choice of not paying at the end of the year, regardless of performance. Yes, you read that correctly.

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Colin Lawson, senior managing partner of Equilibrium, said: “Regardless of performance, if at the end of the year you are not happy we will return all fees to you.

“It could be a character-building discussion at times, asking if we can keep that £40k if you have had a negative year.

“Our fee structure is one per cent of assets under management. I think percentage-based fees are the right way to go because you earn more if the client does well and less if they don’t do well.”

Despite the Financial Conduct Authority clearly giving preference to pounds-and-pence payments, Mr Lawson believes charging a percentage is a better way of representing the work involved.

“[If I have a] £1.8m client over 25 different historical policies that the regulator says I need to review in detail, the work involved in that is the same as 18 £100k cases. I can’t charge the client [a fee of] £36,000.

“We currently manage just over £320m and that’s split into three distinct offerings: model portfolios from £100k to £600k, bespoke which is £600k to £2m and then we have wealth at the £2m-plus. It’s where they are requiring a more family office oriented type of service.

Asked about lower value clients below the £100k threshold, Mr Lawson said: “I’m well aware of the advice gap but I don’t think it is our place to solve it.”

Three-pronged attack

Equilibrium’s three separate but complementary firms create a synergy that he says is much more difficult to achieve for an IFA firm which tries to wear several different hats. The tax planning arm has proven an especially helpful alternative to seeking higher investment returns, he adds.

“A lot of people just pay lip service to [tax planning]. It’s a lot easier to increase people’s net returns by reducing tax on the portfolio than by choosing higher returns in the first place.

“You could almost accuse us of being boring in our approach in that we don’t use tax schemes, VCTs, EISs etc and we never have.”

Mr Lawson says we live in an increasingly tax-friendly environment, allowing some of his multi-million pound clients to pay much less than the basic tax rate. For example, he says that for a £15m portfolio his firm can get the rate down to 15 per cent.