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.
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.
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“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.
Misguided priorities
Mr Lawson’s biggest gripe with the investment industry as a whole is that it has an obsession with benchmarks. He says this leads to risk taking, trying to impress clients by out-performing one another.
“It’s almost like there is whole swathe of the industry that has lost touch with what their clients want.
“What we want is to meet their goals with the least possible risk and least complexity. One of our phrases is that excess risk is pointless risk. The vast majority of times people are taking way more risk than they actually need.”
This can lead to some difficult conversations with clients who feel they know best.
“Sometimes what clients will tell you they want is completely different to what they need, and sometimes you have got to be brave enough to tell them what they need and keep them on track.
“While we can fill out a risk tolerance questionnaire and they are perfectly happy with that, we then talk about what they actually need. It’s [sometimes] clear that they could do it with no risk by keeping it in the bank.
“By delivering stable returns they are able to make far better decisions about spending or gifting to children and so on.”
What’s next?
Mr Lawson believes his is like many firms which are thriving under the RDR. According to the business plan Equilibrium will need 30 advisers and 200 staff in total. Mr Lawson is hoping that the property next door becomes available so the firm can expand into it like a fish growing bigger to fit a larger tank.
“The industry, it had been clear to see there are regional firms who are now thriving in niche areas. It’s easy to win business because there is less competition. At the lower end, £100 to £500k there was a lot of advice being provided by banks that’s just not there anymore. There are fewer IFAs out there than there were as well.
“The major changes for the future is that we are in year three of our 10-year plan which takes us to 2021. The intention is to increase our assets under management to £2bn by then. It does see us constantly recruiting. We are up to five advisers at the moment but we do have a high staff support number, around 40 in total.”
