Starting up a new advisory business at the height of the financial crisis would be considered by many to be a baptism of fire.
But for Fairstone Group chief executive Lee Hartley, the erratic and uncertain financial backdrop presented an opportunity to prove the strength of his technology-centred business proposition.
He said:“Two thousand and eight and 2009 were the best of times and the worst of times. Looking back now, you could not have asked for a better environment to have to prove your concept because the crisis forced you to be even more efficient. But it didn’t feel like that at the time.”
Having run Liveroom, his own e-commerce and digital marketing business, which boasted such big-name corporate clients as Axa and Zurich, Mr Hartley identified a gap in efficiency in the advisory industry which could be plugged by the use of technology with solid business and marketing acumen.
He said: “The core advice service was generating money, but financial advisers have traditionally struggled with clunky admin, compliance reports and sourcing new customers.”
Fairstone operates on a core technology platform with integrated proprietary marketing which generates new customers and provides back office tools for advisers.
The group, founded by Mr Hartley and Dennis Reed, the firm’s national development director, was established as Moneygate in 2008 in Newcastle upon Tyne with financial backing from private equity firm Committed Capital and venture capital firm Northstar Ventures.
The group now has offices in locations nationwide including London and Edinburgh, and employs around 230 financial advisers. It was awarded the corporate chartered status by the CII in July.
According to Mr Hartley, Fairstone has a current run rate revenue of £26m, meaning that this is the figure the group would achieve if it were to perform at the same level as the previous year.
In addition Fairstone has funds under advice of £5bn, funds under management of £2bn, and more than 30,000 active clients.
In April this year the group completed its rebrand from Moneygate in a move to create a single identity across the group.
Mr Hartley said: “We wanted to build a really strong consumer brand, and the general consensus was that the ‘gate’ bit does not have positive connotations. When people hear ‘gate’ they think of Watergate.”
He added: “We are planning on spending a lot of money on marketing the brand, so it was a really valuable thing to get the brand identity right.”
Mergers have been a key facet in the group’s growth, and will remain an integral part of its future growth strategy, according to Mr Hartley.
With 34 businesses having been brought into the business since 2012, the group seeks to add a further 10 to 12 a year.
The firm adopts a deferred buyout model whereby it offers a firm earmarked for acquisition the value of six times the average recurring income and post-tax profits.
The inception of the model stemmed from a review of the group’s three IFA business acquisitions in 2011, according to Mr Hartley, who added that the integration process had proven to be more difficult than originally anticipated.
“What we have seen is businesses raising lots of capital, buying four, five, six fairly large firms and failing to integrate them. The whole thing unravels in the future because the mechanics of it do not work.”
“You think the hard work is doing the deal, but actually the hard work starts the day after you’ve done the deal.”
The group will target an IFA firm that does not want to sell up immediately, but is striving for growth until it achieves a high capital value.
Fairstone initially enters into a partnership, holding a small stake in such a firm with the view of a full merger taking place after a two-, three- or four-year period.
The adviser firms are not bound by the understanding, and can opt out from being acquired at any time during the specified time period.
Acquired businesses would adopt Fairstone’s compliance process, and have full access to the group’s back of office system, as well as new clients.
Unlike many IFA conglomerates, Fairstone does not explicitly target retiring business owners, according to Mr Hartley, who added: “We do not want these business owners to leave once we have taken over; we want them to stay to earn income and help us to grow the wider group.”
The group also operates a charitable foundation, called The Fairstone Foundation, which aims to raise £50,000 a year for good causes. Fairstone employees have the option of donating money to the foundation through their payroll.
Earlier in the year, Mr Hartley himself raised £4,000 for cancer research by taking part in a white collar boxing match.
Unfortunately, his boxing aspirations took a swift blow in the third round of the fight.
“I broke my hand in two places in the first round, so I was quite surprised that I made it to the third,” he explained.
Outside the office Mr Hartley is a self-described “soccer mum” to his sporty spouse, who participates in triathlons and ‘iron man’ athletic events.
Mr Hartley is also a golf enthusiast who enjoys travelling and live music.
Myron Jobson is a features writer of Financial Adviser
Lee Hartley’s Career Ladder
2009-present
Chief executive, Fairstone Group
2008-2009
Founder and strategic director, Fairstone Group
2005-2007
Freelance management consultant and project lead
1998–2005
Managing director, Liveroom (E-commerce and software business)
