PensionsApr 6 2016

Firing line: Phil Smith

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Its administration is considered at best to be ‘average’ and its management of clients’ affairs could be improved.

However, Phil Smith, chief executive of the company, and its newly renamed holding business, Embark Group, claims it is all going in the right direction.

Mr Smith said: “In the old world, you would have one person who would be the administrator, and all the contact would be with him. But for someone to understand pension law, taxation, trust law and have knowledge of investments and pension schemes, is a hell of an ask.

“I don’t think there are many pension administrators who could say they have that ability.”

Since Mr Smith took over, four pension administration centres were reduced to two, and instead of a single person being allocated to a case the whole way through its cycle, there will be a range of specialists looking at different parts of it along the way.

“More people are touching your scheme than would have been in the old world. That means change.”

The change was not all plain sailing, however. “We did have teething troubles in late 2013/2014, but you need a strong group of people that gives a proper platform of growth, which is what the regulator expects me to do.”

Mr Smith has been in charge since 2013 after he and another investor bought a controlling stake in Hornbuckle Mitchell Group in April.

The plan is to build a financial services business, inspired by the changing demographics of retirement and long-term savings. Mr Smith, a former company man – previously managing director of Barclays Wealth – left the corporate world wanting to do something entrepreneurial.

He bought into Hornbuckle Mitchell Group with Richard Wohanka, a former fund management executive who is now chairman, with their own money (Mr Smith has a 10 per cent stake and Mr Wohanka has just over 50 per cent).

The name of the group changed from Hornbuckle Mitchell to Embark Group earlier this year, and Mr Smith plans to expand into other financial services businesses.

Hornbuckle, which is now a subsidiary of Embark Group, was the first stop.

Mr Smith said: “Hornbuckle was the acquisition to give us a starting position, which is in the IFA distribution channel. In 2012, there were an awful lot of Sipp and Ssas [small self-administered scheme] companies up for sale.

“Hornbuckle Mitchell had scale – just over £4bn under administration – the right demographic, of high net-worth, rather than mass retail and specialist technical skills, to deal with complex assets.”

His vision, he claims, is long term, and the demographics of savings and investments are changing. Mr Smith explained: “People need to save for retirement, given extended longevity, and they are increasingly more self aware to transact individually, and with the ongoing digitisation of the world, that will play a large part with how pension providers and wrapper providers change.

The Sipp market is undergoing changes for other reasons, not least the increased need for retaining capital and the pressure that many are coming under over risky assets.

Mr Smith, who claims his business was already well capitalised, said: “I think the FCA [Financial Conduct Authority] has done the right thing. You can have very small bespoke Sipp providers and consumer choice is a very good thing, as long as these businesses are safe to trade with, but I think this market will become more focused on providers of scale.”

Many providers are turning away from what they perceive to be “risky” assets, in Mr Smith’s view, unnecessarily, due to perceived dangers.

“A lot of people stopped providing access to complex assets in the Sipp and Ssas world. It’s been understanding whether the risk [of investing], from an advisory point of view, was worthwhile.”

But he thinks this is over cautious. “I think that is wrong because high net-worth clients have legitimate needs [to invest in more risky assets. If you’re trading assets that carry more risk, you have to charge for more risk. The question is whether the market will pay for that risk.

“Consumers have a legitimate need to invest in commercial property and unlisted equities, and other things that in the pensions world are considered complex, but, in the investment world, are considered to be pretty mainstream. Why wouldn’t a business owner want to consider investing in the commercial property they’re in?”

Embark Group has no external funding, and the balance of equity is owned by the staff of the business. Mr Smith does not expect to build the business simply for a sale in a few years’ time.

He said: “We view this as a long-term investment, and we see [the business] with a 15 to 20-year horizon. I have no intention of selling and I’ve not entered the market for this reason.”

A stock market listing might be a possible option, though, both for staff to access their shares in the business and to fund other acquisitions.

This was not necessary for the latest purchase, the platform and Sipp administrator, Avalon, which was put into administration following the loss of a £2m legal claim due to the actions of its former managing director, Harry Kerr.

Mr Smith said of Avalon – which is keeping its name: “I think it’s got great prospects – we are nothing short of delighted. It was very good value for money, but it wasn’t about the money. We wanted to have a capability that we didn’t have, and we wanted to protect the consumers that were involved.”

Mr Smith receives many acquisition opportunities every day.

He said: “I’ve always said we’re only interested in these companies if they are transformative as a proposition. I’m not in the market for being a small, bespoke provider of Sipps and we won’t buy an IFA business.

“We’re a specialist, business-to-business, retirement solutions provider.”

Melanie Tringham is features editor of Financial Adviser

Career ladder

2013-present, chief executive, Embark Group (formerly Hornbuckle Mitchell),

2011-present managing director, Aretai

2006-2011 managing director – global infrastructure, Barclays Wealth/Capital

2004-2006 managing director and global chief financial officer, Fortis Investments

2001-2004 Global HR and change director, Fortis Investments

1998-2001 Consulting director, Arthur Andersen

1997-1998 Director – Prudential Portfolio Management, M&G

1995-1997 Regional manager, Prudential Asia

1992-1995 HR specialist, Prudential Portfolio Managers

1990-1992 HR specialist, IMI plc