'Personalised service and humour are key to adviser profitability'

Lumin Wealth is a chartered independent advice business that was founded in 2010 and since then has amassed £860m in assets under management.

In May 2021, after 10 years of growth, it received backing from Swiss financial services company VZ Group.

Cotter, founder and managing director of Lumin Wealth, chats to FTAdviser In Focus about what makes an advice business profitable and why he believes vertical integration is a must.

Reducing investment cost is fundamental to achieving better financial outcomes.

FTA: What is your idea of a profitable advice business?

MC: Firstly, it must be profitable for both the client (giving cost-effective advice) and the business. It also needs to be profitable for staff in terms of personal and professional development, enabling them to enhance their skills and knowledge.

Lumin’s adviser academy for graduates provides a pathway into the industry for aspiring advisers, and delivers a pipeline of future adviser talent for the company.

FTA: What business models do you think work best to achieve profitability?

MC: A personalised service is key, but the foundations of this need to be built on a team-wide approach, with vertically integrated solutions and services.

Our own business model provides integrated financial planning and discretionary investment management services but, crucially, the investment services are independent.

We find a percentage fee approach works well, as long as it is competitively priced.

This means there is no potential conflict of interest, as can be the case with some providers who may seek to promote or distribute their own products. Clients undoubtedly appreciate this distinction.

When incorporating both financial planning and investment management services we find a percentage fee approach works well, as long as it is competitively priced.

FTA: What is Lumin's philosophy for what makes a good advice business?

MC: We believe in a modern, forward-thinking structure, with services that cater to client needs, rather than ones that are implemented simply to increase profitability.

Our staff are personable people and humour plays a part – we are able to build great relationships with clients because we provide a genuinely personal touch.

A lot of people find the prospect of financial advice daunting, due to a lack of understanding, or inertia in the face of perceived complexity.

In reality, partnering up with a financial advice business is an easy step to take. Keeping advice simple and as straightforward as possible is the key.

Whether you are dealing with a senior financial executive, or a consumer with little to no financial knowledge, clients crave simplicity – and that is what we provide. In a nutshell, it is financial planning made easy.

FTA: Is the cost of regulation the hardest thing to overcome?

MC: While regulatory fees are no doubt challenging for small businesses, for a larger company like Lumin it is a normal part of a professional business set up.

Heightened regulation and the move to ongoing fees has made starting a small IFA business extremely challenging.

In the past, the hardest barrier to overcome has been overall trust in the industry, although enhanced regulatory activity has seen the sector improve greatly in this respect over recent years.

FTA: What fee model do you operate?

MC: We believe that reducing investment cost is fundamental to achieving better financial outcomes.

Our fee model is highly competitive in comparison to the UK market, in terms of both initial and ongoing advice.

Our initial advice fee is typically around 1 per cent of the amount invested. In terms of ongoing advice we charge a fixed annual fee of 0.75 per cent, which spans both financial planning and investment management services.

Other costs depend on the specific portfolio clients are invested in, but annual ongoing costs typically total 1.55 per cent.

There are no hidden fees and no exit charges, so if clients want to look elsewhere they can do so without any penalties or charges.

FTA: What is your view on providing ongoing advice?

MC: Ongoing advice is an essential part of the service. When providing an integrated financial and investment plan, both sides of the coin need to be monitored to ensure they continue to meet clients’ goals.

In the past, the hardest barrier to overcome has been overall trust in the industry.

It is much more than clients simply handing their money over. A financial plan is only as good as its implementation.

As well as financial efficiencies such as tax savings, ongoing advice leads to saved time, reduced complexity, and long-term peace of mind for consumers.

FTA: What is your strategy for dealing with intergenerational wealth?

MC: Much has been made of the ‘great wealth transfer’. More than 80 per cent of household wealth in the UK is held by people over the age of 45, and the Office for National Statistics has estimated that over the next 30 years this is set to be transferred between generations, with millennials set to reap the benefits.

This is where long-standing client relationships will come into their own. Clients find it reassuring that their financial adviser can provide a guiding hand for younger adults, and that their children will be making sound financial decisions with their money. 

We deploy a number of specific strategies when it comes to dealing with intergenerational wealth.

One simple one is to involve the younger generation at an early stage. This helps to cement good financial habits, and ensures all parties are well-versed in the family finances.

We also open accounts for clients’ children, even if they do not meet normal minimum threshold requirements, in order to get them used to the investing and advice process from a younger age.

Once these good habits are instilled, they will last a lifetime.

FTA: Do you think professional connections are important for an advice business?

MC: They certainly have a part to play. We partner up with a number of local, like-minded businesses, including solicitors and accountants, whose client books we can help with their financial planning needs.

FTA: What is your advice to an adviser looking to start their own business in the current climate?

MC: Heightened regulation and the move over the past 20 years from initial commission to ongoing fees has made starting a small IFA business from scratch extremely challenging.

At Lumin we provide a home for smaller IFA businesses that have tried this route but are struggling with the administrative burden that running a financial advice company entails.

carmen.reichman@ft.com