Defined Benefit 

Firing Line: McVitie

Firing Line: McVitie

LEBC is a financial advice company that conventionally keeps a low profile, but it has been steadily growing its turnover over the last few years, driven largely by the corporate advice sector.

 

Founded and run by chief executive Jack McVitie, it was recently announced that the company would restructure into two divisions: corporate, called ‘Retirement Adviser’ and the private client business, called ‘Foundation’.

Part of the reason for this is that corporate accounts have become big business, rising from £1.5m for 2012/13 to £4.5m in 2015/16 on a total turnover last year of £15.2m. This year the division is expected to bring in "well over" £6m.

Mr McVitie said: "A lot of the growth is driven by defined benefit schemes looking to deal with liabilities, with a very large area being pension increase exchange. You have pensioners in the scheme, and the company offers them the opportunity to give up future pensions escalation in return for a higher pension.

"You may be on £24,000 a year with certain escalation, and the scheme offers you to go to £30,000, but with lower escalation there's some form of inflation linking and you give up some of that in exchange for your pension now."

This technique of managing a company's DB liabilities has become increasingly popular, and for individuals in such a position, the need for financial advice to make the right decision, for which the company will pay an adviser firm. LEBC has been successful in securing many of these accounts, such as Motorola Europe, Pirelli and Phillips, for example, and has a team of around 35 advisers based in Reading and Leeds on the end of the phone to help pensioners with their queries.

However, perhaps a more significant definition of success in the current financial advice climate is LEBC's avoidance of regulatory censure from the Financial Ombudsman Service or the Financial Conduct Authority. This, Mr McVitie said, is due to the fact it takes a very cautious approach and demands that any esoteric investment needs approval from compliance first.

All of the advisers are employed by the company and only a certain number of them are allowed to recommend enterprise investment schemes and venture capital trusts. Mr McVitie said: “We have a committee. If someone wants to invest client money in an esoteric investment, they have to submit a request to compliance to do it.

"We don't get very many – we have no key data to speak of – we don't have any Arch Cru and only had two or three Ucis. Even if the client goes in and specifically asks for a Sipp investment in the Caribbean, the LEBC adviser is told to adopt a cautious approach and get to the bottom of what the client is trying to do."

He added that it probably helped that LEBC grew organically with advisers joining rather than whole businesses, and even so, LEBC does a complete compliance check on the new joiner. As for other advisers who have got into hot water over esoteric investments, Mr McVitie explained: "Some of it was commission driven. I don't think these advisers thought through the underlying investment. One of the things that will absolutely get you into trouble is anything that is short/long.

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