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.
"If you have an investment that has a long time horizon, and you need to cash in that investment in two years time, you might need that investment short term, but you're stuck with it long-term.
"It is around that area, where people invested into something and didn't think through the liquidity implication." As part of this reasoning, Mr McVitie does not see the benefit of structured products: "They tend to be expensive, and the time-frame of the investment and the client's time-frame can get quite out of kilter."
LEBC came about when Mr McVitie was regional director at Hogg Robinson Financial Services, and the company was being sold to then-named Towry Law. He did not agree with the style of business that Towry was then adopting, claiming it was a "product-based business". Mr McVitie had the idea of an 'advice first' business, that is, "first and foremost the aim was to give people advice."
"Customers need access to suitable products. Who are the advisers loyal to? To the customer or the provider? From the outset we were always on the side of the customer." So the plan, from the outset was that clients could have a choice of paying by commission or fee, before depolarisation in 2006.
The idea with LEBC was to create a nationwide company with offices in Leeds, Edinburgh, Birmingham and Canterbury – hence the name of the business. The Canterbury candidates decided not to commit, but the company started with eight individuals and then quickly grew to 13. Now the business has 90 advisers.
Misys, the former owners of Sesame, took a stake in the early days, but then pulled out and in 2007 BP Marsh and Partners bought 22 per cent of the company for £2.2m. It now has a 34 per cent stake.
Over the years, Mr McVitie has learned a few principles that keep the business going, most of all caution and experience. He said: “there’s a lot of people with a lot of experience, and that teaches you what to look out for.”
Mr McVitie likes to work with people who have been through the 1974 crash, and he has worked through the 1987 crash. He said: "If you've been through all of these different things, you learn to be wary for the clients' sake, and that's your job."
Melanie Tringham is features editor of Financial Adviser
CAREER HIGHLIGHTS
2000 – Founded LEBC
1993-2000 – Hogg Robinson, regional director
1992-1993 – Bain Clarkson, managing director Scotland (taken over by Hogg Robinson)
1986-1992 – Alexander Stenhouse, trainee adviser/adviser/manager
