Price of advice weighed down by ‘dead wood’

Petronella West told listeners on a call hosted by the Lang Cat this week (December 8) that although it can be “frightening” for smaller firms to cut down on the providers they use, there was a monetary benefit in doing so. 

“I think there's a fair price [of advice],” said West. “[But] I think there's probably a lot of dead wood that is expensive, that has to be paid for. There's a lot of profit margins that need to be met."

She continued: “I remember reading the Professor Kay review [2012] on the ownership of UK equities that the government did and he was very scathing about platforms. 

“He talked about all the little bits that everybody takes along the way in order to make everything happen. And you need to streamline them, so that - whether it's trading or presenting or custody or advice or cash flow - it works in a way that's as efficiently optimised as possible, which is where I think technology will come in.”

I think there's probably a lot of dead wood that is expensive, that has to be paid for.--Petronella West

West acknowledged the reluctance some firms may have towards taking charge of support services themselves. 

“It's frightening to just say ‘I’m not using any of the financial services out there, I'm going to build my own thing’. And we're a tiny company.

“But there are people in the world who can do it for you, and they’re unfettered. [...] Technology has been a game changer.”

Resisting the software ‘rut’

One issue Investment Quorum identified in its own advice was its clients’ reports, and the fact 80 per cent of them didn’t like the format the firm sent them in.

After telling data management software providers such as Intelliflo “I want data the way I want it”, West said they simply replied ‘you can’t’.

She was then promised her firm would be able to pull down the data from the cloud, but this never happened. 

In the end, her firm took inspiration from a San Francisco-based operating system called Notion and built its own system.

“We built it in the way that we own the data. So as advisers, we own the client data, not a third party, not anybody else. We own it,” West explained. 

“And then we can digest and dissect the data, particularly with suitability and Prod and all that stuff coming on, and build our own [reports].”

Whilst West admitted the process has taken some time, the ability to plug in new softwares via an application programme interface to her firm’s own app meant it doesn’t need to rely on an end-to-end solution which it has no control over.

“We built it in the way that we own the data. So as advisers, we own the client data, not a third party, not anybody else. We own it.--Petronella West

“The industry has loads of technology and it’s stuck in its own rut. You can use this software, or that software, but none of that software does what my customer wants,” she said.

Investment Quorum currently uses two platforms, Transact and 7IM. West said: “We need to keep our foot in both camps because I’m unsure about the future of both”.

Whilst the firm isn’t ready for the likes of a Seccl just yet, which facilitates firms to build their own platforms, West said she would ultimately like to have more control over custody of trading.

“We are beholden to these platforms if trades go wrong, if technology goes down. We can’t control it.”

Despite this, West said operating on two platforms ensured a degree of streamlining off the bat, as “it’s not worth” trading as a discretionary manager on more than two.

‘Not afraid of profitability’

Whilst West believes there is a lot of “dead wood” out there eating into advisers’ margins, she also believes cost can be justified as long as there’s value - something the Financial Conduct Authority has reiterated in its Consumer Duty report earlier this week (December 7).

Her firm manages £400m in client assets with 25 staff members - six of which are client-facing advisers, and four of which are investment managers.

It plans to scale, like many others - but not to the size of the likes of Tilney. And with scale comes the discussion of how advice and wealth management firms retain value.

“This fee compression discussion that goes on is valid, right? It's valid, but it's only valid if you're not adding any value,” West explained.

“The customers only get upset if they're not getting value. If they don’t feel they’re getting value, they don’t want to pay your fees. I mean, that's normal.”

The wealth manager boss, who started out in the mortgage advice industry at age 19, said she’s “not afraid of profitability”.

“I'm not afraid to make money and I’m not afraid to pay for what it is I want to pay for. It's not like ‘cheap as chips’.”

As well as streamlining the technology, West also justified Investment Quorum’s client value by citing its picky recruitment appetite, which focuses on hiring “younger” and “more intelligent” people than the boss herself.

“It’s been very difficult for us to hire in the last three years. In fact, we’ve been battling in the last ten.

“Generally the quality of advisers has been really hard to find. Every adviser in my firm has been retrained in the last five years, or they are recruits out of the graduate space.”

ruby.hinchliffe@ft.com