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Adviser interview: Three wise men of Baigrie Davies

‘The great joy of the last 12 months is that Ian has proved to share the same DNA as Arthur and I, in a non biological sense,’ enthuses Tom Baigrie. We all laugh here as he emphasizes the last bit, but in all seriousness he argues: ‘In all great businesses you do find a corporate DNA running through the key people and we really do share that.’

Baigrie, 46, is explaining how the business is moving forward as three different generations gather in the meeting room overlooking City Road in London. His fellow founding business partner Arthur Davies, 56, is sitting alongside together with managing director Ian Howe, 36, who joined in 2006 and has clearly settled in very successfully.

When Baigrie asked Howe at the interview what he thought the key was to being a successful and good financial adviser, Howe replied: ‘To do unto others as you would be done by,’ which Baigrie says is exactly the phrase he would have answered the question with himself.

From that moment on they found it very easy to entrust Baigrie Davies’ development to him, formalized recently after a probationary period by appointing him as managing director. ‘Bluntly, I did not have enough confidence in the managers that we were bringing forward in the business to take over. We finally bit that bullet last year and restructured our management team,’ says Baigrie.

Essentially Baigrie manages Howe who in turn manages Baigrie Davies, giving Baigrie time to manage sister company LifeSearch. One of the fascinating aspects of this story is the interplay of the wealth management arm of the business, Baigrie Davies, which employs 33 people and has a turnover of more than £2 million, with the younger direct and mass market protection adviser LifeSearch, which now has 130 staff and a turnover of £9 million.

These figures allude to the more difficult and slower transitional movement from old to new model with an existing business like Baigrie Davies. By contrast the LifeSearch proposition is straightforward and scaleable.

It also takes far longer to train advisers with Baigrie Davies and one of Howe’s first ideas was to start the Baigrie Davies Academy which puts the best LifeSearch advisers through training in holistic financial planning as a stepping stone into full wealth management. Howe says they need to grow their own talent internally and this is one of a number of initiatives that has brought the two companies together.

The escalator route from specialist protection adviser to fully fledged financial planner also includes an intermediate step, as employee benefits is very much part of the main plan. In this way advisers can climb a career through the group’s businesses, from simplified specialist advice over the phone through to more complex but relatively straightforward pensions advice in the workplace to younger people in employment. From there they can move to the far more complicated holistic advice needed for people in their 40s, 50s and 60s as they go through the retirement process.

Baigrie says they are taking people on at administrator level in LifeSearch and he expects this route will provide future directors of Baigrie Davies in five or 10 years.

BAIGRIE'S STORY

Baigrie grew up in South Africa’s Cape Town and arrived in the UK in 1981 having got fed up with life out there. With no relevant experience other than as a conscript in the military, he got a job with Merchant Investors.

He met Davies there and worked as a tied investment and insurance salesman, where his background had its advantages, as he explains: ‘Generalisations are always dangerous but South Africans are generally assertive people and that certainly helped in cutting the mustard as an adviser in the 1980s, in the City in particular.’

Baigrie is wearing braces for this interview almost as if in testament to that period.

He thinks the yuppie years were much maligned. Davies is also wearing braces but Howe, who is not, laughs saying he has not been indoctrinated to that extent.

Baigrie realised after a few years that being tied was not conducive to giving the best advice at which point he set up as a broker with a little office of his own and shared office space with Davies. This was 1987 and the advent of regulation focused their minds on making the next decent decision which was that they ought to be better capitalised and that they could do that better together than apart.

‘Both our approaches and skill sets are very different and because of that we thought we might make a good partnership.’ The fact that they are still together 20 years later confirms that this was a good decision.

The merged business, Baigrie Davies & Co, slowly but steadily grew and in 1990 another two advisers joined along with a couple of support staff, all of whom have stayed on to this date.

THREE-PRONGED STRATEGY

The hugely significant launch of LifeSearch prompted a move to bigger premises. LifeSearch was the result of a thoughtful analysis by Baigrie and Davies to build the business into three distinct divisions.

Davies recalls here that they thrashed this approach out in the summer of 1996, by taking a walk along the river. ‘One of our core precepts is that you can’t stand still in this business. You have got to develop, you have got to look where the world is changing and go along with it or possibly go ahead of it.’

The strategy was to create three divisions, the first aimed at as high net worth individuals as they could manage, the second geared to employee benefits, and the third, a mass market internet business. Baigrie says these were ‘three strategies to protect us and build up a business with resilience against the multiple threats that regulation posed’.

The regulatory backdrop to this thinking was the pensions review in full swing and an endowment review looking inevitable. But Baigrie Davies turned adversity to advantage in what was to become a running theme as Baigrie reveals: ‘In the early 1990s one of our real triumphs was that we were the first IFA we think to pass phase one of the pensions review.’

This paradoxically came about because Baigrie Davies refused to comply with the pensions review and the PIA sent its hit squad on their first mission, in the event giving them a clean bill of health.

Davies puts it down to the position of Baigrie Davies right at the beginning of the alphabet and that the PIA was just down the road. ‘I think we were one of the easy ones so they came mob handed.’ He says these regulatory reviews are real threats and for that reason he has never thrown away any files since he started in 1977.

This is why, with their blessing, the regulator turns up at Baigrie Davies, perhaps twice a year, to see ‘what in their words was best practice at the time because they know we were properly represented and our files are there to have a look at, which makes us an interesting rarity in their book,’ comments Baigrie.

‘We’ve always had an extremely proactive relationship with the regulator, proactive in that we often lead it.’ He was, for example, off to the retail distribution review the week after this interview to talk about the impact of the regulator’s ideas on retail distribution.

Baigrie continues: ‘We know the personalities at the FSA better than most. That’s because we’ve always spotted that regulation is a huge part of the success in this business and getting regulation to behave properly is vital, we’ve paid our dues in that respect. Very few IFAs could have contributed more than we have to that.’

They were, for instance, instrumental from LifeSearch’s perspective in developing the FSA’s views on the regulation of pension term assurance. Not only that, they were also consulted last year on the with profits pension review with reference to the selling practices in the late 1980s and early 1990s.

With well known IFA Amanda Davidson now part of Baigrie Davies’ team they have even more weight as she was very involved with all the regulation from the Fimbra days and still sits on some regulatory committees.

THE IMPACT OF LIFESEARCH

From LifeSearch’s first day of trading in January 1998 it looked like the business was going to surprise on the upside and Baigrie says they also realised straight away that it could only ethically work as an advisory, rather than an execution-only, service.

The growth in that business precipitated a move to London’s Queen Street and the success of LifeSearch allowed Baigrie Davies to take a more aggressive approach to growth because the business was larger as a whole. LifeSearch was always seen as part of the business and owned by the same people although legally the shareholding is separate.

They became braver in growing Baigrie Davies, hiring staff to boost the employee benefits division and recruiting some top-notch personal financial advisers to take the business forward.

Davies says it was more about giving a confidence boost than making capital directly available, though the cashflow was helpful. They were thus prepared to take bigger strategic decisions that they might otherwise have done. For example, they were offered the opportunity to acquire a small IFA with a high reputation whose owner Tony Sellon, a former president of the Institute of Financial Planning, had been diagnosed with terminal cancer.

Baigrie remembers how they were able to take on what was a substantial acquisition cost for them in those days because they knew that for the whole business it was no threat. ‘Baigrie Davies on its own would have been challenged by that scale of acquisition at the time.’

The acquisition led to a search for new premises and they moved to their current offices in City Road, taking the whole floor and uniting LifeSearch with Baigrie Davies.

Another example of LifesSearch’s impact on Baigrie Davies is in the IT development side. LifeSearch has always been paperless with strong IT and that allowed Baigrie Davies to also have strong IT resources. Hence, Baigrie Davies is now paperless and uses Adviser Office and 1st Software.

COMPLEMENTARY ROLES

Baigrie says the key to their partnership has been their ability to develop their roles. ‘My role as business leader began to grow, while Arthur’s role as a safe pair of hands – the chairman to my chief executive – became ever more important.

Without really agreeing to it we just did it.’

Around the new millennium onwards they were growing rapidly across the group. LifeSearch started out in 1998 with zero staff (to 130 now) and Baigrie Davies went from five to its current 33.

As a result Baigrie’s role has changed into business management and he no longer has the right licences to advise. He now looks at the strategic side and the development of the two brands. Davies, meanwhile, has remained client facing to a degree but also deals with regulatory and legal issues.

The employee benefits side is still very much part of Baigrie Davies but they have not tried to grow this as fast because they sensed from the beginning that employee benefits faced a series of challenges on the regulatory front that makes it very hard to be profitable in that area.

Baigrie’s view is that ‘LifeSearch has been favoured by regulation and has grown like topsy, Baigrie Davies has been regulatory neutral and has done very well and employee benefits has been hard hit and survived’.

But he maintains there may well come a time when employee benefits, which has an established brand, is the route that is most favoured and will grow most easily.

Howe says they have already ‘semi pressed the button’ in terms of refocusing on their group proposition with the recruitment of a new business consultant.

Davies points out that the ‘ethical approach, advice-driven and client-centric’ nature of Baigrie Davies is one of the key influences on LifeSearch in demonstration of the fact that this is a two-way relationship where each business has something to offer the other.

Baigrie Davies does use LifeSearch for all its protection advice, which Davies says is an important point. ‘If you talk to many IFP financial planners, they will say the first building block of any financial plan is to get the protection right but they actually don’t deliver a lot of time and effort on this. They say this has got to be done but they don’t necessarily have the skills to identify the right product for the need. We use LifeSearch.’

DAVIES' STORY

Davies was a naval officer for eight years from 1969 and there he learnt to fly fast jets around the world and met his wife, who was in the Wrens.

But in 1977 he took the first chance to leave with a gratuity recognising that he was not going to become an admiral.

He wanted to make some money and joined Merchant Investors in 1977 which he found to be a tough world. ‘I tend to be thoughtful about things and it took me about three months to make a sale, a PHI policy at £4.87 per month and he is still a client, a wrap client in drawdown and spends half his year in Australia.’

He recalls Merchant Investors in those days was a super company. The technical side was run by Tony Wickenden and most of his team is now at Technical Connection. The pensions team was lead by Ken Wrench now of the Open Annuity London & Colonial, and among the new advisers was Martin Gray, currently a top-rated fund manager at Miton Optimal.

However, Davies became irritated by the structure of the life offices, and as mentioned earlier moved in 1983 to Carter Lane, where he set up Davies & Company.

Davies, a fellow of the IFP and a CFP, had always been interested in the technical side of the business and when he later attended an IFP conference in 1996 he realised the members were very good at financial planning, though not necessarily great at running a business.

FINANCIAL PLANNING PROCESS

Davies argues that financial planning is quite straightforward and simple in overall terms even though many complex matters will impinge on the process.

He maintains the key is to give yourself time with the client to understand what it is they want to do and to specifically understand the importance of cashflow planning.

He does not use Prestwood, though he says it is extremely good, as Baigrie Davies uses 1st software for its back office.

Having signed up with Standard Life’s new wrap the company uses the 17 questions within that for risk assessment, combined with a redesigned fact-find at the beginning to talk about the client’s goals, risk profile and ethics rather than financial details like income.

Davies does not do a huge amount of financial planning work now as his expertise is needed elsewhere in the business. However, he highlights one of the most fascinating and demanding client cases he dealt with just over a year ago.

This was a large divorce case and there was a deadline with A-Day coming, and pension caps to consider with very large SSASs involved. Davies had to deal with the other side about a means of getting a court order in place in time so that the half he represented could put the maximum lifetime allowance into the scheme.

Then after A-Day, because it was part of the divorce settlement, the other half would be allowed to put in the same amount of money, a tidy sum of £3 million, as part of the divorce split.

‘Technically it was very interesting. I was working from the HMRC technical manual on A-Day changes, so was the other side, and there were two law firms involved.’

With advisers on both sides asking each other about the interpretation of the manual and just seven days rather than the usual 30 days for the divorce settlement to become final, Davies says it was demanding technically and time pressured.

It was a cracking result. Davies got the court order, the ‘poorer half’ got the £3 million, the other side had a large pension fund which was not quite as large as it was before but it meant that his business was left alone and kept out of the settlement because that was the quid pro quo. ‘In fact I understand the divorced couple left the court hand in hand!’ Davies charged his normal hourly rate of £325 for this case.

He also mentions a client who was selling her business because she was not very well. Her sight was failing because of stress. They were talking about 226 pension plans and putting money in before she sold her sole trader business. ‘And then I spotted that she had a small PHI policy and I said have you thought about claiming and indeed she got the full claim for about 15 years.’

He says: ‘Don’t get me wrong. Every IFA will pick up on these details from time to time. But it does mean that attention to detail is often key.’

HOWE'S STORY

Howe did a spell of tied advising and in 1996, after accepting independent advice was the only way forward, joined Towry Law, where he ended up running the City branch.

In 2002, he moved to Advisory & Brokerage Services as a main board director running the private client department having realised that fee-based advice, rather than product-led sales was the only way to build client relationships in a ‘profession’ rather than an ‘industry’.

Post the creation of Origen, in 2005 he had a brief spell as sales director of Bradbury Hamilton: ‘I wish Sheriar and his team at Bradbury Hamilton all the best but it was not a model that I felt was right for me,’ he says.

At Baigrie Davies he says he found a meeting of minds and personalities and a way of viewing the world that was the same. He loves the ‘genuine client-driven culture’ and he feels, after searching for 16 years that he has found his professional home at Baigrie Davies.

In addition to the training academy for staff he was keen to establish a process whereby appropriate LifeSearch clients could become Baigrie Davies clients.

He describes his role as fundamentally to make sure the culture is right and that is driven by the people who work within the business.

He has been with Baigrie Davies for just under a year and after initially fact-finding he identified a number of areas to enhance.

While the advisers saw the benefit of working as a team there was not a consistent service proposition. Clients would experience Baigrie Davies in a slightly different ways depending on who they spoke to. Currently there are 13 advisers, six of whom are certified financial planners and four are chartered financial planners.

Howe noticed that people worked together almost on an ad hoc basis rather than as a disciplined team where people could specialise in their own areas of expertise as well as being accomplished general practitioners.

There was also not a standard method of remuneration. There was no focus on building and rewarding a repeat revenue stream. ‘It was a financial planning firm, because that is what it did, but some of the bases had not been covered off right.’

These observations prompted a restructuring of the company and closer links with LifeSearch. Establishing a wealth planning and financial management proposition was another big initiative and choosing the wrap to go with it was an important further step.

Baigrie Davies’ wealth planner is powered by Standard Life which was a function of the service proposition. ‘That was the order it came in, the wrap was a piece of kit to facilitate – which also clarified our remuneration from clients – that dovetailed in on the two service propositions,’ says Howe.

The wealth planner was only launched recently and hence the numbers are small.

However, some 60-70% of clients are on platforms such as FundsNetwork, Cofunds, and some on Transact, Skandia, and Selestia. One of the exercises will be to consolidate these where appropriate on to the wrap and Howe says he is happy to go with the one wrap, having carried out lots of due diligence.

GIVING SOMETHING BACK

The company’s ongoing plan is to grow organically with any acquisition very much an occasional opportunistic move rather than strategic or core. If they go outside, Baigrie says they would rather recruit outstanding individual advisers like Amanda Davidson.

A big macro issue they are grappling with, and indeed showing the way forward on, is enabling the wider market to access quality independent advice. Baigrie says it is possible for generic advice to be converted into regulated personal advice, and others can see this in reality through LifeSearch’s recent exclusive protection advice link with supermarket giant Asda. ‘Protection still offers a route that overcomes this exclusion effect because it is not heavily regulated,’ he says.

Baigrie comments: ‘Where the regulator and the industry have I think got it most wrong is that by trying to get it done better they have made it harder for ordinary people to access it.’ To this end Baigrie is engaging very heavily at moment with the FSA’s retail distribution review and Otto Thoresen’s working party on financial access. Watch this space.

Furthermore, customers who started buying life products with LifeSearch are now having full holistic planning with Baigrie Davies. An exciting line of development which Davies says fits in with their philosophy of giving something back: ‘Those people in society who don’t necessarily have access to the finest things in life can at least know where to start.’

CV: Arthur Davies

Career

1969 - 1977 Naval officer
1977 - 1983 Merchant Investors
1983 - 86 Davies & Company, independent adviser
1986/7 to date Baigrie Davies, director

Qualifications

CFP, FIFP and Chartered Financial Planner.

CV: Ian Howe

Career
1991 – Tied agency and mortgage broking.
1996 – Towry Law. Various advisory, training and management roles, culminating in running the City branch.
2002 – Advisory & Brokerage Services. Main board director, running the private client department.
2005 – Bradbury Hamilton, sales director
2006 to present – Baigrie Davies, managing director

Qualifications
FPC - 1994, CF9 - 2005

Hobbies and Interests
Spending as much time as possible with my wife, Jan and our three daughters, Emily, Jessica and Matilda; Arsenal Football Club; skiing; hacking round golf courses.

CV: Tom Baigrie

Career
1981 - Merchant Investors
1984 - Baigrie Associates
1987 - Baigrie Davies and Company
1998 - Founded LifeSearch
2006 - LifeSearch reaches £9 million turnover and Baigrie Davies £2 million.

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