Ben Ellis likes to take on tough challenges and, only two years after launching Cactus Financial Planning, he is already looking to expand and hit £100 million in assets.
Ben Ellis, director at Cactus Financial Planning, is only in his second year of trading but is already proving he can build a resilient business with healthy profits on only a 0.5% fee.
Adventure race runner Ellis has shown gritty determination in building a sustainable model. Despite the name, he is not a prickly character. He said Cactus gave him something catchy, symbolic and non-traditional.
‘It symbolises efficiency, sturdiness and ability to cope in a difficult climate,’ he says. ‘We aim to grow steadily, no matter the conditions, with client’s money and with the firm.’
BEN ELLIS CV
2015-present Cactus Financial Planning, director
2009-2015 Newell Palmer, financial planner
2004-2009 Marshallsay Mumford, financial planner
2002-2004 Marshallsay Mumford, investment trainee
G10 Taxation & Trusts
CF8 Long-Term Care Planning
Going it alone
Ellis started his career in financial services recruitment, then joined IFA Marshallsay Mumford in 2002. In 2009, he joined Midlands-based Newell Palmer, a former New Model Adviser® cover star firm, when it acquired Marshallsay Mumford.
By 2015, he was ready for a new challenge so he left to set up Cheltenham-based Cactus on his own.
It was a ‘leap of faith’ as Ellis describes it, especially as he has three children who were aged eight, six and one at the time. He accepted it would be at least two years of hard slog. However, one thing that helped was a pre-existing relationship with an accountancy firm that sent him a steady stream of referrals. Meanwhile, he started developing other connections, mainly with solicitors.
‘I knew there was potential for getting clients from introducers, but you never know until you start,’ says Ellis. ‘I found they prefer to deal with smaller firms such as ours, as it is more personal and they have more influence.
Last year he had 79 clients, 72 of which are active. Non-active clients are transactional – typically clients who have just taken out life cover or been helped with auto-enrolment and no longer require ongoing service.
‘But I had no clients when I started. So I had to start knocking on the doors – it was a slow burn for the first three to six months.
‘As a new business, you have to be proactive. I am not afraid to pick up the phone to solicitors or accountants [ask for a meeting] and try to get a foot in the door. The key to doing that is to understand what is important to them and show empathy.’
Cactus charges a fixed fee for initial planning. Cactus clients’ average funds under advice are £300,000. For those with assets already invested, initial fees are typically £2,000. Ellis says, because many new clients have existing portfolios that need to stay in place if possible, offering fixed fees is essential, and the firm has been doing more fixed fee work than he initially expected.
Alternatively, if there is new money to invest, Cactus charges tiered percentages. These are 2.5% on the first £100,000; 1.5% on the next £100,000, then 1% above that; and include initial planning and implementation.
This works out as £4,000 for the average client, which Ellis says reflects the extra costs of handling new money, including administration, report writing, adviser time and compliance.
The charge for ongoing service is 0.5% for all clients. The firm has two tiers of ongoing service: those with less than £250,000 under advice receive annual review meetings. Those with more can have half-yearly reviews.
Ellis says it costs £800 on average to provide the annual review service and £1,100 for the twice yearly one. The firm works that back to an hourly rate of £275 for an adviser, £150 for research and £90 for administration. He says the latter is expensive but justified given the quality of his administrators. These costs may rise as the firm is revising the proposition to include more service points, such as drawdown reviews and regular cashflow modelling using CashCalc.
‘Having worked at a practice [Marshallsay Mumford] that was proactive in [building assets by] picking up new business from existing clients, I realised if you get it right, you can be profitable on the 0.5% model,’ he says. ‘Another reason for that level is to keep the total expense ratio (TER) below 2% as above that is too expensive.’
Off to a flyer
An important boost to the firm’s figures came from the expiry of a 12-month restrictive covenant with Ellis’s old firm, after which many previous clients started to re-engage.
Consequently, Ellis projects Cactus’ profits for its financial year ending in September will be £119,000, which is 45% of total income and £29,750 per staff member.
Ellis says profit as a percentage may dip slightly next year as much of the new business from the past two years turns into recurring income, but he can already see the firm will be more than sustainable.
The lessons he learned from his previous two firms have stood him in good stead. He discovered the importance of proactivity in running an ongoing service from Marshallsay Mumford, and of using robust, repeatable processes at Newell Palmer.
Starting Cactus from scratch enabled Ellis to choose an efficient, modern back-office system, which helped minimise costs from launch. ‘I use Intelligent Office and it takes a lot of pressure off us, for example by generating comprehensive reports efficiently and linking with most of the main platforms with live updates,’ he says.
‘These days, many clients have money on platforms already. We want to keep them there if possible, so being able to work with many platforms efficiently is important.
‘The strength of the client bond relies equally on the relationship with the adviser and the quality of your technology. If the valuations are not right, for example, trust erodes quickly.’
Intelligent Office also offers a white-labelled client portal and Ellis says he plans to implement this for his clients in 2018.
Outsourced model portfolios offer a range of options
Cactus uses outsourced model portfolios from Margetts, Square Mile and Financial Express (FE). Ellis says this approach enables the firm to deliver a more efficient and personal service to clients, and gives them confidence that investments are being managed regularly to suit market conditions.
‘We can offer several different types of portfolio service that all come through the same risk-profiling process, but which give clients different options,’ he says.
Square Mile has had more focus on passive funds, while Margetts has been more active, and FE provides options for clients who have more specific time horizons, adds Ellis.
He says outsourcing does not increase costs for clients providing the adviser’s charge reflects the reduced time it spent on investment research.
‘We are not spending lots of time running portfolios,’ says Ellis. ‘That is why our advisory fee is 0.5%. With platform and fund charges, the TER is between 1.5% and 1.9%.’
The Square Mile 4 Advisory portfolio had a total return of 15% in 2016, outperforming the Investment Association Mixed Asset 40% to 85% Shares benchmark, which returned 14.38%. The portfolio also had a lower volatility – 5.4% standard deviation to the benchmark’s 6.83%.
Ellis says two funds that have done particularly well in the portfolio are Fundsmith Equity, managed by Citywire AAA-rated Terry Smith; and Lindsell Train UK Equity, managed by Citywire AAA-rated Nick Train, who have both delivered top-decile risk-adjusted returns in their sectors.
Another important factor in achieving good profits quickly was hiring talented administrators, says Ellis, who describes them as the unsung heroes of the financial planning profession. He has two administrators, Beatriz Puig and Kirstie Inglis, and plans to hire two more this year.
‘I also want to hire another adviser but the whole back-office structure needs to be in place first,’ he says. ‘I also want there to be opportunities [for administrators] to learn more and go down [the paraplanner route].’
Ellis says he will pay above market rates for recruits with the right CV, but is also happy to take on talented people with less experience than other firms might, based on their potential. ‘Another selling point for clients is that we are a young team and I won’t be retiring during their retirement,’ he adds.
He also plans to pay staff bonuses as soon as the firm’s finances allow.
Ellis says he wants to achieve chartered status by next year. ‘The industry is moving that way,’ he says. ‘Not being chartered hasn’t hindered me yet, but in a few years it could. Professional standards will continue to rise and the next generation of new model advisers will be more qualified.
‘It’s a good profession to get into now but it needs to keep improving as it can still be a bit product-led. That is why I offer fixed fees for initial work. It enables you to work with what they have already and step back from talking products.’
He recently hired The Yardstick Agency to improve the firm’s website, its profile on Unbiased.co.uk and client communications. Ellis says these marketing activities, plus recruitment and referrals, should take the firm over £100 million under advice in five to 10 years.
He also plans to move to a larger office, but remain in the centre of Cheltenham. ‘We are already bursting at the seams in this office, so I would like to find a more open space, and to become more locally focused here as my clients are currently spread around the South West,’ he says.
Ellis took dividends of £26,000 last year and plans to take £60,000 this year. In future, he plans to take around £75,000 with any additional remuneration as pension contributions.
‘The longer-term plan is to grow the practice to a reasonable size,’ he says. ‘I don’t want to remain as a single adviser. To recruit and retain good people, you sometimes need to offer more than simple remuneration, so I may not keep 100% of the business.
As working hours have been so long for the first two years, planned out-of-work activities – such as the Tough Mudder races that Ellis runs regularly – have been important to get away from the office. He even joined a boot camp to help train.
‘I was initially unrealistic about how long it would take to translate the hard work at Cactus into business,’ he says. ‘So getting through the first year was good.’
Things developed rapidly in the second year though. ‘Now, we are sitting down with the marketing agency and we are becoming more professional,’ says Ellis.
He adds that this interview is also a good moment. It is the first time he has taken stock and realised Cactus has now exceeded his expectations for the first two years and, like its namesake, it is already proving its resilience.
FIVE TOP TIPS
Stay focused on the things you can control and do not get distracted by the things you cannot.
Do not put things off. Just get it done!
Be disciplined with your time. Allocate your different job roles to certain days.
Stay active. Keep up your interests outside of work. Healthy body, healthy mind.
Do not underestimate the personal relationships with your clients.