Hill-walker Flora Maudsley-Barton is garnering knowledge of behavioural economics on the path of steady growth at Parsonage Financial Planning.
Keen hill-walker Flora Maudsley-Barton, managing director of Parsonage Financial Planning, is steadily advancing in the advice profession, growing client numbers, assets and qualifications, and is using behavioural economics to guide her route to successful client investment outcomes.
Transforming book smarts into business acumen has been a steep but enjoyable learning curve for Maudsley-Barton.
As with any challenging ascent, she says, she enjoys the journey and would probably refuse a short cut if it was offered to her.
Delving into client behaviour
While pragmatic errors in the running of the business have set Maudsley-Barton back on occasion, she has learned from them and moved on.
She has also turned her bookish nature to her advantage by attaining qualifications and using further study to enhance her knowledge in areas such as client behaviour and risk.
As an example, she refers to the book Thinking, Fast and Slow by behavioural economics guru Daniel Kahneman. She started reading it after a speaker at a Personal Finance Society (PFS) conference recommended it.
The book compares and contrasts two ways of thinking: the first is fast, instinctive and emotional, and the second is slow, deliberative and logical.
‘I keep coming back to the book,’ she says. ‘If you read it next to the regulator’s paper on behavioural economics, you can see and respect their concerns about how people make decisions and how good intentions don’t always create good outcomes.
‘It has informed my fund selection process by making me favour passive funds more. And it has helped me recognise when I have to be careful and make sure clients first and foremost understand and retain the concept of potential for loss.
'If after that they are still on board, they will be relaxed when markets fall.’
This is particularly relevant given the current stock market highs, says Maudsley-Barton. ‘Now is dangerous because cash rates are so low and stock markets have performed so well over the last 24 months,’ she says.
‘I get enquiries from people who [should be] cash investors but are chasing returns at the wrong time.’
Kahneman’s work covers areas like how changing perspective can allow people to view questions differently and explores flaws in human judgement that are commonly played down.
Maudsley-Barton noticed this flaw when she surveyed clients to find out what they valued in financial planning. She asked them what they valued about their review service and found risk profiling was low on their list of priorities.
‘They are not feeding back that they value having their attitude to risk rechecked,’ says Maudsley-Barton. ‘It is rare that anyone’s risk profile varies that much, but if we got it wrong, they would come to value [the correct risk profile] a lot.’
One thing clients do want is more information, she says, which is one reason why she is now developing a more collaborative approach to advice.
‘I have previously resisted sending out a general mail shot, but I am getting a message that they want me to mail them more, for example with quarterly valuations,’ she says.
‘In addition, we are sending relevant and targeted information, for example on pensioner bonds.’
FLORA MAUDSLEY-BARTON CV
2008-present Parsonage Financial Planning, managing director and IFA
2006-2008 Aqua IFA, IFA
2004-2006 JSJ, IFA
2001-2004 Sesame, compliance – case checker
2000-2001 David Cathcart & Associates, IFA
1999-2000 Mazars, IFA
1994-1999 Thomson Morley Jackson Accountants, trainee IFA and IFA
1994 Hambro Guardian, temporary role in the complaints department
Chartered financial planner
Certified financial planner
Growing the business
After working as an IFA for several firms, Maudsley-Barton set up on her own in 2008. She achieved certified status in 2005 and subsequently allowed her membership of the Institute of Financial Planning (IFP) to lapse after also receiving individual chartered status from the PFS in 2007. The firm became chartered in 2012.
‘I found the PFS did more for me; it is just about what suits you at the time,’ she says.
However, she says she is now considering resubscribing to the IFP after other IFAs recommended its conference, and she believes Parsonage may now benefit from membership. ‘I am planning to resubscribe to the IFP as it will help with continuing professional development and should also help with using cashflow planning as well.
‘We deploy the six-step financial planning process, set out by the IFP, in every circumstance though the level of detail required changes depending on the client. So we do describe what we do as financial planning.’
Regarding the news that Lloyds bank plans to launch financial planning propositions, she says: ‘If the banks are doing [six-step financial planning], I applaud them. If they are not, it means I will have to explain the difference to clients. But all labels are subjective so it wouldn’t necessarily mean that the term financial planning is meaningless.’
The business is growing steadily. It has more than doubled client numbers over the past five years and amassed £20 million of assets under advice. While the focus has been on writing new business, recurring income levels are lagging behind, at 44%.
To reflect its growing stature Parsonage has recently moved to a newly converted office building in the centre of Altrincham, Manchester.
It is not alone, the area is already densely populated with financial advisers, but Maudsley-Barton is not fazed by the competition and says there is still room for a good, reputable chartered financial planning firm. ‘That hasn’t changed and that is what I am still building,’ she says.
Service and payment options
Parsonage charges fixed fees for transactions and initial work, and percentages for ongoing work.
It also offers payment options: more than 90% of clients pay initial fees on pure investment work separately by cheque or online rather than out of the product. About a third of ongoing clients also pay directly.
‘I encourage them to pay the fee separately because compared with what they would receive in interest were that money in cash, paying outside the product makes it all grow faster. It might be the other way around if cash was paying 7%,’ says Maudsley-Barton.
Parsonage has two service tiers, offering annual or quarterly reviews. Those on the annual service pay 0.53% a year and those on quarterly pay 1.05%. About half the firm’s clients are in the annual service level and half in the quarterly.
She says the fees were 0.5% and 1% before she increased them by 5% in line with inflation. ‘It seemed like a good idea at the time,’ she says. ‘But in my next terms of business, it won’t be those funny numbers.’
Previously there was also a middle tier offering twice-yearly reviews but Maudsley-Barton removed that. ‘They either want to be loved and cajoled, or yearly suits them enough,’ she says.
A passive tilt with active options
Parsonage started using Cormorant Capital Strategies in January 2012 to help develop its five growth and three income portfolios. Cormorant provides a short list of passive, active and ethical funds for every asset class, and Parsonage makes its final selections from these.
‘I like the fact that Cormorant’s approach is simple and easy to explain to customers,’ says Maudsley-Barton. ‘Through Cormorant I can deliver this easily in a repeatable way. Also, as I get older, I find I have a more passive investment style and that is one thing that Cormorant delivers.
‘So I increasingly go with the passive but it depends on what is available. We have quarterly investment meetings and in them decide whether there are any sectors where we want to go active. We also have a tactical overlay for some high-net-worth and more sophisticated clients.’
However, she does not believe tactical overlays are suitable for most people and believes they can give false expectations.
‘A lot of the investing public think that means we will automatically take their money out before a crash and we explain that is not necessarily the way it happens. I would worry that a tactical overlay as a standard offering would be misconstrued.’
Recent tactical decisions have involved moving towards more defensive stocks and shorter duration fixed interest and away from some global equities.
One of Parsonage’s most commonly recommended funds is Royal London UK Equity, a Citywire Selection pick.
According to Citywire Discovery, the fund’s manager, Martin Cholwill, who has a Citywire AAA rating, is in the top decile for five, seven and 10-year risk-adjusted returns in the UK equity income sector.
*Data gross of charges. Dividends reinvested.
ACTIVE FUNDS: 58%
PASSIVE FUNDS: 42%
Honing the target market
The firm’s clients are mainly business owners, including many dentists and medics, and senior management in the public and private sectors.
Growth has come through client referrals, professional connections, adviser directory Unbiased.co.uk and more recently VouchedFor.co.uk.
Maudsley-Barton says the firm has put a lot of work into developing its website with the aim of bringing in more enquiries, but still needs to do more work on this.
‘Working out who our clients are and talking to them via the website has worked for us,’ she says. ‘We reviewed what common traits we could see among the clients we’ve enjoyed working with because those have tended to be the most profitable for us and them.
‘We established that they have to be of a certain net worth, otherwise we won’t add value for them. Using fixed fees paid separately from the product also self selects [the right kind of clients].
‘We work well with customers who want a custodian approach, that is, who want money looked after past their own lifetimes. They do not want to make a fast buck. And my clients want a collaborative approach: I am giving advice but I want them to understand what we are getting into.’
Creating a cost-efficient team
Parsonage has two full-time employees, apprentice paraplanner Alex Benett and client support manager Helen Barratt.
It used to have two job-sharing administrators and at one time Maudsley-Barton’s husband Sean was commercial director, but she had to cut staff in 2013 as part of a cost-cutting exercise.
‘Sean worked with me for two-and-a-half years and helped me, as a sole trader, to put the business onto a more scalable footing,’ she says.
‘Our processes are better now. For example, he improved our quarterly reviews, making them more personalised to include valuations and made them faster for us to process. He also persuaded me to have team meetings so people understood what was going on in my head.’
Having effected this transformation, Sean moved to a role outside Parsonage as the business was not large enough to justify keeping him on permanently, says Maudsley-Barton.
Although the company has maintained profits of more than 25% for the past four years, Maudsley-Barton says she would like higher margins.
She was particularly concerned when costs more than doubled between 2011 and 2014. To address this she took a number of measures, including making the two job sharers redundant, though the decision weighed heavily on her for some time.
‘I was not good at controlling costs in that period,’ she says. ‘In 2013, Sean was expensive because we paid him a salary. In 2014, we split the shareholding so he started taking dividends and he stopped being so expensive. Also I did not have a handle on some suppliers’ costs; and staff was an expense but I took care of that last year.
‘It is hard to make people redundant. I was trying to make them fit but they were recruited into a role that didn’t exist anymore. For example, we had to shred things but now we have confidential waste collections, scanning was a laborious effort [now it isn’t].
‘Instead we now need greater financial knowledge,’ she says. ‘Admitting that to myself resulted in the best night’s sleep I had all that year.’
Since then another challenge has been recruitment. Parsonage has been trying to find an additional adviser for more than a year, so far unsuccessfully.
‘I am advertising for an apprentice to become a mortgage adviser, but I would also like an IFA who could hit the ground running,’ says
She says many similarly small IFAs face the same problem. ‘Even though I am offering an equity stake, I know how much a talented IFA can command and that the recruitment companies push them towards the bigger companies that pay bigger fees.
'I need a professional – we are a chartered firm and the benchmark for that is going up – and they have to be good with clients. That balance is hard to find.’
Maudsley-Barton is a regular commentator on radio programmes, such as BBC Radio 4’s Money Box. She also talks around four times a year to undergraduates at various universities about careers in financial planning.
‘I love doing those things,’ she says. ‘We have to be better educated as a population, so I do what I can.’
For her own education, she is planning to study for a master’s in financial planning and the Society of Trust and Estate Practitioners (Step) certificate.
‘It is inconvenient living in my house without a master’s because Sean has one. I get picked out on it a lot,’ she jokes.
But on a serious note, she says: ‘But I want to see clear blue water between me and everyone else. It’s also who I am. In the last few years, I am happy to have worked out how to pull my weight commercially.
'But for me there is always a tension between the academic and the university of life and I do like progressing.’
She is thinking of using the master’s degree to study the most effective frequency for rebalancing investments.
‘I had a look at some actual clients and it was a slam dunk,’ she says. She found quarterly rebalancing emphatically delivered better returns for them compared with yearly.
Mapping out the future
Maudsley-Barton’s overall plan is to continue on the path of steady growth. ‘As one adviser, I can probably get the turnover to about £500,000,’ she says.
‘But would I then be satisfied for recurring income to be higher or would I need more people? It would depend on the structure here at the time. I enjoy the job, I will be around for quite a while and am not comfortable putting exit plans in writing.’
She and her family enjoy walking and own a house in the Lake District, their favourite hiking area. ‘Hill walking is about the view from the top, although if you offered me a helicopter to the top, I would not take it,’ she says.
While not yet at the pinnacle she has planned for her company’s development, she appears to be enjoying the journey.
‘The best moment in my career so far was getting the keys to this, our new office, a month ago,’ she says. ‘I enjoyed reflecting on it quietly and thinking "what do I want this to be?"’
FIVE TOP TIPS
Try to work out why your clients chose to use your firm and deliver more of what they chose you for.
Be sceptical about received wisdom.
Embrace interns and work experience as an impetus to keep processes up to date.
Avoid suppliers that send marketing emails without an unsubscribe link. They do not care about you.
- After customer service, focus on revenue.