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Adviser profile: Going the extra mile

Emma and Tim Ames of Cathedral Financial Management  have added tremendous value to their business since our last visit but have not lost sight of the importance of looking after both clients and staff in these challenging times, as the video clip below shows.

This dynamic duo do not stick their heads in the sand when times get difficult. ‘This is a very opportune time for us,’ says Emma Ames. ‘Over the last three months we’ve taken between five and 10 new clients with big amounts of capital in the London area because they have been abandoned by their advisers and they are sat there with cash ready to go back in whenever the timing is right.’

They recently held seminars to reassure existing clients featuring two key outside speakers, one from the Bank of England and Rensburg fund manager Paul Spencer who has just been awarded a Citywire AAA rating.

Emma says the message was: ‘Despite what’s going on, we are still here. We are here to see you, to talk to you to, hold your hand through these difficult times.’ She adds that at Cathedral Financial Management they don’t know what’s going to happen any more than anybody else does but part of their strategy is about maintaining their high profile with existing clients.

‘We’ve been out and about a lot recently with our peer group and many of them are saying they’ve gone on holiday or are not even returning client calls at the moment because they are just worried that they don’t know what to say. We are still sending our valuations however depressing it is.’

Against this backdrop, Tim highlights Cathedral’s single biggest achievement since 2006 – gaining of discretionary status, which involved a long journey. ‘Firstly we had to build the right team and recruit other members of staff because we knew we didn’t have all of the skills in-house.’

The discretionary service only went live last month but before that they also had to go through the FSA application earlier this year ‘which was quite demanding’.

The most challenging aspect of this process was the paperwork. ‘The FSA was very helpful. But we thought the project would only take two months and we were probably a bit naïve on that because in the end it took us four months.’

Investors In Customers

Emma for her part highlights how she was personally very much involved in the Investors In Customers scheme for which Cathedral was awarded an impressive three stars. In the publicity which followed the IIC put the firm on a par with Amazon and Apple in terms of customer satisfaction.

She organised the sending out of the client survey that was part of the process. ‘That was amazingly successful. We had no idea that our clients felt so strongly about how good our services were. We mailed about 730 clients and 403 returned a complete questionnaire which was phenomenal.’

The clients’ overall average rating of what they thought of Cathedral’s services was 9.1, on a 1 -10 scale. Emma says the IIC had never seen such good results from such a large number of clients.

‘We knew that was something we did well. Most of our advisers have had relationships with existing clients for between 10 and 20 years. We have a very warm relationship with clients and send regular reviews to them.’ Extra initiatives include the sort of seminars outlined earlier, as part of a constant hand holding exercise especially pertinent given current conditions.

The staff give their verdict

There was also a separate survey for the staff covering questions about the service they felt Cathedral provided for the clients, and more specifically what they felt about their working conditions and the management (in the form of Tim and Emma specifically).

In essence this was about whether the staff felt appreciated and that they were given enough support. Emma says this area was the biggest surprise in terms of results. ‘I’ll be honest, it was disappointing to have a little bit of negative feedback in that respect.’ Nonetheless, the staff still delivered an average of 3 overall about working for Cathedral on a scale of 1-5 so it was by no means disastrous.

They have since responded to these results and have, for example, implemented study leave to give the already well qualified team a breathing space to learn more within working hours. There are four chartered financial planners, compared with two back in 2006, and the administration team is also highly qualified, Emma says.

Normally in these surveys senior managers think they are delivering the best customer service, the staff think less so and clients lower still. But as Tim says: ‘We were completely the opposite so what this means is that Emma and I beat ourselves up, that we are still not happy with what we are doing as a firm.’

Staff also requested more frequent one-to-one meetings with Emma: ‘At the moment I do one annual review meeting with each member of staff and they wanted twice yearly which is fine.’

After the survey results she additionally had a ‘fairly full on frank meeting’ with each of them one-to-one. ‘If you went and asked them the same questions now it might be a little bit better I hope.’

Youthful advantage

In the previous profile, we called them both the ‘young ones’ and ‘whiz kids’ partly on the basis of their relative youth. Tim was 33 then (35 now), and Emma was 36 (39 now). They also happen to like fast sporty cars. Another thing they have in common is the same surname as they were married at one stage and are now amicably separated (Emma says she gets on very well with Tim’s girlfriend) and are happily working together in the business.

Tim says their relative youth in the financial adviser world works to their benefit in two ways: ‘If a client joins Cathedral we are likely to be able to see them through for another 15-20 years. Whereas the average age of the IFA is in the mid fifties. Do you want to take advice from a 55-year-old who might not be there in five years or do you want to take advice from somebody who might be able to see you through for a long time?’

On the flipside, he continues, there are a lot of advisers who are in their late 50s or early 60s who want an exit route. ‘They know about Cathedral, that we have a strong brand and operate as a practice rather than a co-operative like many of our peers, so therefore we are a natural home for their clients when they decide to retire.’

Acquisitions

On the acquisition front to date Cathedral acquired Derek Parry’s Sidmouth-based financial planner business in September 2005. Tim took over all of Parry’s clients after 18 months after retired slightly earlier than they planned due to his wife’s ill health.

Prior to that, in 2003 they bought the business of Martin Lingeman who has since come back to Cathedral to run the Sidmouth office. Lingeman is responsible for all new clients coming to Sidmouth but he wasn’t there when Tim dealt with the client hand-over from Parry. Hence Tim says he goes to Sidmouth about one day a week and does all the meetings for Parry’s former clients, about 70 in total, so the main adviser dealing with them did not have to change again.

‘Sidmouth is very old worldy and there’s client parking out the back. It’s quaint and suits the client bank in Sidmouth who are somewhat older than those in Exeter,’ says Tim.

There are also two administration staff at Sidmouth and the property, worth an estimated £150,000, sits in Tim and Emma’s Sipp. The main office in Exeter by contrast is leased, with around 2,000 square feet for which they pay £12 a square foot (£24,000 a year) plus a fairly sizeable service charge of £500 a month due to the fact that the building is quite old.

Tim points out that they moved to their current offices in 2005 when it was not so expensive to rent buildings in this central area, which now command £16 to £17 per square foot. By contrast one of the attractions of the Sidmouth office is that it costs just £6 per square foot.

Good technology

The two offices are connected via a high speed computer link. So if Tim wants to send something across he has the facility to press a button and it will print in Sidmouth.

‘We’ve got a self employed IT consultant who is here as much as we need him. It’s his knowledge that has enabled us to have this link between offices.’ Tim says. This also works when Emma is abroad at her apartment in Portugal where she can just log on to the paperless office and work just as she would from Exeter.

For the back office Cathedral opted for Durell, the Taunton based system, rather than the ubiquitous 1st Software. The perceived advantage of 1st with its greater number of direct links to providers for valuations is not all it is cracked up to be, believes Tim.

‘With all of the systems if they provide an online contract enquiry to an insurance company all they offer is a photograph of what the policy looks like on that day. Durell has links to 15 insurance companies and 1st has probably say 20. But because that does not give all the transaction history the data would be corrupt so a lot of IFAs choose to use online contract enquiry because it’s easy but it does not give the true picture.’

There are also distinct advantages to how Durell packages together the information, he says. ‘Durell gives us everything we need. Because we are a bigger user we have quite a lot of leeway in terms of where Durell goes as a software provider. We’ve looked at 1st and we think Durell is superior not least on the valuation side,’ Tim says.

Emma explains everything is scanned in and attached to the client file in that system so it does all of the Microsoft word work and valuations and policy work in one system. ‘Whereas some people will use 1st for their portfolio management and then just have Word and Excel and paper files for client correspondence. Three of our advisers are entirely paperless.’

Tim shows me a valuation on screen and he highlights the main difference as the output ‘in that graphically we can show the tax wrappers the clients have, the percentage in each portfolio, the sectors, the amount of money in each risk and then we mathematically calculate the risk of the portfolio on a scale of 1 to 5. We use our own in-house risk questionnaire to assess a client’s level of risk and then build the portfolios to match that.’

Fine tuning approach to risk

They are using a new risk questionnaire since our last profile which they say is more robust. This was provided by an IFA in Somerset called Churchill Investments run by Jamie Ware, former director of Foreign & Colonial Management.

‘We gave Jamie some financial planning software we had written ourselves so that he could use that and he gave us his risk questionnaire,’ Tim explains.

Emma adds that the 10 risk questions initially ask clients about what their experience is in terms of investment, and it continues with such questions as ‘how would you react if you lost 10% of capital in a year?’, ‘how much would you need to lose to become very concerned?’ and ‘how much do you expect the portfolio to outperform cash?’

In current markets, of course these questions are particularly pertinent and Emma says: ‘Yes we were joking yesterday about losses of over 25%, that we might need to increase that a bit!’

When clients have their reviews, quarterly, half yearly, or annually, the risk questionnaire is run past the client again on each occasion. This means Cathedral compares the risk rating that the client risk questionnaire has generated against the portfolio each time. ‘Their response to the questions can be so different based on what they have experienced,’ says Emma.

Tim gives the scenario of what happens if at the annual review a client’s risk rating number changes to suddenly become 2.5% because of the current environment and Cathedral is running the portfolio on a 3% risk rating.

‘Now we need to change the portfolio but probably wouldn’t recommend it because equity markets are low. But we take it into account and if the client is still 2.5% in six months’ time then if it’s a more appropriate time to do it we’ll act then.’

He adds: ‘So they know at that point the portfolio is positioned at slightly higher risk than what they would want. But it’s a good compliance tool in that we can then document that we’ve had that conversation.’

The website

Cathedral’s website has been overhauled since 2006 and comes complete with a link to Citywire and log-ons to the firm’s main platform partners such as FundsNetwork. There is also a nice picture of Emma picking up the 2008 New Model Adviser® award for the south west.

The website is updated every two or three months by Tim and he says they get a lot of enquiries through it, running currently at between two and four quality ones a month.

Implementing the discretionary offering

They recognised as a business that if they continued to only offer an advisory service then they were going to get into significant administrative problems. ‘You can’t move fast enough if you are running an advisory model in terms of fund switching.’ says Tim. In terms of the practicalities, they knew they couldn’t simply move all the existing clients from the advisory to the discretionary service. ‘When we do that it has to be on individual by individual basis. But we want to draw a line in the sand going forward and offer new clients the benefits of the discretionary service.’

The emphasis is not on lifestyle financial planning, though they do offer Prestwood as a service if clients want that level of in-depth financial planning. ‘For most of our clients we find our in-house software is probably a more efficient solution,’ says Tim, who has built a spreadsheet system of
in-house cashflow forecasts over the years which are constantly updated.

However he adds: ‘A key difference between us and some of our peer group is that there are a lot of IFAs into lifestyle financial planning. Now what that means is that they charge 1% of the assets under management, they buy passive funds and the financial planner has a very good lifestyle. That’s not the game that we are in.’

The way Cathedral operates, he continues, is to charge 0.75% for the discretionary service and they will select the funds and run them in-house. To get it all up and running Cathedral has recruited Matthew Clark who has set up a discretionary service before.

‘We formed a four-person investment committee. We meet monthly to review the asset allocation for the portfolios. Then we have around 20 funds, the best of breed of the advisory panel that forms our five model portfolios for the discretionary service.’ Three of them are now authorised to run money with discretion – Tim and chartered financial planner Neil Gore both have G70, and Clark has G70 and the IMC.

Why 7IM?

After extensive research, Cathedral selected Seven Investment Management’s platform and it is important to note here that they are simply using the platform rather than any of Seven’s own discretionary portfolios. The discretionary service was only launched in October so only a small number of clients are on this basis to date.

Tim says that the discretionary portfolios are primarily invested in collectives but the Seven platform gives them the ability to use investment trusts which he says in the current climate could be quite attractive, as well as ETFs and cash management.

Emma adds that unlike FundsNetwork the Seven platform enables them to have the Sipp and the offshore bond and everything else under one platform in terms of asset allocation as well.

The investment freedom is however, tempered by a well considered approach. ‘We’ve been around quite a long time and we like to stick to our knitting and recommend to clients what we understand,’ says Tim. Hence they didn’t get caught up in structured products debacle, or zeros, or the problems that some of the hedge funds have experienced.

An active approach

They invest primarily in active funds. ‘We do believe you can buy alpha. We don’t subscribe to the fact that you buy a passive fund because it’s cheap and just purely asset allocate. No matter how well you asset allocated over the last 12 months if you were in a passive tracker fund you would track the market down,’ he says.

Emma adds: ‘But we also have to prove that it’s beneficial, which is what we are doing with our benchmarking, to make sure they are getting value for money.’ This has included back testing the discretionary portfolios to make sure they stack up.

On the question of any tactical asset allocation Emma says that they did move everyone out of commercial property last year. ‘In the majority we moved at the right time but with 700 odd clients you can’t do it overnight.’ That issue, combined with wanting to move out of a couple of prominent funds, was what acted as a key catalyst to setting up the discretionary offering.

Jumping out of property

Tim says: ‘We went zero on commercial property. We were previously significantly overweight and around summer last year reduced the allocation to underweight. About six months later we realised that things were going to get seriously worse and made the decision to go zero.’

When they were reducing commercial property they also went as defensive as they could on the rest of the money and channelled it into either cautious or defensive managed or absolute return funds like the BlackRock UK Absolute Alpha. ‘So while we expected equity markets to fall I don’t think anyone expected them to fall the way they have done. With hindsight we perhaps should have been slightly more cautious,’ he says.

Emma chips in here: ‘It’s not in our nature is it?!’ she laughs. Tim replies: ‘No but at the end of the day if clients have money in a portfolio he or she is investing for the long term. And if you don’t believe in equities stick it in a building society.’

Before opting for the discretionary service they had also considered setting up their own Oeic. Tim recalls that initially he favoured the Oeic route but the other advisers were generally unhappy with that because they viewed it to be a lack of independence.

‘At the end of the process we decided that it was better for our clients to go discretionary rather than us to have a Cathedral Oeic with a Cathedral "best ideas fund". As one of my friends said, you wouldn’t call it a "worst ideas fund" would you!’ he says.

Professional practice

 

Since Tim and Emma launched Cathedral eight years ago building professional connections has been a big part of their mission. ‘We are a city centre, prominent firm of financial planners and we want every firm of solicitors to know who we are. Tim and I work extremely hard networking with local businesses and now between all of the financial planners we each have our own group of solicitors and accountants that we work with,’ Emma says.

She mentions how one of the advisers has developed a close working relationship with three firms of accountants and that provides about 80% of his new work now. ‘I still work with about five or six firms that I’ve worked with for 16 years and that hasn’t changed, albeit the longer the relationship you have with professional firms the less enquiries you get.’ That is because the pool becomes limited to the new clients of the introducing firm.

Around 60% of their new business is from professional connections with an estimated 20% from personal referrals, 10% from the website and 10% who ‘just bump into us’. This includes 7.5% of business which comes from other advisers who refer to CFM for pension transfers, investment management and even advisory investment management on large cases.

One avenue of new business came after the New Model Adviser® awards in January when Cathedral attracted 14 good quality new clients from the Daily Telegraph write-up that ensued. ‘It gave us a really good boost to the start of the year when the stock market was wobbling a bit.’

It’s good to know that New Model Adviser® is playing its part in difficult times and it is also splendid to see how this pair of switched on ‘not quite so young ones now’ are a great combination who have exactly the right focus and know where they want to take the business forward.

Five business achievements

1: Became a chartered firm. 

2: Won New Model Adviser® Southwest Award January 2008. 

3: Achieved top 3-Star rating from IIC Client Survey. 

4: Gained discretionary status. 

5: Recruited four more people and retained existing well qualified and committed staff.

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