Foodies Lee Smythe and Ben Walter set up Smythe & Walter Chartered Financial Planners in October 2010, and have been cooking up some tasty growth rates since. Based on existing client referrals, professional connections and a joint venture with a mortgage company, the firm’s funds under advice are projected to increase to £38 million this year, with an expected £400,000 turnover.
Managing director Smythe, who lists his hobbies as redecorating houses and cooking, says he and Walter complement each other. ‘Ben is good at meeting people and networking, and I am good at the finer points, like making sure we have enough money in the bank, professional indemnity insurance, processes and compliance,’ he says.
Walter agrees that if their business was a restaurant, he would be the front of house manager and Smythe would be the head chef.
Setting up shop
Both Smythe and Walter started their careers at larger companies, but now enjoy the freedom owning a smaller advice firm brings to their lives.
They have a tiny space in a mews office in Warren Street, London, belonging to their joint venture partners Kingsway Mortgages. Both directors live outside the capital and divide their time between commuting and working from home.
‘With the retail distribution review (RDR) coming up, it seemed like a good time to be setting up something without any baggage,’ says Smythe. ‘Being directly regulated, we could control what we were doing.’
They started with 80 clients and have grown that to more than 200 in two years. They own half of the separate planning business, set up as a joint venture with Kingsway Mortgages, called Kingsway Financial Planning. This has already reaped results and 50 clients have come from the joint venture since it was set up in April 2012. These clients tend to be finance professionals, actors and musicians, with mortgages of over £500,000.
2010-present Smythe & Walter Chartered Financial Planners, director
2009-2010 Equus IFM, IFA
1994-2009 Prudential, regional account manager
Member of Personal Finance Society
- Diploma in Financial Planning
Building professional connections
The directors’ other strategy, developing professional connections, has been harder work.
‘We found that you can have a nice chat with lots of lawyers and accountants, but you never do any work together,’ says Smythe. ‘We have changed tack and focused on a couple of key relationships to whom we give excellent service.
‘We haven’t found a solicitor with a good enough synergy yet. On the accountancy side, we don’t have an exclusive relationship with anyone, but there are a few that are keen to work more closely with us.’
The firm signed a reciprocal agreement with an accountancy firm in April. The early signs are good, as they received two new clients in the first three weeks of the arrangement.
‘Communication and regular meetings are key in that relationship. When working with professional introducers, unless you see them, it doesn’t work,’ says Smythe. ‘We have meetings at least once a month to talk through referrals and opportunities.’
Raising minimum charges
Smythe & Walter’s recurring income is between 30% and 40%, and the pair are confident this figure will keep rising as the business matures. The firm charges 0.5% ongoing, subject to a minimum, which it has just increased.
Smythe says: ‘For our two service levels, core and bespoke, we have just changed from £600 and £1200 minimums to £1200 and £2400 [respectively]. They were originally set so as not to put people off, but very few clients are at the minimum level.’
Walter adds: ‘It was fine two and a half years ago, but over that time we got more understanding of what the service costs.’
Championing chartered status
Smythe is a Personal Finance Society (PFS) chartered champion in Kent. He says: ‘The main thrust of the role is to promote to professional connections the benefits of working with chartered financial planners and firms, and to encourage financial planners to become chartered.’
Numbers of chartered individuals and firms have been going up rapidly. ‘There was a big rise pre-RDR, and now that everyone has to be level four, people will be looking to differentiate again,’ Smythe says.
Some advisers question the value of the chartered designation as a business differentiator, but Walter says: ‘Clients are seeing the word more, and we recently took on a client who wanted a chartered financial planner.’
Smythe adds: ‘People don’t necessarily know what [chartered financial planner] means, but they are familiar with chartered accountants, and the association is that you are at the top level for what you are doing.’
2010-present Smythe & Walter Chartered Financial Planners, managing director
2004-2010 Killik & Co, partner; Killik Chartered Financial Planners, managing director
1994-2004 Prudential, Woolwich IFA, Momentum & Hymans Robertson, adviser
Fellowship of the Personal Finance Society
Chartered financial planner
- Certified financial planner
Expansion and corporate offering
The firm took on its third adviser, Stuart Slater, in December, and there are plans to hire more advisers.
‘We have distinct processes and efficiencies and can offer a good structure to come and work in,’ says Smythe.
‘One problem we have found, as a new business, is that it is a leap of faith for some people to join us. Others find it attractive, and they can also have some input into what we do in the future.
‘We are speaking to a few [advisers] who are getting to the end of their careers and looking for someone to hand over clients to. We would be keen to expand that way,’ he says.
Smythe also highlights the firm’s plans for its corporate offering.
‘Once we have the corporate proposition sorted, we will hopefully be able to talk to a few existing corporate advisers who are looking to re-home as well,’ he says.
The firm aims to improve its corporate offering with a separate website aimed at employee benefits and auto-enrolment advice. ‘We will be targeting firms with 20 to 100 employees,’ says Smythe.
He recognises that it is a competitive area, but remains confident. ‘We can compete because we are an efficient business, we outsource where we can, and we have relatively low overheads,’ he says.
Placing capacity for loss at the heart of the investment approach
Smythe & Walter uses both discretionary fund managers (DFM) and multi-asset portfolio services. Walter says: ‘We outsource to DFMs and model portfolios to keep it simple and help the client understand what our role in the relationship is.’
Smythe says they would consider DFMs particularly when targeting returns, such as for clients in drawdown. ‘We like JM Finn and Cheviot because of the individuals we deal with, who provide active stock selection and management. They both have transparent charging and excellent client engagement, which is the most important thing for us: ensuring there are regular communications with clients, particularly when there have been losses or where a stock has been sold.’
According to Smythe, many in the profession have still not fully addressed capacity for loss. ‘Even in 2011, people who thought they had balanced portfolios lost 30% of their money. I spend a lot of time now understanding tolerance for loss and explaining what it means,’ he says.
‘Everyone is happy in the good times; it is the market corrections, like we had in 2008 and 2011, which we need to manage and make sure the downside is covered. We encourage clients to take the lowest risk approach to achieve what they need to. We have spent a lot of time visiting DFMs looking for managers who are in line with this ethos of appropriate return for appropriate risk.’
Keeping abreast of the DFM market
Smythe and Walter think DFMs are most appropriate for larger portfolios, or when people have particular needs, for example, if they want to hold individual equities.
The main DFMs the firm uses are Psigma Investment Management, JM Finn and Cheviot Asset Management.
Smythe says: ‘Psigma has the backing of Punter Southall Group, so it has a big resource behind it. We like its outperformance, but also the lower-than-average risk. We don’t benchmark as such. We agree on a client-by-client basis a realistic return for what they are trying to achieve.’
However, Smythe & Walter does use research data from Asset Risk Consultants to keep abreast of the DFM market. ‘A fund or discretionary manager’s performance relative to the peer group is important, but only within the parameters of better performance with lower risk,’ says Smythe.
As well as financial stability, Smythe and Walter also like DFMs that are willing to engage with the client. Walter says: ‘They will see clients every six months, and when there is a big correction, they will contact the client. That happens very rarely, but the three we use did that in 2011. We own the client relationship, but when there is a big thing happening, we could have a view on it, but also the client should be told about it.’
For smaller clients, the firm uses several multi-asset offerings, including the Psigma Dynamic Multi Asset fund because it largely mirrors what the manager does on the discretionary side. ‘Tom Becket, who runs the funds, is an engaging guy, good to listen to,’ says Smythe.
Psigma likes to include at least eight core assets in portfolios and made changes last year to widen the spread, particularly through the use of alternative investments, such as reinsurance ‘catastrophe’ bonds, corporate inflation-linked credit and infrastructure debt.
Smythe and Walter also like SEI Strategic Portfolios for moderate risk clients because of its manager of managers approach. ‘We like that, compared with fund of funds, because it is lower cost and it is giving the managers a mandate,’ says Smythe. ‘The range is more diverse. SEI is a massive US firm and it gives you access to managers that you wouldn’t normally get [access to] as a retail client.’
SEI Strategic Portfolios’ asset allocations change regularly. In the past few months, the percentage it holds in global equities has gone up by between 2% and 5% across the portfolios.
Smythe says: ‘The global outlook has been improving over the past six months. I even saw that Greece’s rating has been upgraded, so things must be getting better.’
Walter says: ‘The return an investor gets, for example, from investment grade bonds as an asset class is much lower now, so for those seeking over 4% return, you have to be in equities.’
The firm also uses Standard Life MyFolio because, according to Smythe, ‘MyFolio is a plain vanilla option and stacks up well on the combination of cost, volatility and performance’.
‘It has three options, and we have found that the managed one gives the best combination of those three things,’ he says.
Last year the firm also started using Prudential Dynamic Portfolios. ‘We like the consistent approach and, as with all of these, we look at volatility, TER, positive performance (as many positive quarters as possible) and the size of the underlying firm,’ says Walter.
Life outside the office
Smythe admits running such a small firm can be hard work. ‘Running a division at a big firm, when something needed doing or you had an issue, it went to someone else. When you have to do it yourself, you realise you don’t know about the nitty-gritty,’ he says.
‘The main benefit of running your own business is being able to do what you want, within the rules of the business. You have the flexibility to work and live in the way you want.’
Both Smythe and Walter have young children. Regarding work/life balance, Smythe says: ‘Mine is brilliant. Ben [sees more clients, so his] isn’t so good, but he has just taken on a paraplanner to help improve it.
‘I come up to London twice a week, work from home, or I am out seeing clients, and I am there to pick up the kids from school when I need to. I even put the kids on the school bus in the morning most days. You work long hours, but it doesn’t necessarily feel like it because you work the hours to suit what you are doing,’ he says.
Both directors have a passion for food. Smythe says: ‘I have a massive cooker: it’s like an indoor gas barbecue. I like to set fire to really big bits of meat!’
Walter says he has to keep working hard to fuel his luxurious culinary habits.
‘I have always liked to cook, to eat out in nice places, although I have become very hard to impress. I always think: "I can cook this at home, and I prefer the way I do it,"’ he says. ‘Me, my father and two of our friends go to Italy once a year to do the truffle and porcini festival. It can be quite expensive if you buy a lot of truffles.’
Five top tips
Focus your time on the things clients care about and outsource the rest, if possible.
Make time to regularly review your business progress.
Work tightly with key introducers, not just loosely with anyone.
Provide an excellent service, control costs, and profits will follow.
- Never live for your work, always work to live.