Mark Dolby and Chris Shaw have embraced cashflow planning at Beaufort Financial (Reading) to help clients take advantage of the pension freedoms. Through their hub model, they now plan to take the firm to the next level.
The 2015 pension freedom reforms were ‘a big moment for many people’, according to Chris Shaw, managing director, and Mark Dolby, director, at Beaufort Financial (Reading). The reforms opened the sluice gates of pensions cash held by retirees seemingly desperate to avoid locking into an annuity for life.
CHRIS SHAW CV
- 2013–present Beaufort Financial (Reading), managing director
- 2010–2013 Beaufort Financial (Reading), director
- 2005–2010 Beacon Asset Management, IFA
- 2001–2005 BP Sanders, IFA
- 1996–2001 Lloyds Bank, bancassurance adviser
- Diploma in Financial Services
New pensions era
In the second quarter of 2017, £1.86 billion was withdrawn from pensions under the new rules. Since the rules came into force in April 2015, £12.7 billion has been withdrawn in total. But the withdrawals have come at a price for savers. The Treasury revealed this year it had made £1.2 billion more in tax from the reforms than it predicted at the time they were launched.
‘A raft of clients previously didn’t do pensions, preferring to keep control of their money,’ says Shaw. ‘The reforms suddenly opened pensions to them, their accountants and solicitors. In future, people will think about pension planning much earlier, and there will be more generational planning, as awareness of inheritance tax issues has also increased.’
The issue has now become big enough to draw MPs’ attention. Last month, the Work and Pensions Committee launched an inquiry into the pension freedoms. Among other issues, it will explore the measures that are in place to stop people running out of money.
MARK DOLBY CV
- 2011–present Beaufort Financial (Reading), director
- 2008–2010 Beacon Asset Management (now Moneygate), IFA
- 2004–2008 Tenon Financial Services (now Baker Tilly), IFA
- 2003–2004 Charcol Holden Meehan, IFA
- 2003 MX Moneyextra Financial Solutions, IFA
- 2001–2003 Momentum (now Origen), IFA
- 1988–2001 Royal Bank of Scotland, adviser
- Advanced Diploma in Financial Services
It is fortunate, then, that Beaufort’s pension freedoms awakening has been accompanied by a cashflow planning conversion.
Beaufort adopted cashflow software Voyant in 2015. ‘A marketing company told us we didn’t use enough pictures, which most people understand better than words,’ says Shaw. ‘That brought us to Voyant, which is a very visual tool. It took the business to a different level, opening more doors than we imagined.’
Cashflow plans are not just for retirees. The tool has opened up Beaufort’s entire financial planning process.
‘Our planning switched the focus towards the future and the effects of the actions we take now. Nailing "what if" scenarios makes it a powerful tool,’ says Shaw.
‘That boosted protection recommendations by showing the effect of someone dying or suffering a serious illness. Voyant understands the effect of risks on yield, so helps people comprehend what risks they should take.’
Furthermore, cashflow planning is an important tool in advising the firm’s workplace pensions clients, including some high-profile companies.
‘We offer cashflow planning to all employees of our group clients,’ he says. ‘That is one way to attract younger clients. You would be amazed what comes from it.’
Beaufort Financial (Reading) offers hourly rates, fixed fees or percentage-based fees. The latter are up to 1% initial (minimum £3,000) and up to 1% ongoing, depending on individual needs. The average ongoing charge is 0.68%.
The firm has three ongoing service propositions. ‘Financial advice’, for those paying £2,500 to £5,000 a year in fees, includes annual reviews, including cashflow planning, and offers unlimited contact.
‘Financial planning’ – for £5,000 to £7,500 – includes an annual cashflow report, additional ISA work and two annual meetings.
‘Wealth management’ – for those paying £7,500 to £10,000 a year – includes a more detailed cashflow report, ongoing EIS and VCT work, and quarterly reviews.
Around 65% of clients are in ‘financial advice’, 30% are in ‘financial planning’, and 5% are in ‘wealth management’.
It takes up to 15 hours a year to look after a ‘financial advice’ client, says Shaw. ‘The charges and service levels are based on comparison with peers, and the cost of providing the service, based on hourly rates of £250 for a director, £200 for an adviser and £100 for administration,’ he says.
The firm has 4,600 transactional clients on its database, but does not receive any ongoing fees from them.
The extra mile
Beaufort Financial (Reading) is part of Beaufort Group, which was named a 2017 New Model Adviser® Top 100 firm. The group has a strong commitment to charity and community work. The Reading branch demonstrates that ethos.
The firm supports a range of charitable activities, and has raised at least £20,000 in the past two years to help fund a new cancer centre in the area. Many staff have been involved but cyclist Dolby has been a driving force after he lost both his parents to cancer.
He has raised huge amounts for Basingstoke’s Ark Cancer Centre, which the firm has supported by making it a designated charity. Dolby says: ‘[Beaufort financial adviser] Andy Coles and I joined a larger group that cycled to Land’s End in support of Ark. Three of us shaved our heads at the Christmas party, and we held a quiz.
‘We all have a passion for good causes,’ he says. ‘Everyone has something important to them, so we have supported other charities too, such as Help for Heroes.’
The firm was originally called Beaufort Asset Management (BAM), but it recently rebranded, adopting the trading style Beaufort Financial (Reading) to improve brand clarity and group cohesion.
BAM was set up in 2010 by directors Simon and Clive Goldthorpe. Simon is also chairman and Clive is chief operating officer of Beaufort Group. Shaw joined BAM as a shareholder and managing director in 2011. Dolby joined as an adviser and became a director in 2012.
Seven of the 10 appointed representative (AR) firms in Beaufort Group were previously with beleaguered network Honister and the group became a ‘lifeboat’ for them when it collapsed in 2012. However, Beaufort Financial (Reading) was never in Honister.
‘Our firm is different from the other branches as it is not an AR. It is the only standalone company and it is directly authorised,’ says Shaw. ‘We share aspects of investment, compliance and marketing with them. But being directly authorised gives us more freedom to do other things too, such as advising on enterprise investment schemes (EISs) and venture capital trusts (VCTs).’
Shaw backs Beaufort Group’s tried-and-tested discretionary service
Beaufort Financial (Reading) uses its group’s discretionary fund manager (DFM) Beaufort Investment Management (BIM) as a core proposition.
‘BIM offers a DFM solution with active, "enhanced passive" and ethical solutions,’ says Shaw. ‘I am excited about passive in particular because of the cost and because the data shows asset allocation is more important in the long run.’
The Enhanced Passive portfolio has a tactical overlay and freedom to use active funds where they might add value.
‘For example, we worry about just tracking a bond index as the bond market is overpriced,’ says Shaw. ‘So we use active strategic bond funds in those portfolios. They can also use active alternative funds.’
The BIM Enhanced Passive Portfolio Six outperformed the IA Mixed Investment 40%-85% Shares sector considerably in 2014 and 2016; but trailed it significantly in 2015 (see chart, right).
Shaw highlights that the fund outperformed its own benchmark – a composite of MSCI World Equity and MSCI World Bond indices – over one, three and five years.
‘The [equity] allocation is the important differential in that performance, as it has taken advantage of one of the longest bull markets,’ he says. But this led to underperformance when markets fell in 2015.
Recently, the portfolio reduced exposure to US and UK equities, as monetary policy is tightening in those countries, and added to global and emerging market equities.
Is there a conflict of interest in using BIM? ‘It is a big part of our proposition, but we are whole-of-market IFAs, so we don’t use it exclusively,’ says Shaw. ‘We use alternatives where appropriate.
‘I know BIM well, attend quarterly meetings with it, and have access if I need. Also its performance stacks up. Returns are similar to the FTSE 100 over longer periods, but with much less volatility.’
Beaufort Financial (Reading) has four hubs. ‘A hub typically comprises one senior financial adviser with good clients and professional connections,’ says Shaw. ‘They will mentor a more junior IFA in the hub. Behind them is a team of administrators, each assigned to a hub but available to cover across hubs. This model allows people to progress careers quickly, understand responsibilities better and it improves lines of communication.’
Staff receive a basic salary and quarterly bonuses based on their hub profits. ‘I run a profit and loss for every hub,’ says Shaw. ‘Everyone must understand the costs and business drivers of what they do. So the hub model helps them engage with each process and drive it because they understand its worth.’
This approach supports steady profits of between 30% and 40% a year; and around £35,000 profit per staff member, projected to increase to £50,000 next year.
60% of new business comes from client referrals and most of the remainder from professional connections. Dolby in particular has focused on connections, helping the firm forge links with 600 individuals at professional firms.
Picking up the pace
Shaw wants to boost the firm’s income from £2 million, which is projected for 2018, to £3 million. However, he says the firm needs more infrastructure. ‘My hub has over 130 clients. I am managing director and responsible for compliance so I fly around the place,’ he says. ‘A £3 million turnover business [needs] a management line that is not also advising.
‘I want to expand to six hubs, each generating £500,000. The two extra hubs we need could come from acquisition or organic growth and we are seeking both.’
To aid expansion, the firm has allocated a £120,000 budget for marketing and recruitment. It plans to spend more time developing connections and using social media to attract younger clients.
Dolby says: ‘I’ve never been as busy. If we can find the right people, there is no stopping us, but recruitment is a struggle. Our success [to date] is based on finding inexperienced, mouldable recruits. We want them young, qualified and hungry.’
The firm has three chartered advisers, with four others working towards it. Beaufort pays for exams and study leave.
Simon Goldthorpe is Beaufort Financial (Reading)’s majority shareholder with around 60% of shares. The remaining 40% is divided among several shareholders including Shaw and Dolby. Directors pay themselves a small salary and dividends, plus a profit-related bonus. Shaw’s regular annual dividend is £80,000.
He says there is no plan to sell the business. ‘I am married with six kids, so I don’t have a retirement in view,’ says Shaw. ‘I love running and go for an hour every morning. And I love being an adviser: that gets me out of bed more than anything else.’
FIVE TOP TIPS
- Consider both passive and active fund management as clients like to choose.
- Use cashflow planning actively in front of the client.
- Let the client see the data as this encourages accuracy.
- Remember to create ‘what ifs’ when undertaking scenario planning. It provides options.
- Look at the tax position of the client and portfolio.