After their niche-targeting strategy helped MPA Financial Management’s rapid expansion, Phil McGovern, Mike Paul and Eddie Ball are now thinking about handing the firm on to the next generation.
Under its three directors, Phil McGovern, Mike Paul and Eddie Ball, MPA Financial Management has expanded rapidly, with £180 million under advice, driven by a segmented and multi-targeted approach.
The trio plan to keep growing by pursuing client niches wherever possible, backed by a wide range of investment options, to make sure each client gets an investment solution that suits them. For example, MPA has historically run a dedicated offering for senior civil servants after McGovern gained a foothold through a connection with their public sector union the FDA.
It also advises circuit board manufacturers, healthcare companies, garden centres, and psychologists and there is potential to develop all of those, they say.
McGovern says: ‘Everything we do has to be right for the audience in mind. The civil servant service offered discounts and seminars for union members and branded fact sheets, for example on how changes in the lifetime allowance affect senior civil servants. MPA will then do promotional campaigns around that.’
The drive towards finding niches was in part inspired but a marketing company they took on three years ago, called Mischievous Marketing, run by Hannah Price.
After initially having to adapt its proposition to suit each niche, it has now with Price’s help ‘productised’ its offering, which has brought a greater focus on charging the right fee for different services. For example, it offers MPA ‘Wealth’, ‘Lite’ and ‘Civil’. MPA has also created a wide range of options in its investment proposition.
McGovern says the next phase of this niche-targeting strategy involves working on the private client strand. ‘We are working on who qualifies, at what level of service, what other benefits they get - such as tax returns, discounted wills, powers of attorneys, fund manager presentations, and so on,’ he says.
MIKE PAUL CV
2005-present MPA Financial Management, chairman
1989-2005 MPA Pension and Investment Advisers, partner
1983-1989 Schroder Financial Management, manager, Worcester/Birmingham offices
1980-1983 Sumitomo Bank, UK marketing officer
1975-1980 International Energy Bank, corporate finance team
1972-1975 Johnson Matthey Bankers, senior credit analyst
1971-1972 Detroit Bank & Trust, credit analyst
1968-1971 London & County Bank, chief cashier
Chartered Financial Planner
Chairman Mike Paul started the firm, originally called Michael Paul Associates, in 1988 and grew the client base by running investment seminars for individuals.
He initially ran the business from a converted cow barn in Claverdon, Warwickshire. In 2001, it moved to a building in Henley-in-Arden, then in 2010 to the current office: a conversion of a listed merchant house on the town’s historic high street.
Since then the firm has doubled in size thanks to the acquisition of smaller IFA companies and recruitment of individual advisers.
Underlying theme of investment is always wealth preservation
For clients with less than £75,000, MPA offers what it calls MPA Lite, which uses Seven Investment Management (7IM) model portfolios on the Novia wrap. The total expense ratio is around 1.5% a year including the adviser charge of 0.75%, ongoing and platform charges. So far MPA has around £4 million on that service.
McGovern says: ‘7IM has worked very well for the MPA Lite. Its process and philosophy of capital preservation fits with ours. Having Justin Urquhart Stewart’s photo [director and co-founder of 7IM] in the brochure helps [as people recognise him].’
Above that, the MPA Wealth proposition offers three types of portfolios: bespoke, model active and model passive, for which it charges up to 1% a year.
For bespoke, the investment committee runs best buy lists for advisers to choose from – including Oeics and unit trusts, investment trusts, exchange-traded funds (ETFs), and structured products. These are reviewed every quarter.
Model active portfolios are provided by: Standard Life (MyFolio), Russell Investments, Ingenious Asset Management, London & Capital (L&C) and Brewin Dolphin. Model passive portfolios are outsourced to 7IM and Standard Life.
Standard Life MyFolio is a range of funds managed by Citywire + rated manager Bambos Hambi. From Russell, MPA uses a combination of four funds that can be blended to make a portfolio. Brewin Dolphin, Ingenious and L&C are discretionary managed portfolio services.
Ball says: ‘We met with Bambos a few times. He has an excellent track record, understands the market well, and has a big research team behind him.’
McGovern adds: ‘Russell’s risk-reward management is fantastic. It is almost a straight line. It is not about performance, it is about matching risk and reward. Ingenious use investment trusts and collectives within their portfolios; L&C uses a lot of ETFs. We added Brewin recently as it comes up with a competitive price and we know exactly how its investment philosophy works. They all have slightly different niches.’
For amounts above £500,000, the firm also offers its MPA Discretionary service. Until recently, it has tended to use Brewin Dolphin but it has just added Rathbones and Brown Shipley to its panel.
McGovern says no matter which service they recommend, the underlying theme is always wealth preservation. ‘We have used Brewin Dolphin for five years – it uses structured products well within its DFM [discretionary fund manager] portfolios, but it only uses collectives to achieve equity exposure. It does not hold direct equities,‘ he says.
We have £17 million with Brewin Dolphin discretionary. But we wanted two others that do things differently. Rathbones uses equity holdings as well as structured products. Brown Shipley has a private client division that offers things like credit cards and loans against investments, which is interesting.’
For full DFM services, another important criterion is to use firms with a Birmingham office, so clients can meet the managers.
Such a comprehensive service requires a huge amount of research - is there a danger of losing focus?
Ball believes a change in the regulatory environment means advisers need to make sure money is seen to be in the right place at the right time; and de-risked by putting it with professional managers.
‘You have to give people much wider choice,’ he says.
PHIL MCGOVERN CV
2005-present MPA Financial Management, managing director
2005-2010 MPA Financial Management, director and adviser
1996-2005 MPA Pensions and Investments, independent financial adviser
1998-2007 Trainer for G60, K10, G10 exams
1993-1996 GN Byrd & Co, independent financial adviser
1990 -1993 Norwich Union, life consultant
1988-1990 GA Life, life inspector
Fellow of PFS
Chartered Financial Planner
G10, G20, G30, G60, G80
H15, H25, J11
FPC1, 2 & 3
CF 2, CF8
The firm also has a thriving workplace scheme business and around half its 4,500 active clients are group personal pension scheme members. Growth of corporate clients has also been recently boosted by the advent of auto-enrolment.
Paul says they are looking to market their auto-enrolment proposition at a low level with a menu of fees for employers.
Paul says the auto-enrolment service will break even for the next two to three years but could become profitable after that.
Its biggest employer client staged in January with 700 new members and it has taken on eight auto-enrolment schemes this year. ‘We’ve taken on two advisers to support the package to those members,’ he says. ‘There will be a flat fee to set up. But management fees will evolve for the investment advice.
‘When people are putting in 10% to 15% of salary, will they be happy with a derisory default lifestyle option? No. The market will grow because as they accumulate, they will want a more bespoke analysis of investment options. If you have your feet under the table, you can provide that. All those people will also need mortgages, life cover, pensions advice, inheritance planning and so on. But that will take another two to three years.’
Managing director McGovern joined in 1996 and has become the main force in growing the business forward since Paul became chairman in 2010. Among other things, McGovern is an expert on pensions and has written a course book on the subject for the Chartered Insurance Institute (CII) and sat on its exam committee. He also sat on the board of the Society of Financial Advisers as a member director.
EDDIE BALL CV
2007-present MPA Financial Management, compliance director
2000-2007 CWB, independent financial adviser/director
1998-2000 T F Bell & Co, independent financial advisers
1993-1998 Britannia Life, executive consultant
1983-1993 Prolific Financial Management, executive consultant
1977-1983 Refuge Assurance Company, Industrial Branch Insurance, trainee agent/agent
Chartered Insurance Institute
FPC 1 2 & 3
CF2 Investment & Risk
R02 Investment Principles & Risk
K10 Retirement Options
J01 Personal Taxation
1987-2000 Life Insurance Association chairman/regional chairman/zone officer Midlands
Compliance director Ball joined in 2007 and became the firm’s third director in 2010.
MPA’s advisers are split almost evenly between self-employed and employed. Paul says there is no reason advisers cannot be self-employed, ‘as long as they are compliant, regulated and operate within a disciplined system’.
McGovern says MPA recruited two advisers recently to deal with the banning of platform rebates from 2016, which will impact MPA’s back book, and needs at least one more.
The government will ban legacy trail commission on auto-enrolment pension schemes from 2016, and the Financial Conduct Authority (FCA) has banned fund manager kick-backs on platforms from April 2016. Many providers have used these measures as a reason to turn off trail and some advisers see this trend continuing.
‘There is a rump of legacy business that we need to move to adviser charging before legacy commission is turned off in 2016,’ he says. ‘We want to take on three or four people for that, which is far too much in a short space of time. But that clock is ticking louder every day. So we need to kick start it.’
One of the new staff is a trainee adviser. The other is an experienced adviser who will join as an appointed representative, with the advantage that he is bringing £20 million under advice and £250,000 turnover with him.
MPA has corporate chartered status. It pays for its employees’ training exams and CII membership. They also get bonuses if they hit certain exam targets. Another thing that has helped MPA develop in the last five years is building management structure.
Paul says: ‘Eddie became compliance director four years ago and has done a brilliant job.’
McGovern adds: ‘Plus we have finance, office and administration managers. It is a massive difference in how we run the company.’
The company is owned by Paul and McGovern, 91% and 9% respectively.
They are planning to widen the ownership and share it equally between the directors to reflect the contribution of all three. Paul, who is 64, says he plans to work for another three or four years only:
‘I am the founding father, but now more of a figurehead. We need a proper plan and structure for when people retire.’
McGovern has studied emotional intelligence and even neuroscience in an attempt to understand and manage his clients and his staff better.
‘All advisers are psychologists to an extent. Clients tell you things they don’t tell anyone else. Collectively advisers are good at teasing those little things out,’ he says. ‘You need people who are good at psychology, not maths; people who can speak to and engage others and gain their trust and confidence.’
McGovern is also particularly keen to empower staff and one way he does this is giving them places on committees. He says: ‘We run a huge number of committees that involve every single member of staff. Everyone puts in their ideas, everyone is listened to.’
Staff received bonuses each year, even in 2008-09. They have a Christmas party every year and give out employee of the year awards to staff. In total, they have three or four social events a year.
One of the next steps is likely to include finding a finance director. ‘Finance and technology are our main weaknesses, so we need to focus on them,’ says McGovern. The trio want to grow turnover by at least 25% in the next three years, mainly through more recruitment of advisers and acquisition.
Paul says: ‘People need to be part of a bigger structure. With the depth of regulation compliance and research requirements they can no longer do it on a full-time basis and give advice. Our model is geared to providing a consistent practice for them.’
They also plan to develop their top-end wealth management proposition within the next 18 months, with a variety of private banking-style services.
Passing the baton
However, succession planning and diversity are areas that need work.
McGovern says: ‘Our other big problem is that we have five advisers in their 60s who will probably retire in the next five years, so we are looking for younger people. We also want more than our current one female adviser.’
One thing they are sure of that they won’t go restricted – ‘we have spent so much on making sure we stay independent,’ says McGovern.
The directors have a wide variety of separate hobbies in areas such as horse racing, cricket and football. The one they all have in common is golf and they have corporate membership at the local Henley Golf Club where MPA held a golf tournament last year.
They also sponsor a local cricket team, the Henley in Bloom flower competition, and support local schools in various ways.
The company is 25 years old, but they haven’t celebrated it yet. ‘I hadn’t thought about that,’ says McGovern. ‘That’s a good excuse to go out for a drink!’
He says the job is ‘incredibly stressful’ and that he ‘feels old’ sometimes. ‘But I still love every minute of the time I spend with clients and with staff. Both are fascinating,’ he smiles.
Five top tips
Be honest and straight with your clients; they will appreciate it.
Treat your staff and clients the same way you like to be treated.
Work with great people and they will do great things.
Invest in technology; it really is the key to an efficient business.
If it is not profitable do not do it.