Martin Crawley-Boevey (left) and Patrick Kennedy are benefiting from having developed fully integrated financial planning and accountancy services at PK Group from the outset.
Martin Crawley-Boevey, Patrick Kennedy and their partners believe they have solved the conundrum of how to combine financial planning with accounting: 70% of PK Group’s accountancy clients are also clients of its financial planning arm.
Kennedy, the company’s chief executive, started PK Group from scratch in 2003 with partner Crawley-Boevey and four others. This blank slate has meant they have been free from many of the traditional obstacles to successful co-operation between financial planners and other finance professionals.
The partners claim the Surrey-based company’s high level of integration has led to considerable efficiencies and synergies. They say it has stimulated growth and profitability to the extent that, after only nine years, they will soon be comparing themselves to top professional firms in the country on measures such as revenue per staff member.
PK Group’s claim to a high level of integration is supported by an unscientific poll of new model advisers associated with accountancy firms, which suggests other firms’ integration level tends to be around 25%.
However, some firms say they would not want 70% integration because many accountancy clients are not suitable for financial planning; for example, if they have too little to invest.
Crawley-Boevey disagrees with this view. ‘Tax advice in particular integrates well with financial planning,’ he says. ‘We have won many clients on the basis of providing both.
‘Many small accountancy practices may look after small businesses that have all their money wrapped up in the business, but that is not the case with our accountancy side. We have a lot of tax clients who are high earning individuals working in the City or business owners who have a lot of cash [to invest].’
Kennedy explains the vision behind the firm’s holistic service. ‘I was previously managing partner at a firm of chartered accountants that outsourced its financial planning to a firm where Martin worked. But we thought wealthy clients needed an integrated offering, so it was high on our agenda.
‘From day one, PK was neither an IFA nor an accounting firm. It provided a holistic solution to private and corporate clients.
‘Accountants and financial planners tend to be jealous of their clients and not to be open in sharing. That does not exist at PK. Changing an established culture is more difficult than setting up and building something the way you want it to be. Having researched the market, we believe we are perhaps the only firm offering [such high levels of integration].’
Crawley-Boevey says the benefits are clear: clients appreciate the fact that departments talk to each other. ‘When we take on a client, we often bring in a colleague from another department according to their needs. It is extremely powerful and it adds efficiencies for them,’ he says.
Kennedy adds: ‘When they go in a pair, clients recognise very quickly that they are coming from a position of deep knowledge. This model is a very strong driver of growth. It has helped PK Financial Planning grow from only one adviser in 2003 to 12 now, covering a broad range of specialisms.’
The only disadvantage Crawley-Boevey suggests this model may have is that it may deter some other accountants from referring financial planning work to the firm.
‘Having said that, we have forged some good relationships with other accountancy firms because they appreciate our professionalism,’ he says. ‘We even did some advice for clients of a top-four firm that didn’t have the ability to recommend certain tax-efficient investments.’
MARTIN CRAWLEY-BOEVEY CV (see left)
2003-present PK Group, partner
1994-2002 Manager Driven Investments, self-employed adviser
1992-1994 Prudential Assurance, financial adviser
1986-1992 Futures and options broker for ECU Futures and other brokerage firms
Working towards chartered
Kennedy believes some firms have been less successful at integrating accountancy and financial planning to this level because some accountants did not regard IFAs as fellow professionals.
‘This is where the retail distribution review (RDR) is going to change the landscape completely,’ says Crawley-Boevey. ‘There is pressure to develop multi-disciplinary practices in both the accountancy and legal professions.’
As well as accounting and planning for corporate and private clients, PK provides tax, audit and corporate financial management advice. It is also keen to add a legal arm now that the Legal Services Act permits so-called alternative business structures (ABS), which means an accountancy or IFA firm can open a legal practice subject to certain conditions. The partners are tight lipped about how or what form it will take, however, saying only that they are ‘looking at opportunities’
Structure and remuneration
PK Financial Planning uses both employed and self-employed advisers. ‘Our model is equally good for both,’ says Kennedy.
‘We have five self-employed people. They bring in their own clients and can generate other streams of income for themselves by integrating with other departments, as long as they abide by our values and [work within our] structure.’
Having self-employed advisers in such a tight corporate structure requires a lot of hands-on management, including regular training days.
The remuneration structure is crucial to the success of the integrated advice model. Employed individuals receive a discretionary bonus every six months dependent on performance of the group; and partners decide which individuals have been contributing to its overall goals. Self-employed advisers receive a percentage of the revenue stream if they bring business in to another part of the group.
Kennedy says the integrated approach is helping the company to move up the ranks of growth and profitability among professional services firms. ‘I benchmark it all the time,’ he says. ‘We aim to achieve £100,000 revenue per employee. Last year we were in the £90,000s.’
Seven-year strategic plan
PK Group has a comprehensive strategic plan that targets £10 million revenue within the next seven years and a staff of 100.
Kennedy says a central theme of the plan is what he calls ‘entrepreneurial orientation’: the ability to be flexible and adapt to circumstances. ‘For example, Martin has done some phenomenal work on our service proposition to adapt to the RDR and we are ready to go,’ he says. ‘There will be acquisition opportunities. Part of our growth thus far has been through acquisition. We have acquired six firms since we started, three of them IFAs.’
The partners continue to speak to potential buy-out targets but Crawley-Boevey says: ‘They are asking for crazy money. In the next year or so, there will be some harsh reality. You will really have to prove to the regulator that you are servicing clients in order to receive trail in future. The idea that they have a big, valuable bank of trail … it’s not an annuity anymore.’
PATRICK KENNEDY CV (See left)
2003-present PK Group, chief executive
2005-2012 Nautical Petroleum PLC, chairman
1987-2003 Pumphrey Kennedy, managing partner
BA (Hons) Economics
Fellow of the Institute of Chartered Accountants in England & Wales
The company is working on developing a financial planning iPad application due to launch this quarter. A version of the Dynamic Planner app from Distribution Technologies, it will aim to make all aspects of the planning process, such as fact finds, cashflow planning, investment and tax reviews, more user friendly.
Bernard Rust, PK Group senior financial consultant, has been working with the developers. ‘It is ready but we are in negotiations to get it branded,’ he says. ‘Next quarter, the app should be able to link to PK’s main wrap provider, Ascentric, and provide real-time valuations.’
It seems the only new thing about this app is that it is on an iPad. Rust concedes it does not do anything that could not already be done on a laptop. ‘It’s not an essential right now but it’s another way of presenting and interacting with the client,’ he says.
‘At what point do you make changes: when things become essential or ahead of the game? It might be the next flavour of the month. Who knows how we will be communicating in years to come? But if the client feels more engagement and control [that has to be good].’
The app already has a function that allows clients to update their risk profile, which advisers can then review. Rust says PK is also working on a self-service model that will allow clients to update all their financial details, potentially reducing the number of face-to-face reviews advisers have to carry out.
Tapping into auto-enrolment
Auto-enrolment advice is another area of development PK is targeting, although its plans are in the early stages.
‘I see us offering a fee-based service to employers for analysis, implementation and service,’ says Rust. ‘We could use existing solutions or corporate wraps and we are also looking at setting up a master trust, within which we could offer a completely bespoke service to each employer.
‘We might outsource the administration element, which is the complicated part. We are looking at Staffcare for that. Or we might do something more bespoke, which will enable us to give a bit more added value.’
The firm has not set up any auto-enrolment ready schemes yet but is confident about the size of the potential market, even within its 200 existing corporate clients. ‘We have done lots of presentations on auto-enrolment already,’ says Rust. ‘Most of our corporate clients don’t need to do anything until 2015, but we have five or six existing clients that will start auto-enrolling in the next 15 months.’
Kennedy adds: ‘Auto-enrolment opens the door for so many other things we do, so we see it as a big opportunity. Potentially all our clients will use us because we are naturally the first port of call for them. They already trust us with their accounts, financial planning, etc.’
Keeping succession in mind
Succession planning forms an important part of PK’s strategy and the firm has trained several graduates, including two in financial planning.
‘Many people haven’t addressed that, but it is high on our agenda,’ says Kennedy. ‘We encourage young people on to ensure the longevity of the firm and help us be aware of and fulfil current needs.
‘For example, we give anyone in the firm who would like to discuss a new idea a chance to present it and we have implemented the best ones. Recent ideas have involved using cloud-based software and apps for reporting to corporate clients.’
Crawley-Boevey says he wants to continue to increase the professionalism of PK’s advisers with more qualifications and corporate chartered status; and to keep building assets under advice from the current £100 million, via recruitment or acquisition.
‘I see us as being a home for good advisers who might not be able to meet the RDR requirements on their own,’ he says.
Kennedy says he hopes to build a branch in central London and in another regional location.
Achieving a good work-life balance is tough, says Crawley-Boevey. ‘When it is your business, you think about it all the time.’ Outside work, he is a keen cyclist and is training for a 120-mile ride with a 3,000-metre climb in Wales in June. Kennedy meditates at 4am every morning before going to the gym.
The holistic approach at work is mirrored in their private lives. They say they seek to balance mind and body as much as possible.
Keeping investment options diverse with a mixture of solutions
The average amount invested by PK clients is £250,000. For those with £500,000 and over, the firm uses Cheviot Asset Management because of its ability to build portfolios with a diverse range of asset classes, including for example, individual shares, individual corporate bonds and hedge funds.
PK also uses Quartet Capital Partners. ‘It is local but that’s not why we use it,’ says Crawley-Boevey. ‘Quartet has a very good pedigree and investment process. Large clients don’t necessarily want to give all their wealth to one asset manager; they may want to give it to two or three.’
Clients also have access to a cheaper, passive option from Evercore Asset Management, which PK favours for its expertise in setting asset allocation.
The PK team is developing its own model portfolios to run alongside the outsourced solutions. ‘We hope to launch these by the middle of next year,’ says Crawley-Boevey.
‘The FSA is keen on not shoehorning clients into one investment solution, so we want to have a range and this will be another solution. We like outsourcing though, because if the providers do not perform, we can take the mandates away.’
As one of the largest advisers using Ascentric, PK is working with the wrap in developing an execution-only service. ‘We envisage our centralised investment proposition underpinning that service,’ says Crawley-Boevey.
‘There will be clients who want to make their own decisions and do it online. They will be able to plug into one of our models that suits their risk profile. Ascentric is piloting it in January and February. It will be a white label service.’
Ongoing clients can choose to pay a charge of 0.5% a year or hourly rates of between £85 and £350, depending on which member of staff does the work. Cheviot’s total expense ratios (TERs) are around 1% excluding wrap and adviser charge, Quartet’s are around 0.85% and Evercore’s are around 0.65%.
PK is a relatively heavy user of unregulated collective investment schemes (Ucis) with around 10% to 15% of total financial planning revenue derived from Ucis business.
‘We use them mainly where there is a tax advantage, for example business premises renovation allowance (BPRA) relief,’ says Crawley-Boevey. ‘That is a statutory relief that the government is keen to encourage. These are suitable for very high-net-worth or highly sophisticated investment individuals and they invest in premises such as offices, hotels and data centres.
‘It is a substantial amount of unregulated business. But we have very strict controls around the risks and how we promote Ucis. We have the expertise to understand the tax reliefs and the risks associated with these schemes. We always choose those at the lower risk end of the spectrum.’
Clients with Ucis are locked in to the investments for up to seven years, but in the case of BPRA schemes, they can set the tax allowances against their income, which mitigates risk considerably. ‘That means they should get most of their money back before the end of the term,’ says Crawley-Boevey.
Five top tips
Clients need a multi-disciplinary approach encompassing financial planners, tax advisers, accountants and business advisers.
A common set of values is key to defining the culture and growing the firm. Measure performance against these regularly.
Begin with the clients’ needs and work back.
Investment in risk management is money well spent.
- Your strategic plan should enable you to identify where the gaps are in your thinking, and the resources required for each step.