After biting the bullet with an intense effort last year, Stephen Ng and Peter Davies are set for expansion at Create Wealth.
Peter Davies and Stephen Ng, directors at Newport-based Create Wealth, have been steadily picking off a multitude of challenges that have been flocking towards them in their small business. In particular, they felt the intense pressure of keeping a two-man firm going through the banking crisis, recession and resultant falls in client portfolio values.
The pair came out of the economic crisis all guns blazing, working like demons to accrue qualifications, standards and other business-improving initiatives. This has built a rock-solid foundation they believe will allow them to set their sights on further expansion, says Davies. As an example of their ambition, they have recently opened their fourth office despite still being the only two advisers at the firm.
Starting from scratch
Davies and Ng met while working at Lloyds TSB Private Banking in 2001. Although it was independent, they were ‘aware of a preference for selling certain products’, they say. Davies therefore left to set up Create in 2004 with a holistic, whole-of-market model using customer-agreed remuneration from day one. Ng joined him two years later.
They started from nothing (although some Lloyds clients eventually tracked them down) and grew client numbers through a combination of their Unbiased.co.uk listing and referrals from a Cardiff chartered accountant.
As well as south and west Wales while at Lloyds, the pair had covered the Bristol and south-west England areas, so naturally started to develop clientele and professional connections in England, too. They also found opening serviced offices to be a good growth strategy. The firm’s main office is in a modern business centre in Newport, but they have since branched out to three other locations: Cardiff (opened in 2004), Bristol (2006), and Windsor (a year ago).
It seems an unusual strategy for such a small firm. Are Davies and Ng spreading themselves too thinly?
‘You need a physical presence. Some clients just need that,’ says Ng.
Davies says: ‘Being able to meet in our own offices has brought in new clients. Also the Windsor location is fantastic: near the castle gates. We have hardly advertised it yet; just a listing on unbiased. But we have gained three new high quality clients already.
‘We are targeting clients with a lot more wealth and there is a greater presence of such clients in that area. Who knows where it might lead? Perhaps we could even move there.’
PETER DAVIES CV
2004 to present Create Wealth Management, director
2003-2004 Travelling and strategic planning
2001-2003 Lloyds TSB Independent Financial Advisers, Lloyds TSB Private Banking, IFA
1985-2001 Lloyds TSB Retail Banking, various banking roles and senior life and pensions financial consultant
Chartered financial planner
Certified financial planner
Fellow of the Personal Finance Society
Advanced Financial Planning diploma
BS ISO 22222:2005
Davies is chartered and certified. Both Davies and Ng have ISO 22222, the individual best practice standard for financial planners. And the firm has both corporate chartered status and the BS 8577, which is similar to the ISO 22222 but for businesses.
The pair went through the individual standards process at the same time as putting the company through BS 8577. In addition, the firm adopted cashflow modelling using Voyant 12 months ago and in-house portfolios six months ago.
All the work meant 2014 was intense for the pair. ‘It was a huge effort,’ says Ng. ‘But now we have those things, it gives us a framework that makes servicing larger numbers of clients more efficient and viable.’
Davies, who has a four-year-old daughter, says: ‘We ruined our summer working on it from scratch. I worked on it most Sundays. But it was worth it and has transformed the way we run our business, culturally and on the ground in many new processes.
‘The standards accreditation process is the hardest thing you will do, but potentially the most rewarding. Had we known what was involved, we probably wouldn’t have done the two standards together.’
Ng says they were told on the day they were assessed that they had passed both. ‘Not just passed, but absolutely nailed them,’ he says. ‘I was chuffed to bits.’
STEPHEN NG CV
2006-present Create Wealth Management, director
2004-2006 Maskell, Moss & Co, IFA
2000-2004 Lloyds TSB Independent Financial Advisers; Lloyds TSB Private Banking, IFA
1989-2000 Lloyds TSB Commercial Bank, business life and pensions consultant
1989-2000 TSB Trust Company; Lloyds TSB Life; Lloyds TSB Bank, senior life and pensions financial consultant
1984-1989 Lloyds Bank, management trainee
Diploma in Regulated Financial Planning
BS ISO 22222:2005
Diploma in Financial Planning
Thinking through charges
Create’s initial charges are 2% on assets of up to £1 million, and 1% above that. For ongoing advice the charge is 0.88% plus a £300 fee per review; some clients have two a year, some have one.
Ng says initial charges are still crucial to the planning profession. ‘The risk to the business is based on the advice we give, so we charge for that. If clients decide not to go ahead, we are still liable for that advice,’ he says. ‘They could use the report to do it themselves, then 10 years’ later, if they don’t like that advice, complain to us even though we did not implement it.’
Six months ago, the firm raised the ongoing percentage from 0.75%. However, it also offers ways to pay to make it as fair as possible in each case (for example, a fixed fee for regular premium business).
‘We spent a lot of time attending presentations with the Financial Conduct Authority (FCA) to make sure we met its disclosure requirements,’ says Ng. ‘As a result, our charges menu has grown from a modest document to a far more detailed one. It now identifies [what we would charge for] all of the typical work we do and left some room for complex financial needs. Many advisers are still failing to disclose charges in the right way.’
There is some debate between Ng and Davies about how charging might change in future. Ng says: ‘We might do more fixed fees. There are certain bits of work you do for every client, no matter how large their investment. Maybe we should recognise that.’
Davies says: ‘But there is greater business risk when you provide advice on larger amounts, and it is ridiculous to charge the same fee for them.’
Refocusing on sustainability
The pair recalculated the new ongoing charge of 0.88% while going through the BS 8577 accreditation process as it made them refocus on sustainability and profitability.
‘That process gave us a much more accurate framework for running our business,’ says Ng. ‘It focuses on risks. The FCA advice is to make sure the charging structure is profitable. So we spent a lot of time testing risk to the ongoing income in different market conditions. Factoring costs and what we needed to achieve our business plan, based on an hourly rate of £175, that was the figure we came out with.’
Small team seeking niches
Apart from Davies and Ng, there are three other staff on the Create team: analyst Richard Howell, private client manager Derek Jones, and client relationship manager Alison Marsden.
The firm has had a wide range of clients but wants to target more niches in future. The move to Windsor was part of an attempt to identify a younger and wealthier clientele. Ng has also been nurturing an introducer relationship with a business consultant whose clients are mainly in their 40s and 50s. This has brought in some clients who own businesses in the care sector, such as care homes and foster homes.
‘These businesses can generate a huge amount of cash and we have had a number of clients selling up,’ says Ng. ‘I learned a lot about that sector in the process, I understand their risks and can now talk to them confidently.’
Tapping good quality fund managers with bespoke portfolios
Create launched a series of quarterly reviewed, in-house portfolios around six months ago. Previously all client investments were bespoke.
‘We wanted a centralised investment proposition so we can react more quickly to economic, market and fund manager changes, and operate more efficiently,’ says Ng.
There are eight growth portfolios; three for income; plus two that blend unit trusts and investment trusts.
‘We see investment trusts as suitable typically for experienced, long-term, higher risk clients because of their complexity,’ says Ng. ‘Investment trusts have demonstrated that, held for a long period, they tend to outperform [open-ended funds]. But they are complex.’
Fund and trust selection criteria include manager track record, ideally for 10 years or more, and consistency of performance. ‘We are also looking particularly at how the fund performed in difficult market conditions’ says Ng.
‘We have always been active,’ says Davies. ‘There are sufficient good quality fund managers to create a portfolio that will outperform in the longer term. We explain the differences between active and passive management to clients and give them a choice. We have continued doing bespoke, so if a client wants a percentage in ethical, trackers or multi-manager funds, we will support that.’
In the past three months, the firm has diversified its property allocation across all portfolios by adding a new fund, Threadneedle UK Property, that invests predominantly outside of London.
With bond yields likely to rise at some point, Davies says they have also reduced bond exposure slightly and invested in the Invesco Perpetual Global Targeted Absolute Return fund, which aims to provide a positive return in all market conditions.
‘The fund was launched in September 2013, when three fund managers joined Invesco Perpetual with a strong record established managing Standard Life Global Absolute Return Strategies [Gars] fund,’ says Davies. ‘This gave us encouragement that targeted returns can be achieved.’
The ongoing charges figure for the High Medium Risk Create Portfolio is 0.83%.
The bespoke portfolio, highlighted in the chart below, has outperformed the IMA Mixed Investment 40%-85% Shares over each of the past three years. Davies says this is due to the good returns generated by five of the fund managers selected: Mark Barnett at Invesco Perpetual; Terry Smith at Fundsmith; Nick Train at Lindsell Train; Leigh Harrison at Threadneedle; and Neil Woodford, now at Woodford Investment Management but previously at Invesco Perpetual.
According to Citywire Discovery, Barnett and Smith are in the first decile for three-year, risk-adjusted returns in their relevant sectors; Train and Harrison are in the second decile; and Woodford is in the sixth.
*Data includes manager fees, excludes platform and adviser fees. Dividends reinvested.
ACTIVE FUNDS: 98%
PASSIVE FUNDS: 98%
Davies says he has been inspired by Strategic Coach’s Dan Sullivan but has not joined the programme yet.
‘Dan works with the individual,’ he says. ‘I wanted to get the business framework better and to go through the BS 8577 first. Our next firm goal is to work towards the Institute of Financial Planning accreditation. Plus I have started studying for the Society of Trust and Estate Practitioner accreditation, and Stephen is working towards chartered status.
‘But I have had to cool it a bit because my partner is fed up with me being stuck in the office on a Sunday.’
Putting the work in
Davies and Ng may have been hard task masters at times, but staff seem to love working with them. With so much work falling on such a small team, it is surprising they did not choose to outsource investment, for example, but Davies says he feared the lack of control that might result. He also considered outsourcing the paraplanning function but says the firms he tried could not produce the same quality of work as his staff.
Davies and Ng believe all the hard work will start paying off in 2015. ‘The business has become more professional and efficient and we are expecting significant growth,’ says Davies.
‘As that happens, we can hire more staff. But we don’t need new advisers. We can easily triple new business income with just us two and more support staff [especially now we are spending less times on qualifications and standards].’
He says the future is simply about increasing assets under advice, developing existing staff and earning further qualifications.
Davies does not like to set big targets because things change so rapidly. ‘We plan a year or two ahead and then review each year,’ he says. ‘I am 47; I can’t see me retiring before 65. It is too far ahead to say [how we will exit].’
When the firm was assessed for the BS 8577 and ISO 22222, David and Ng did some psychometric testing, which became ‘an informative giggle’, says Ng. ‘It turned out that we are pretty opposite but in the same way, which is why we work so well together. Peter is brilliant at detail: not just being accurate about things but getting down to the nitty gritty. I am [a blue sky thinker] and more soft and fluffy.’
Davies says: ‘He’s particularly good with new clients and I am more into the mechanics.’
Tight on time
Davies and Ng credit their staff with helping them get through the period of extremely hard work. Their free time has been accordingly restricted.
‘Pete and I joke about golf,’ says Ng. ‘I squeeze in a handful of games a year. He is a much better golfer than I but since his daughter was born he has had no chance.’
However, they manage to watch Cardiff City FC games and try to watch as many rugby internationals as possible.
Davies says the best moment in his career was achieving the certified financial planner accreditation, because there was so much work involved. ‘At that point we were not using cashflow [modelling] so I had to create spreadsheets and Word documents to solve it. It has developed me as an individual in a big way,’ he says.
He says some of the saddest moments have been when clients have died. ‘We have had a few with cancer, which is why we decided to do a charity walk over the Severn Bridge this year,’ he says. It is further than it might look from one end to the other and back, he says, adding that the huge bridge reflects the international nature of their business and ambitions.
With their sights set high at work as well, they are focusing on making sure their business armoury is up to the job.
Five top tips
Deliver on your promises.
Maximise the benefits from time spent doing continuing professional development.
Wear good shoes.
Define your target client.
- Only take on clients who you like and who like you.