Unlike the image of gently punting down the river, Jason McGuigan and Brian Foster have gone through some pain to get where they are with the business today. ‘We’ve got very bruised over the last five years just trying different things and banging our heads against walls but it’s only in the last 12 months that we have started to feel comfortable,’ says McGuigan, and Foster heartily agrees.
Situated in the heart of Oxford, they are the two partners running the financial planning business of top 60 UK chartered accountancy firm Critchleys. A substantial new shopping centre is about to lead to further disruption around them but the foundations for the practice are at last firmly laid.
Now a separate LLP, the financial planning arm of Critchleys was set up by the two of them in October 1997 and has grown to a team of eight, with a turnover of around £600,000. The team includes three planners and five administrative staff.
Getting clients involved
Goal planning and understanding clients’ core values is a fundamental part of what they do and a key piece of the jigsaw came when they began using Truth cashflow modelling which impressed some of the accountancy partners so much that they are now clients of Critchleys Financial Planning.
Foster says: ‘We have a big interactive board so clients can press the buttons and some of them get up and start going through the system which is fabulous because they really feel involved.’
McGuigan is an Oxford lad, as is Foster, and he lives in Botley, a nearby suburb, so that he often walks home from work. He has worked in financial services for about 20 years, 11 years at Critchleys and prior to that as a tied agent.
He started off at General Portfolio in Oxford and then moved to Commercial Union Financial Services. A further very brief spell was with Abbey Life when Commercial Union sold its salesforce to Abbey and McGuigan says he could not bear that at all. From 1995 to 1997 he went into an advisory role in a branch of the Abbey National and there he got promoted to insurance development manager at which point he studied the AFPC.
He realised the only way forward was to move into an IFA role in a professional practice and by chance he saw an ad for the accountants Critchleys looking to set up a financial services business.
That was 1997 and he found himself starting on the same day as Foster at Critchleys.
Foster lives in the village of Yarnton just to the north of Oxford, having grown up in Charlbury, a Cotswolds town a little further north into Oxfordshire.
He was a mortgage broker for eight years with an estate agency business after having worked in the Midland bank in Oxford. He left the estate agency to move into a wider area than just mortgages, which involved a very brief spell in what he thought was a stock broking business but turned out to be a bucket shop selling penny shares.
In at the deep end
They had never met prior to that or been IFAs before and they just walked into a room with two desks and a computer in it. McGuigan says it was really quite scary and Foster concurs. ‘All of a sudden we were exposed to the type of client that you have in an accountancy practice – people with lots of money. We sat down and opened a file and said "what do we do now?’"
They worked on a fee-based rate of £65 per hour for a couple of years because that was the accepted way of doing things at the accountancy practice. McGuigan says neither of them had ever charged time before and filling out time sheets was a nightmare.
There was one occasion which brought the issue to a head, when a client made a £250,000 executive pension plan contribution and they charged £900 on a nil commission basis because that’s what Critchleys wanted them to do.
Foster says: ‘The client already had a pension vehicle, he just wanted to make an increment from his business. At the time we were straight out of direct sales and £250,000 was all the money in the world. Nobody makes a contribution of £250,000 surely? For us, £900 was quite a big fee but the reality is that it was nowhere near what the market would charge for such a sum.’
Breaking the mould
So that led them onto ‘value billing’ and to challenging the status quo at the practice. They knew they wanted to be fee based but they had to wrestle with the business model for 10 years to get to where they are today.
No help was forthcoming from the accountancy practice ‘bless them, they were clueless. In fact we came in with a blank piece of paper and they said where do we go with this.’ They had two staff – a secretary and an administrator, Chris, who has been with them throughout as the office support person.
Location-wise, initially they were right in the centre of Oxford in a little rabbit warren-like office which was Critchleys’ headquarters. At that point the firm had five other offices and there was not enough room and as they started to grow they went to the satellite office in Abingdon.
The partner who recruited them sadly died a couple of months after they started and the partner who took over was based in Abingdon, where they had to spend the next five years.
‘It was a less appropriate location because Oxford is where most of the work is done. We had to force their hand in order to get back to the city. It was the right thing to do and that will be evident from the business figures as well,’ says Foster.
Five top tips
Jason McGuigan & Brian Foster say:
- Understand and be clear about what you want your business to do and be honest with yourself about any limitations. Outsource anything you can’t (or don’t want to) do.
- If you are service-based, see things from the client’s perspective. Focus your attention on delivering a high quality service and design a process that will consistently deliver what you say you will deliver.
- Make sure you know what your fees are for. Ensure that the fees offer value for money and let clients be the judge of value.
- Target the clients that will want your services. Don’t be afraid to walk away from clients that don’t want (or are not willing to pay for) your services.
- Retain an open mind and never stop challenging your proposition.
McGuigan recalls: ‘It was a massive turning point for us because the partner overseeing our business then, who is now retired, was a bit of a control freak. We had to go above him and sadly say "this is what we want to do" and within 48 hours it was agreed. There was a lot of political unrest as you could imagine.’
Within six weeks they had moved into the current central Oxford office where the new building had plenty of space available. This was 2003 and the new partner Adam Stein who continues to be in charge, was very hands off. ‘All he is concerned about is hitting our targets each year and this enabled us to completely remodel the business to exactly how we wanted it,’ McGuigan says.
McGuigan is the head of the business and the partner said ‘it’s yours to run, if you have any problems come to us’, he explains.
This has since been reinforced by the financial planning business getting LLP status from June last year. Until that point they were employees of the practice with McGuigan as director of financial planning. ‘For some years we’ve been knocking at the door saying we’re building this and actually we would like a share of it.’
They both became partners in the LLP and all the accountancy partners also have a share but the day-to-day operation is exactly as before. There is a board comprised of McGuigan and Foster plus two other partners, the managing partner Robert Kirtland and Adam Stein who is the partner responsible for their department. Stein was finance partner of the firm until five years ago and he now he oversees the VAT department, the management services and financial planning.
The new client proposition
McGuigan and Foster have had a good relationship with members of the Institute of Financial Planning (IFP) over the years and certain people were able to educate them about the benefits of cashflow modelling.
Attending an IFP conference five years ago, McGuigan spent two days talking to everyone and came back and had another chat and decided that the Transact wrap was the way to go.
Foster at that point had taken a six-month sabbatical in South Africa. Back in the office in February 2004 he got a different perspective on life. ‘I’d been working for 20 years and stepped off the treadmill for six months. My view of the importance of money, or not as the case might be, changed completely. So I think that was quite an important part of the process.’
Thinking the solution was wrap they explored a relationship with Transact and the idea of some type of consolidation service.
This coincided with their further conclusion that they could not be a financial planner and investment manager at the same time, hence they needed to outsource the investment management. McGuigan says: ‘Transact is a great administration tool but you’ve still got to choose the funds and we thought how potentially easy it would be to slip up and go into a discretionary fund management role by mistake, so after about five or six clients going onto Transact we realised we were still spending hours doing fund research.’
Meanwhile Tilney Wealth Management approached them as Foster was ‘going into the Transact mindset’ while McGuigan was beating a retreat, thinking the Tilney discretionary service sounded great.
They did a pros and cons brain storm of Tilney and Transact during which they realised they were looking for a one size fits all but the reality is clients have different levels of need and sophistication.
So they decided that some clients would be well served by a multi-manager proposition, which was straightforward and cheaper, while others demanded more and were offered the Master Account route with Tilney.
Tilney offered a website reporting facility linked to its server that is effectively a wrap and costs Critchleys Financial Planning nothing, says McGuigan. Clients are charged 1.55% a year for the full investment management service which includes Critchleys’ annual fee of 0.75% and Tilney’s annual fee and this has proved very popular, he says.
Foster highlights something he says a lot of IFAs are struggling with: ‘They are saying how can you outsource investment management to Tilney and then charge say 0.5%, what is that 0.5% for? I think the challenge to IFAs is not to see it as investment management work but financial planning work. It just so happens to come out of the portfolio charge.’
The process they follow with clients is to look at the target they need to achieve for their goals following the financial planning exercise, and say the client is trying to achieve 7.5% a year, this should be achieved with the least amount of risk.
One of the reasons for choosing Tilney was its eight different asset classes including funds of hedge funds, commodities, structured products at institutional prices, property, investment trusts and unit trusts.
Tilney is fully aware of all of the client’s assets as there is the facility on the Master Account to report on all these assets and not just the money they are managing, so they factor that in.
Getting the referrals from the accountancy partners was quite difficult in the early days and they say they had to spend a lot of time building credibility at a time when financial advisers were not highly regarded.
Foster comments that some of the partners were more supportive than others and some of them still find it very difficult. That said, they never did any marketing because there were enough clients coming through. ‘So the referrals although not huge in volume were good quality and enough to keep the two of us extremely busy.’
McGuigan says part of the transition for partners was when they came over from the Abingdon office and how they were going to model the business. ‘We were going into financial planning rather than financial advice and educating the partners on what the difference was and the partners began to see what the real value was.
‘Here we are five years down the line and the bulk of the key referrers now fully understand what we do and how it differs from a typical IFA advisory practice.’
Getting the partners involved
What they try to do is to get partners involved in client meetings so they understand what advisers are saying to clients, why they are saying it and what the response is from clients. This has proved to be a valuable experience, as Foster explains: ‘Some of the partners are technical people, some of them wouldn’t know one end of a tax calculation from another because it’s been so long since they have been in a technical role. They are more client relationship managers and their job is to make sure the clients get whatever services they need and are put in touch with the right people.’
The partners come into the formal presentation meeting – after the discovery meeting and the gathering of all the data – when the financial detail is shown on the big screen in the meeting room. McGuigan says: ‘We will formally put their financial life onto the screen using the Truth software and then talk through where they are currently and their personal and financial goals. Bringing the partners into that over the last 12 months or so has made them see we are not just flogging products.’
McGuigan personally acts as financial planner to four of the Critchleys partners. ‘The fact that the partners are coming to us means they have started to realise that we are doing something different to what they first perceived.’
Foster points out there is also a slight challenge for them as in-house planners ‘because we are involved in the business some of them feel they would like to keep their personal affairs separate which is understandable.’
A key link
McGuigan and Foster see their role as pivotal in pulling together the work the accountancy and legal professions do for clients. ‘Once we know what the clients’ goals are, within that context there’ll be some tax advice and they will need legal advice but everyone needs to buy into the same journey that the client is on,’ says Foster.
In terms of how they integrate with Critchleys’ tax team he says that things could be better as the financial planning staff are on the ground floor while the tax department is on the second floor. ‘We’ve been trying to get closer to tax for a long time to have that interactive discussion more often. We need to be sitting in the same room next to the tax office and this month we are moving up there.’
Old Oxford money and new business owners
McGuigan’s portfolio of clients is very much old Oxford wealth with clients aged 50 plus whereas he says Foster’s clients are a lot more business oriented. He spends a lot of time advising on IHT issues and mentions that only in the last 12 months have both tax and financial planning departments realised that proper IHT advice can only be offered by putting the knowledge of both sides together. Pure tax advice needs to be married with an understanding of available IHT products especially when people selling businesses and going through other complex issues. ‘The client doesn’t see financial planning and tax, it just sees Critchleys. So the client expects us to be talking together.’
How involved are they with Oxford university? McGuigan says the Critchleys accountancy side acts for about 12 colleges in Oxford as it generally conducts the audits. ‘One of the complications is that as an auditor it’s very difficult to introduce other services because they are meant to be impartial. The fact that we are now a separate LLP helps. But although we have not got very involved in the investment management of colleges, Critchleys provides tax services to a lot of the bursars, dons and fellows so we get introduced to them in financial planning.’
There are some very high earners and Foster says the people that study at Oxford have generally come from wealthy backgrounds so it is likely there will be family money.
Foster says his clients are a real mixture. ‘I’ve got some of those clients like Jason and a lot more who are newly wealthy. I have a couple of famous authors who have done very well. I’m talking to a number of business owners who have come out of university and set up spin-off businesses, for example there are a lot of biotech companies in Oxford along with research- based companies and technology firms.’
He says there are a lot of people who have become wealthy as a result of the work that they have done and the businesses they have created. But Critchleys also has a corporate finance department which deals with mergers and acquisitions, buy ins, and buy outs. ‘We’ve been trying to get a lot closer to them in terms of the deals they are doing and the wealth that they are creating in terms of the business sales,’ says Foster.
However, this is a challenging area to get in-house referrals, as Foster explains: ‘I think our corporate finance partner just gets so focused on the deal he struggles to see the wider picture. I think he feels that the timing of the introduction is quite important. I have to agree with that but I think the problem is he sees it very late. We would like to be involved right at the beginning even if it’s just an introduction.’
This could simply involve saying "here is one of our financial planners you don’t need him yet but you need to know he is there and what he does and when the time is right you can have a discussion."
‘That’s all that needs to be said really,’ Foster adds, ‘the problem is that quite often that we get involved too late by which time the client has already developed a relationship elsewhere which is then quite difficult to break.’
There has been some success and McGuigan says the referrals he has received over the years include one client recently who was worth about £20 million, while he has another a deal on the go currently at £3 million. Foster meanwhile has a client referral from the corporate team with £2 million.
The numbers game
For the full financial planning service the minimum fee is £3,000 a year or 0.75% of assets, hence in most cases people have assets that generate fees more typically of £5,000-£7,000 a year. The fee is discounted above £2 million. ‘Once the fee level goes over about £15,000 we start to feel a bit uncomfortable, that you can’t justify anything over that,’ says McGuigan.
For the Truth-based cashflow modelling financial plan, the average cost is £3,000 plus VAT. They generally try to avoid project work now as they don’t feel you can get the advice without going through the financial planning process. McGuigan says they are turning away a lot more potential clients than they are taking on and Foster says one of the challenges was getting the partners to see the reason behind that. ‘Because if they are referring to us and we were turning the business away because it wasn’t a good fit the partners were concerned that it might reflect badly on them. So we’ve had to educate the partners on typical client profiles so the referrals are better quality.’
Critchleys as an accountancy practice has about 3,500 clients with a turnover of about £7.5 million so the scope is very much there but as McGuigan explains: ‘There was enough work but educating the partners to refer the right clients was an issue especially in the early years. For the first couple of years we were making £250,000 to £300,000 a year, just the two of us, which you could argue is not bad. But we were still doing a lot of smaller work, for example, if the partner said he had a client who wants a £7,000 ISA then we were obliged to do it.’
Foster adds: ‘They were looking at us as another service to offer the client in order to keep the client within the boundaries of the firm.’
That position has changed and the Critchleys financial planning business turnover last year was about 10% of the firm’s total at around £600,000. McGuigan says they have a personal target to be turning over up to a million pounds a year in five years while also explaining that they are interested more in profits than turnover.
Making it all work
Foster says in their experience of talking to people who have tried to put financial planning inside an accountancy firm most of the people have said it does not work. ‘I think the challenge is a lot of the accountancy firm partners don’t get it and a lot of financial advisers who have found themselves in that situation lose patience and they get to the point where they can’t deal with it any more.’
By contrast McGuigan’s and Foster’s patience has been rewarded. ‘We keep knocking on the door and telling them how it should be run and over the course of time that patience has been rewarded, because most of them now get it. They are starting to see the benefits of the client relationships we’re making, in the quality of the work we‘re doing and in the profit they are making personally,’ says Foster.