Star profile: Why Sense Financial Solutions is a caring, sharing co-op

Playfully described as a ‘communist IFA’, Sense Financial Solutions is perfectly serious when it comes to drawing on the advantages of a co-operative business model. Steve Buttercase (left) and Nick Manders explain the attractions of their forward-thinking company. For more pictures from our profile see our gallery.

I have seen the future of financial planning and it might just work. Steve Buttercase, financial planner at Sense Financial Solutions, describes his company as ‘a communist IFA’. Despite setting up in 2004 and having 500 active clients, the firm has no value and hardly any assets.

Sense has five directors and four financial planners who all work from home. They keep their own clients, and earnings are distributed directly back to the advisers. Sense advisers share only the name, branding, compliance (via the Mint network) and advice and fee structures.

Where is the sense in that? The potential beauty in this unusual model is that, when each adviser comes to retire, they receive a ‘practice buyout’ in the shape of five times renewal income spread over 10 years, with their clients gradually transferred to other advisers in Sense.

Nick Manders, director, explains: ‘It’s an automatic exit process that saves them having to find a buyer. No capital is required, it is self-financing. It’s nice for the younger advisers as well, as they can see what’s going to happen.’

The success of the model depends on two key factors: the capacity to take the extra clients on and, in the longer term, a pipeline of younger advisers joining. The directors seem to have dealt with that issue so far, having taken on all four of the younger advisers since 2009. This is just as well, as the buyout system is about to be tested for the first time when, in 2012, the two eldest directors plan to retire.

Co-operative set-up

Sense Financial Solutions was started by five tied advisers from Nottinghamshire who were made redundant when Friends Provident closed its direct sales force in October 2004. ‘Friends Provident said that, if we became independent, we could keep our clients, which was very fair,’ says Manders. ‘So five of us stayed together and went independent. The name fitted because, to this day, we just want to offer sensible, straightforward advice that people can understand.’

The downside to choosing that name has been that, since then, several large financial services companies have used the word ‘Sense’ in marketing, website addresses and, in the case of Sense network, the same name, even though it is unrelated to Sense FS. ‘None of them were anything to do with us,’ says Manders. ‘We tried to trade mark it all, but had to drop it at the end. It was too big for us.’

The founders of Sense FS are Manders, Neil Marshall, Karl Guadagnini; and the two who plan to retire, Ian Tagg and Sid Court. The four financial planners are Buttercase, Shirley Skeels, Simon Welch, who joined in 2009, and new recruit, Justin Stockdale. The Sense support staff are Rebecca Bouch, Amanda Buttercase, Kathryn Manders and Sandra Stewart.

The firm also has a non-executive chairman, Howard Whitehurst.

‘We set it up on a co-operative basis, with no managing director, no-one at the top,’ says Manders. ‘Everyone has the same input into the business.’

STEVE BUTTERCASE CV

CAREER

• 1984-88: Halifax Building Society, trainee manager
• 1988-91: Prudential Property Services, area financial services director
• 1991-94: Acuma American Express Financial Planning, district manager
• 1994-98: United Friendly Financial Planning, division manager
• 1998-02: Maddison Monetary Management, director and financial planner
• 2002-09: M2 Financial, financial planner and founder
• 2009-present: Sense Financial Solutions, financial planner

PROFESSIONAL MEMBERSHIPS/QUALIFICATIONS

• Dip PFS

Growing with low costs

The firm originally had an office in Beeston, Nottinghamshire, but it closed after they found they never used it. ‘How much administrative work is required depends on the adviser, they buy in the administration and compliance that they need,’ explains Manders. ‘Simon employs Rebecca full time. Sandra works directly for Shirley, Amanda works for Steve. Kathryn is TCF [treating customers fairly] manager for everybody.’

‘That’s where the internet is so fantastic,’ says Buttercase. ‘The paraplanners can operate remotely and you can employ them directly or use them on a contract basis. It’s a business that can grow with low costs and offer the best of both worlds.’

Buttercase, who along with Welch, joined from M2 Financial, is a prolific press commentator and well known in the New Model Adviser^® community.

He says: ‘Sense truly is a co-operative, which appealed to me. I have this view of financial services that will become more pronounced post retail distribution review; if somebody is not dealing with a client face-to-face, they are either symbiotic or parasitic. If I have a manager, a paraplanner, a shareholder and a CEO, that client fee has to go a long way unless there is money to be made elsewhere or there is cross subsidy.

‘Everyone has to contribute value. Sense has all the good things about the one-person practice but also has a strong presence and economies of scale that come with a larger size and infrastructure. Everybody has responsibilities for different functions but not in a hierarchical way.’

Manders adds: ‘Sense is the most enjoyable job I have ever had. We have camaraderie as well as economies of scale. One-person practices probably pay 20-25% in compliance costs. Ours are nowhere near that.’

He is not concerned about the lack of value in the company either. ‘I see everywhere in the IFA world, "build your business up just to sell it". We don’t want that. We will never sell Sense. It means we know that nobody is out there to rip the heart out of it. Each of us can grow our own business within it.’

No geographical constraints

The advisers have spread out now and are based in Nottinghamshire, South Yorkshire, Lincolnshire, Leicestershire and Derbyshire. Buttercase lives and works near the picturesque Cambridgeshire town of St Ives where these pictures were taken on a balmy day in April.

The model is not constrained geographically. ‘If someone popped up in Norwich or Truro they could still work with the Sense co-operative, as long as they share the [financial planning] ethos,’ says Buttercase. ‘Simon and I came from M2 Financial and before that, Acuma Financial Planning, the first fee-based financial planning company in the UK. The principle of a financial planning process has been with us throughout our careers.’

The effect of bringing in four new advisers has been to boost turnover to £700,000 and they hope to move that up to £1 million within the next year or two. ‘With £1 million, you have a large say in what happens with regard to your compliance regime,’ says Manders. ‘It will leave options for Sense to develop and not be dictated to. It buys us all freedom and choice.

NICK MANDERS CV

CAREER

• 1991-94: Sheraton & Partners, self-employed adviser, Irish Life
• 1994-2000: Halifax Building Society, financial adviser
• 2000-01: Britannic Assurance, executive financial adviser
• 2001-04: Friends Provident, senior financial adviser
• 2004-present: Sense Financial Solutions, director/adviser

PROFESSIONAL MEMBERSHIPS/QUALIFICATIONS

• CeFa
• Studying for Diploma
• Education officer for the CII/PFS East Midlands

Professional connections

The Sense website has a section about its professional connections, but from an industry observer’s perspective, it seems a little vague about the relationship it has with them. This is partly because, although some of the advisers do have referral relationships, connections tend to be with individuals rather than the whole firm.

With regards to the possibility of becoming directly authorised, Manders says: ‘We are looking at it all the time. I’ve had phone calls from various service providers [hoping to help us go direct]. We’ll know when the time is right but we might not ever move. Networks are under a lot of pressure now. The strong ones will survive, come out stronger and be good to work with.

‘I know a company the size of ours that is directly authorised and looking for a network because of the complications of being direct such as the compliance issues and the unexpected Financial Services Compensation Scheme levies. Networks can absorb things like that.’

Sense aims to grow funds under management from the current level of £34 million to £40 million by end of 2011. It plans to take on two new advisers and is mostly looking for one- or two-person practices or individual planners bringing their own clients.

They hope the practice buyout structure will be a ‘big carrot’ for advisers young or old who have their own clients.

‘It has to be managed sensibly because what we want to do for [Tagg and Court], we want to do for everyone,’ says Buttercase. ‘People who are looking for an exit can join and then gradually hand their clients over to us.’

Gap in gap-fill awareness

Numbers of active clients have gone down since 2008. ‘That’s deliberate and on a natural basis,’ says Manders. ‘A lot of it has to do with RDR and the way we have been trained to think by the regulator. A lot of IFAs do pro bono work and it needs to become more commercial.’

After Tagg and Court retire, only three directors will be left. ‘We are discussing that right now, we know Steve’s very keen to get involved as a director,’ says Manders.

‘With or without the title,’ adds Buttercase. ‘I’ve been a director before and set up two businesses. The trouble with some management positions is that they lead to detachment and then self-interest. The key here is the development of the business as a co-operative.’

Currently three of the advisory staff have reached diploma level (Buttercase is nearly chartered) and the other four are ‘well on the way’.

The issue is close to Manders’ heart as he is education officer for the East Midlands Chartered Insurance Institute. ‘The role of the education officer is to help people through gap fill,’ he says. ‘It’s my responsibility for the whole of the area!’

He admits that many people do grumble that the CII is making lots of money from getting people ready for RDR.

‘I’ve been pushing for extra training on RDR,’ he says. ‘If you push hard enough, things happen and you get more resources. Chartered advisers are kicking because they thought that was it, and it is not, so we are helping them through the process. I would say that, across the board, 65% of advisers are up to speed with what they have to do. The rest are still unsure.’

Personal Finance Society meetings with gap fill sessions tend to be fully booked now. But there is still time, says Manders. ‘I know someone who crashed his gap fill in about five to six weeks. You don’t have to do it on a course either, there are lots of ways.’

Wraps: one size does not fit all

Sense offers two levels of financial planning service: ‘wealth management’ and ‘lifetime’; plus a transactional service called ‘solutions’. Fees for the first two range from £120 to £200 an hour for directors and consultants; and are fixed at £75 an hour for paraplanners and £30 an hour for administration.

The wealth management service is for clients with at least £250,000 and who need regular reviews plus at least one valuation every six months. Lifestyle clients get an annual meeting and valuation.

This is all clear enough but the picture is a little more confusing when it comes to investment as they use at least five different wraps and platforms.

‘As long as it is justified why we are using the particular wrap, we are happy with that,’ says Manders. ‘The investment proposition is evolving as we start to share best practices. But there is all this discussion about platforms, portfolios etc; we treat each client on an individual basis. We don’t say "everyone must be on Transact". That is a no-no. It is whatever fits for the client.’

Buttercase adds: ‘The danger with the platform model in big organisations is that everyone is squeezed into the same hole, charged the set fee and they might not actually benefit from that. It’s a risk and probably the next great scandal. When someone asks me "who is your wrap provider?" that is a strange thing for an independent to ask. We have several.

‘If everyone is on the same platform, following the same risk profile, what’s stopping a client from going onto a website and doing it themselves? There has to be value and that comes from life planning, financial planning, ongoing relationships and achieving clients’ goals.

Feeling human again

Buttercase has four children, Charlotte, 9, Sammy 11, Jack 16 and Joanna, 18. The flexibility of the Sense structure was a big draw for him as it means he can take them to school in the mornings, and often be there when they come home as well.

Outside work, his other main passion is music. Buttercase played lead guitar in a band in the 1980s which had some success with a song entitled ‘This is not a song by Talking Heads’, it is on YouTube, naturally. The Principle is still going, these days playing ‘standards’ at functions and Buttercase also plays in another band called ‘Something for the weekend’.

‘I’ve been doing that since I was 14 years old,’ he says. ‘Now my son plays guitar, my daughters play saxophone and piano. Music is a wonderful thing to have. Whatever you do in life, you can go off and play and feel human again.’

Manders, who lives in West Bridgford, Nottingham, is a committed freemason of 16 years. ‘It’s very rewarding, based on truth, friendship and charity,’ he says. ‘There are 80 lodges in Nottinghamshire and 8,000 in Great Britain.’

Manders has also recently taken up sailing and just achieved his RYA 1 and 2. ‘It’s is fantastic. Now I just have to save up for the boat,’ he says.

If Sense keeps growing at its current rate and if its ‘communist’ structure works out, that should not be too much of a problem.

Five top tips

• Businesses are built or broken in the last four feet: face to face with clients.
• Nothing lasts for ever, however good or bad it is.
• Cash Is king but it can be a lazy, ineffectual and decadent one.
• Anyone in a financial planning business that does not deal with clients directly is either symbiotic or parasitic; make sure you know which.
• Never cut down a tree in winter; do not make irreversible negative decisions at low points.