Austyn James has a message for the advisory industry: reform or die. The founder and director of Austyn James Consulting puts it slightly more delicately of course, and is keen to emphasise positives, but fears too many are sleepwalking towards the latter choice.
He poses a simple question for businesses which still use commission as a revenue crutch: ‘How are you going to replace income streams? It is nothing to do with ethics. It is simply recognising the changes that are coming over the next five years.’
‘At the moment, all the elements of advice are bundled together. Within five years they will all be segregated and the process of giving a lot of advice will be purely commodified: when you take the value out of any proposition it becomes a commodity.
Born in 1967 in Watford, financial services have always been a large part of James’s life: his father was a regional director for a life company and following his parents divorce his mother remarried, to an old-school local private client broker.
From the age of 11 James earned additional pocket money during the school holidays helping with the administration of client portfolios, updating valuations. He put the money to work, with at best mixed success, playing the oil sector. ‘With minimal input from my stepfather – he correctly thought that the best way to learn was to lose money.’
He did well at school, but knowing that he wanted to work in investment and finance and support himself, decided to find work after completing his A levels, initially at a local bank branch, before moving on to work for SG Warburg on the eurobond desk.
He says that he wasn’t particularly well suited to the power-dressing, yuppie ethos of the late 1980s, however. ‘I came to the view that if that was what the City was I didn’t want to be part of it – too aggressive and grabbing.’
After taking time out he worked through the industry as both broker consultant and high net worth adviser before getting his break in 1995 when an accountancy referral partner in Harrow invited him to establish a financial service division, with James taking 70% of the equity.
The business developed well over the course of the next six years, but having built a successful transactional advisory, he found that he was no longer enjoying the work. ‘I was running myself ragged for clients who didn’t really appreciate it. And when you are looking for something you find it.’
‘In 2003 we started asking clients if they would mind paying us a small retainer – it was almost a test for some of our clients – asking if they would pay a small fee of around £50 a month was a way to see if they liked, trusted and respected us.
‘People on around £200,000 a year would say that they would accept [that we took] commission but weren’t prepared to pay up front, while clients on just £30,000 would agree. I thought that was amazing – it was all down to where people perceived value.’
From managing around 200 clients with four advisers handling about £20 million, the firm divested more than half its client bank and cut back staffing to just James and a sole administrator.
‘Bizarrely, the company did not suffer [financially],’ he says. For every pound in commission lost it gained more than that in fee income and with a smaller, more revenue-intensive client bank, overheads could be cut back to the bone.
He remains the only adviser, although he now works alongside two paraplanners and has admin support, Client numbers have been relatively stable with more than £60 million in assets under advice. Recurring income stands at 50%.
While the company has kept its clients close, rebalancing portfolios up to once a month if a client is particularly anxious, it is by design unscalable. James points out that half of his clients have been with him for more than 10 years while less than 15% have been with him for less than three years.
He uses the analogy of a leading chef such as Heston Blumenthal or haute couture fashion labels. ‘Blumenthal has a restaurant like the Fat Duck in Bray which has very limited covers and a huge waiting list. How do you then scale that business?
‘The answer is to use the original to create an aura and for research and development, and then to brand recipe books and open franchise operations for people who can’t afford to come to the original,’ he says.
Working on this principle, James has registered the trademark Money Mapping and is working toward the launch of a website where people will be able to access the company’s proprietary financial and lifestyle planning and modelling tools.
For clients unable to afford the cost of a full financial plan – which he estimates will be in the region of £2,000 post-RDR to be economically justified – they can access the portal for a fraction of the cost.
For advisers whose authorisation has been limited by RDR stratification, this could also be financial lifeline he says – they can offer a relatively sophisticated investment service using a pre-mapped package.
Alternatively, many clients will opt for the DIY route. He says that there will be further revenue potential from investment newsletters and other services flying under the Austyn James banner.
‘Advisers will be able to do this kind of work a lot more quickly and cheaply or clients will be able to do it themselves if that is what they want. If we don’t do these kinds of things, a whole swathe of the population will have nowhere to turn for help.’