When Lee Smythe finally took the plunge and set up his own advisory business last August, things happened rather more quickly than he was expecting.
He thought it might take until January 2011 before he and business partner Ben Walter could start trading as Smythe & Walter Chartered Financial Planners, but the FSA gave him the green light the very next day.
He admits: ‘The clearance caught us very much on the run. Our web designer wanted to get on with designing the new company’s website immediately but we had to wait for the CII to grant us status.’
While he says he would have been able to make any changes necessary towards an RDR-ready business at Killik, the main thrust of what the Mayfair-based firm offered was not conducive to him growing the advisory division as fast as he would have liked.
‘Killik is 95% stockbrokers and 5% advisers. The planners there are more to support the stockbrokers,’ he says. ‘It is a very good business with a very good client bank but unfortunately they are not as well served in terms of financial advice.
‘The issues affecting Killik will affect many other private client firms because people want more than just investment advice. The internet has commoditised that but we are increasingly finding that it is not just what people want but strategic planning advice for the whole family.’
With a rough target of having at least £10 million to £15 million under direct advice in the first year, he says he and Walter will wait until asset gathering begins to gain pace before looking to take on any extra advisers or admin support.
He is keen to put his 16 years’ experience working across the industry to good use. He began his career as an insurance broker at Prudential and has worked for a number of firms since then, including pension specialists Hyman Robertson.
In terms of investment, the size of clients’ assets will determine which investment solution they receive. It will dictate whether they receive a multi-manager solution, a bespoke portfolio or at the top end, discretionary wealth management. ‘Our role is to make sure these people are giving the best investment advice to our client.’
Smythe is evidently wary of how levels of risk are understood by some investors and cites some of the losses incurred by apparently low-risk funds during the last market downturn.
‘Some cautious managed firms lost a lot of money in the downturn but that was a badge that the funds industry put on them. We have to explain this to clients and it confuses them so we think there should be far more focus put on this.’
While leaving blue-blooded stockbroker Killik meant Smythe could not immediately take any of his clients with him, Walter – formerly Killik’s broker consultant at Prudential – was able to continue working with his 150 clients straight away, leaving Smythe to focus on the day-to-day management of the fledgling firm.
As the RDR approaches fast, Smythe is relishing the opportunity of building up his new business. ‘There are only around 2,000 chartered financial planners in the UK and only around 300 chartered financial firms. Killik had four but the industry as a whole should be pushing for more of these.’
But he is sympathetic with the plight of many older, more experienced advisers who might not have caught up with the new exam requirements.
‘Being badly qualified does not make you a bad adviser but not having the right exams is not helpful.’ The new requirements may also mean some tough times ahead for many advisory firms too, he adds.
‘They will have to explain why their proposition adds value and justify their costs a lot more. Before, it was always a little hidden how much of the fee the provider took and how much was the adviser.’
This is where Smythe thinks his new business can build a niche for itself. ‘We are starting on day one with the qualifications and a new, clear and open strategy. We don’t have any legacy issues to deal with.’
While currently unable to do so, Smythe does intend to eventually work with many of his Killik clients but for the time being, Walter’s clients will be the initial focus of the business. After leaving the Pru, Walter became an IFA last January, working as a self-employed adviser for Equus.
His 100 to 150 clients are predominantly City professionals working in investment banks while Smythe’s are typically older, and nearing retirement age. The average client portfolio has between £250,000 and £500,000.
Overall, Smythe says, the aim is to glean as much business from as many of the right sort of clients as possible and to apply a consistent approach to managing their assets.
‘On balance it is a very exciting time to launch a forward-looking business. A lot of advisers are expected to leave the industry and that will mean potentially more clients for fewer advisers.
‘I was a Pru rep and sold Pru products. What the RDR is saying is that no payments should come from products, it should come purely from advice.’
With a clear and transparent structure at his new boutique, Smythe is confident that he and Walter will soon be able to reap the benefit of the changing regulatory landscape.