Yesterday I published an article about my fears of putting my money into the hands of a wealth manager. They can be summed up as
- Financial – the “money” bit of value for money , was skewed against me
- Succession – I didn’t understand whether I was buying a process or a person
- Confusion – I had no way of assessing the value aspect of the VFM equation and couldn’t work out if I was buying advice or asset management.
As luck would have it, City wire published a story -http://tinyurl.com/za63ujh – on the purchase of 4 small wealth manager by a combine harvester of a wealth manager – called Succession.
here’s the headline
Succession buys four IFAs to boost assets by £350m
here’s how the story starts
Succession has bought four advice firms to boost its assets under advice to £350 million
The eagle eyed will have noticed a change in prepositions; “by” doesn’t equal “to”. Nor does the quoted “through due diligence” equate to “thorough due diligence”, we’d expect on such a deal. The story was clearly run in a hurry.
What really struck me about the story/press release was the emphasis on funds under management. This was about IFAs managing other people’s money but those other people didn’t get much of a look in.
That is till we get to the comments of Succession’s CEO
‘As consumer demand for quality advice increases, so too do regulatory and commercial pressures, and advice firms face almost insurmountable challenges to provide affordable and accessible financial planning services to clients,’
I had no idea what Succession bought to the party (that the IFA firms didn’t) and having spent time on the client facing and adviser facing websites, I still don’t.
Does this deal mean cheaper fees for clients?
Are clients able to buy financial planning services independently of wealth management?
Was the customer buying into Succession or as firm and succession as a benefit?
It would appear that some IFAs looking at this deal were dubious.
The poor clients of these 4 IFA firms (for crying out loud)
Can Succession publish their client fee tariff ? (Nick Young)
Are those charges verifiable? They verge on the obscene and make the likes of Towry/SJP look cheap. (Investment guru)
Well might these chaps query what was going on; I was pleased to see that the CEO of Succession (Simon Chamberlain) decided to answer these questions and comments himself.
Of course they are not ! You don’t think bloggers/trolls of this kind use facts ! Succession like most other companies in the uk , charge 3% for a new fully engaged client to come on as a client then an annual 1% fee for the full wealth management and rebalancing service for their individual plans linked to a personalised Cashflow forecast and a individual life plan . All these fees are in a sliding scale based on the amounts being invested . No secret charges no excessive exit charges , completely transparent and simple to understand
Well I side with the bloggers/trolls on this one Simon. If your fees are transparent, why don’t you publish them; if you have exit charges – show why they’re not excessive and if your stated fees are simple to understand, why don’t I understand them?
While I can’t see the Succession charges for financial planning/wealth management, I can see the costs for arranging a mortgage with succession
The above fees are payable on completion of a mortgage. We will also be paid commission from the lender. For example , if you borrow £600,000 our success fee will be £3,250.
This is not transparent and easy to understand, unless I am wrong, the undisclosed commission (which will vary from lender to lender) is paid on top of the formulaic success fee.
I side with the bloggers/trolls, because I don’t think they are hiding under the bridge (as one of Chamberlain’s fans has it). I think they are openly questioning whether these deals have anything to do with customer value.
Judging by Simon Chamberlain’s defensive response, I suspect that this is a valid line of questioning.
The conclusions I came to when researching my own situation is that IFAs can confuse with their language, their fees and their intent. Generally I found that a good way to find what was meant was to turn round what was said to the exact opposite. The assertions in the press release from Succession and the comments made by its CEO and others are not verifiable from Succession’s websites.
Can Succession succeed?
Succession is what is known as a consolidator. Citywire has sent me an insightful article on the model with specific attention paid to Succession and a previous business run by its CEO – Thinc Destini. You can read it here http://tinyurl.com/jpzd2ce
I suspect in the short-term, Succession will succeed. But to do so in the long term it is going to have to be a lot clearer about its intent and its means of fulfilling its promises.
Can IFAs convince me that I will have a succession of good advisers over time? Only if I can properly understand the process that drives the advice, the cost of advice and the cost of asset management.
When firms like Succession can do that, then we may have success!
I have been an IFA for 26 years and welcomed the ban on commission when it came into force at the end of 2012. I have never liked “ad valorem” charges and, present company undoubtedly excepted, most clients don’t really understand percentages as well as they should.
Without wanting to sound sanctimonious, do some forget whose money it is!
When I go to a solicitor for legal advice or my accountant for tax advice they don’t say “That will be 3% plus 1% per annum, thank you” – they charge me for their time, expertise and some profit. I understand that. My solicitor is really there for transactional advice (writing a will or buying a house, for example) and might charge me a few pounds a year for safe storage of important documents. My accountant is involved every month as they run my payroll and all of the other things accountants do and I pay them £400 per month and that figure includes everything (unless something odd comes along).
I wrestled long and hard about my charges at first but, again without wishing to sound self-important, I am professionally qualified and have basketfuls of experience at this stage in my career. I charge for my time, expertise and, of course, some profit. I think that I’m worth about £175 an hour (being rurally based in Somerset which is a less expensive place to have an office) and my clients seem quite happy with this (I have asked them several times). For the majority of my pension fund clients (SIPP/SSAS/PPP) I charge a monthly service fee of £35, although it might go up in the future at some point, with my clients prior agreement. These fees are normally paid by the pension fund itself rather than from my clients after-tax earned income. Similar principles apply to other kinds of “wealth management” products such as ISAs or, ahem, investment bonds (they do have a role sometimes).
So, let’s look at a “typical” £500,000 SIPP that I look after. Let us say that it takes me approximately 10 hours of work to agree and set up a SIPP, including my advice and recommendation as to the SIPP provider and the initial investment portfolio. So my charge would be, in this simple example, £1,750. Then I charge £35 a month, which is £420 a year (I send my clients bank statements and commentary each month). So the raw cost of setting up a SIPP in the first year would be about £2,170. That’s 0.434%. Going forward my cost would be tiny, unless something needed to be changed with the investments, for example or my client wanted to retire, pay a contribution or something else when a further fee would be agreed in advance of my doing the work.
The SIPP administrator charges about £900 to set the SIPP up and £510 a year to run it. The underlying investments have fees, too, of course and these will vary depending on what ETF/OEIC/IT funds are bought, but they seem to average out at around 0.65% per annum.
So, a £500,000 SIPP should cost about £2,650 to set up and around £4,180 a year to own, noting that the investment management fees are “implicit” rather than explicit.
I think that means 0.53% to set up and 0.836% “running cost” – these figures are there or thereabouts.
Alternatively, you could go to the firm Henry mentions (which I doubt is based in cheap offices in Somerset) and pay £15,000 setting up fee and around £8,760 a year in “management fees” (I have added the estimated SIPP admin fee, fund fees and the 1% together – correct me if my maths is wrong).
So, what do they do for their clients that is worth double my combined annual fee?
Or, am I not charging enough?
Maybe this “gravy train” needs closer inspection?
Best,
I’m not charging enought and nor are you Mark, but the good thing about small firms is not charging enough is OUR choice, not someone elses.
I am about to put my quoted charges up as it gives me more room for manouvere as coming down on qouted terms for an individual clients circumstances is NOt an issue with the FCA, but incraesing chsrges above quoted terms is (correctly) not deemed TCF.
I quote maximum figures as percentages to clients at first meetings and relate that back to a monetary sum (as requried by the FCA (correctly) so clinets know just how much 3% of £100,000 varies from 3% of £300k! And explain that the % is a ball park until (like the builder who may price a job on £ per sqm or a land agent, until we’ve looked at the job, we can’t price it properly.
As to succession, the best form of that for me is either inetrnal succession from internal staff/family members rather than selling to different model like “Succession”, but some advisers don’t have that option if they haven’t trained and taken on staff/family.
The consumer is completely free to appoint another adviser outside “Succession”, the consuemr chooses their own adviser, all the retiring firm does is nominate the default firm you will move to and fees cannot be deducetd from your plans for “advice” without you signing a new agreement.
“Succession” is no threat to the consuemr, but they need to decide whether their new adviser’s style meets their needs and if not, move the agency.
The issue with IFA consolidators, apart from the disparity between initial advice fees and the actual work done, is that clients become part of a process, thus endangering being treated as an individual with specific needs. The advisers, under pressure of generating initial advice fees constantly (sales targets in old speak), are put in the position of ‘this is the answer……what is the question? This is will typically result in a poor outcome for the client. Too many IFAs are selling their souls to consolidators. Well done Henry for highlighting, what I feel, is a worrying trend.