Cambridgeshire-based Mark Denley, chairman and managing director of Gibbs Denley, has been zooming in on growth by accruing £300 million under advice with a finely tuned acquisition strategy.
To achieve this, he had to snap up and train talented, home-grown advisers. The next stage is to develop them into leaders and help to bring a target of £1 billion assets into focus.
Keen photographer Denley says he has always been impatient and was never satisfied with organic growth alone.
He founded what became Gibbs Denley Group in 1990, together with Derek Gibbs, and has since waged a sustained campaign of acquisition, taking on 16 advice companies to date.
MARK DENLEY CV
2010-present Gibbs Denley Group, director and chairman
1990-2010 Gibbs Denley, partner
1987-1990 Mark Denley Insurance, sole trader
Focus on acquisitions
Denley recalls the first firm he and Gibbs bought in 1991. ‘We paid £10,000 for it. We had no money and I was scared,’ he says.
‘But in the subsequent year, we increased income more than tenfold. So we realised this worked, bought other businesses and it snowballed.’
He has spread subsequent purchases of small firms throughout the past 24 years, with the most recent, of a firm in Chelmsford, in January 2015.
Many advisers avoid acquisitions, perceiving them as too risky, but Denley says only one of Gibbs Denley’s 16 purchases has failed, as he quickly developed a feel for how to make the acquisitions work.
‘We have a structure and a firm proposition that acquisitions come into,’ he says. ‘All the successful acquisitions were with people who wanted to retire. We only had one that went wrong and it was because they weren’t retiring.’
The proprietor of that firm subsequently left and took their clients with them, he says.
‘There has to be a lot of open dialogue and mutual trust,’ he says. ‘They are normally one or two-person firms with something to offer us and we have something to offer them besides money.
'The key is that if they comply with our centralisation efforts and fit into our model, it maintains efficiency and provides their clients with a better proposition.
'That should increase the adviser’s renewal income over two or three years, so their earn-out increases and they are incentivised to make it work.
‘They then gradually pass the client base to me and I delegate a lot to my home-grown advisers – many in their 20s and 30s – who take over dealing with those clients on a daily basis.
'These young advisers push me to keep developing our model, so we have formulated it together.’
Gibbs Denley Financial Services’ charges vary depending on the amount of work involved but are typically 1% for initial work and between 0.5% and 1% for ongoing.
‘For the ongoing charge, clients get a full financial, tax and cashflow planning service, including as many meetings as they want,’ says Denley.
‘I write to them twice a year and offer a meeting. They can call us and speak to a chartered adviser any time.
'It is not just meetings [on offer], however: there are things going on in the background all the time, and I will also phone clients if we need to see them for a particular reason.’
Flourishing advice arm
Denley’s day-to-day focus is on Gibbs Denley Financial Services, the group’s advice arm. Gibbs ran its general insurance arm and later passed control to his son, Paul.
Denley and Paul Gibbs now own 43% each of the group and the remainder is spread among key staff.
Denley is not content with growth through buying companies – far from it. Average client investment in the financial services arm has risen rapidly from £122,000 in 2012 to £221,000 in 2015.
Denley says improving ongoing service levels, especially as younger staff become more experience and qualified, makes clients more confident in referring the firm to other wealthy friends or investing further monies. The average new case now brings around £300,000 to £400,000 of assets, he says.
As a result, recurring income has risen from 75% to 90% in the past four years, and income per active client has increased from £1,400 to £1,800 a year.
This, along with a rise in active client numbers from nearly 1,000 to 1,400 has helped to boost profits in the period from £620,000 to nearly £1.4 million.
Seeking alpha for actively managed portfolios
Gibbs Denley offers five core portfolios plus passive or blended versions of all five, income versions of two and a target return fund. It also uses bespoke portfolios where necessary.
The investment committee sits each quarter and the firm’s director and investment manager Tom Sparke and investment analyst Ben Benjamin work full-time in the investment team.
The Gibbs Denley Balanced portfolio trailed the IA Mixed Investment 40%- 85% Shares benchmark in 2012 but has outperformed it considerably in each year since.
Denley says 18 months ago the firm identified that large parts of the global economy were becoming moribund and markets would hit the doldrums.
‘Because of this, the committee decided to move towards [funds with more alpha and less beta],’ he says.
‘This means that within our actively managed portfolios we started looking for more fund managers that weren’t "tracker plus" or riding on the back of high standard deviation, and who were adding value by being better stock pickers, using better matrices, behavioural techniques, whatever they can, to generate good alpha. That has been a good move given the subsequent poor markets.’
Sparke says: ‘We look for different characteristics in each fund, depending on its job in the portfolio.
'Typically, for our Balanced portfolio we will look for a good risk-adjusted return, controlled volatility and then varied styles. For example, currently we have a value bias in UK equities, which is working well, but a more aggressive growth bias in the US; plus some income funds too.’
The search for alpha has affected many investment decisions, says Sparke. ‘Our American exposure illustrates this well. We replaced the Vanguard US Equity Index fund with Artemis US Extended Alpha because we don’t want to own large swathes of the US market that are too expensive or in troubled industries, such as oil and gas.
‘We have taken the same approach in Europe and the UK. Also, in emerging markets, about six months ago we moved from Schroder Asian Alpha Plus, which held 70 or 80 holdings, into BlackRock Asian Special Situations, which has about 30 with more concentration and quality.‘
Citywire + rated Matthew Dobbs manages Schroder Asian Alpha Plus. According to Citywire Discovery, he is in the top decile over seven years and second decile over five years for risk-adjusted performance in the Asia Pacific excluding Japan equity space. However, over one and three years he has dropped to seventh decile.
ACTIVE FUNDS: 99%
PASSIVE FUNDS: 1%
Building up value
Denley Gibbs Financial Services keeps a large cash balance of nearly £1 million but has borrowed small amounts to fund acquisitions.
With the value acquisitions bring, this makes sense, says Denley, especially with the current low cost of finance.
The firm still owes substantial amounts but the loans have paid for themselves many times over in terms of the increased value of the company, he says.
Because of its many acquisitions, the firm has 9,000 non-active clients, compared with 1,400 active clients.
Denley thinks he might lose £100,000 in income when the sunset clause cuts platform-based commissions from the non-active accounts in April.
‘But we are not doing much with those clients because it is a small amount compared with our target income next year of £3 million,’ he says.
‘If we [focussed on converting those to active], we might get one in 10, but our time is much better spent bringing in the many new high-net-worth referrals we are getting.’
The firm is researching how it can convert some of its model portfolios [see investment box] into Oeics and plans to apply for discretionary permissions.
Setting up Oeics would avoid any potential capital gains tax issues created when switching funds and rebalancing in model portfolios, says Denley.
‘Also managers will sometimes offer better rates in an Oeic, so we think we could squeeze 10 basis points off our Balanced portfolio in that way,’ he says.
‘However, you need a critical mass of say around £80 million, so at this stage we will only do it with our largest portfolios, like the Balanced and Cautious ones.’
The Oeics would be funds of funds and have identical constituent funds to the current model portfolios, chosen from the whole market, so there would be no potential conflicts of interest or threat to the firm’s independence, says Denley.
He believes the next generation of new model advisers will be more likely to split fees for financial planning and fund management, which he is now considering.
‘In theory, the client could then come to us just for the fund management service or just for planning,’ he says.
‘However, our goal is to offer a truly bespoke, discretionary service with chartered planners, qualified fund managers and to offer a stockbroker role.
‘Discretionary status will allow us to manage our portfolios more efficiently and offer a better service to existing clients.
'My advisers are demanding all these things and are keen on researching them because they have a stake in it.’
Denley says the firm’s size means his work-life balance is good, allowing time outside work to indulge his hobby of photography. He has also been busy recently moving into a thatched house with five acres of land.
FIVE TOP TIPS
Know where you are financially.
Believe in and understand what you do.
Educate and take longer term views.
Delegate and pass on responsibilities.
Create scalability and efficiency.