Mark Redman, incoming managing director of Gould Financial Planning, will lead a cohort of ambitious young directors as they seek to recruit a new generation of clients and protect the company from acquisition.
Chair Simon Gould and outgoing managing director Andy Gait have brought four staff under 41 onto the board in recent years. This is part of a careful succession plan designed to protect staff and clients from potentially worse conditions if the firm were sold to a third party.
‘Young directors are buying into the business,’ Redman says. The younger directors are Redman, compliance director Rhonda Newman and investment director Richard Haines. Financial planner Hollie Coomer will become the sixth board member this month and take over from Newman as compliance director. Newman will move into the advice side of the business.
‘Joining the board entitles you to buy your first set of shares at 4%. At last valuation, the business was worth £2.5 million. But the shares for new directors are heavily discounted,’ Redman says.
Gould and Gait loaned capital to the business when it incorporated in 2012. The loan now stands at £260,000 and is expected to be fully repaid by the end of 2023.
These loans related to the company’s conversion, in 2012, from limited liability partnership to limited company. They represented the value of goodwill in the company at that time, to be paid back to the directors over a set number of years. The outstanding amount will be paid to them within five years.
Gould and Gait now own 75% of the current company, with the remainder shared between the younger directors. The five-year plan is for the four younger directors to increase their shareholding from the current 25% to more than 50%.
Chris Budd, chair of Bristol-based Ovation Finance, runs courses for IFAs on succession planning. ‘It is brilliant to plan succession early. So many firms leave it too late and have few options other than a trade sale,’ he says. But he adds companies considering succession need to make sure the taxman does not see offering discounted shares as a benefit in kind. He urges them to think about how younger directors can plan their own future exit.
Succession planning shows a firm is thinking about the future. But Gould Financial Planning has also had to reflect on the past. Last time the Newport-based company featured as a New Model Adviser® (NMA) cover star in 2014 – under previous name Kilsby Williams & Gould (KWG) – it was reforming in the wake of two complaints.
A further complaint, relating to advice given between 2002 and 2007 for poor risk matching, was dragging on and eventually upheld in 2017 with total redress of £181,000.
Although tough to handle, Redman says these complaints have made the business stronger.
‘We learned from them,’ he says. ‘The firm already had chartered status. But since then, we have also received Investors in People status, and, in 2016, Standards International accredited us for internal processes with the BS8577 standard for financial planning, and our advisers with the individual standard ISO 22222.
‘We are also proud to have been included in the NMA Top 100 twice as we want to be the best we can be.’
Since that interview five years ago, the firm has rebranded to the simpler name. It has also, says Gould, tightened its processes and structures considerably to improve compliance; and made enough wider improvements to achieve NMA Top 100 status in 2017 and 2018, and be shortlisted for this year’s NMA Awards, which took place last week.
Another thing it learned is that advisers are ‘best placed in front of clients, not doing due diligence on products’, Redman says.
The firm created a structure of four teams: advice, investment, paraplanning and administration. These strengthen compliance and support its ‘four eyes’ approach, through which two qualified people read every client report.
‘We also created a planning committee that meets every month to discuss any issues; and an investment committee that also meets monthly, and has compliance staff on it,’ he says.
Gould Financial Planning’s professional indemnity insurance was renewed in November 2018, with no increase in premium and more comprehensive cover. Redman says this was partly thanks to the firm’s strict defined benefit (DB) transfer process.
‘In stage one, we employ pension transfer specialist O&M Systems to analyse the sponsoring employer and the member’s benefits,’ he says. ‘We then report to the client interpreting O&M’s actuarial analysis and linking their personal circumstances to a retirement strategy.
‘If we believe a transfer is not in their interests, we recommend retaining the DB scheme. We will not proceed with insistent customers.’ The firm has recommended transferring in around 5% of cases.
Given the firm’s location, it has met around eight members of the British Steel Pension Scheme, but prefers to ‘steer clear’. ‘Most of them didn’t get to stage one as they didn’t want advice, they wanted a transfer from day one. This worked against our process,’ says Redman.
Redman, who describes himself as driven and unflappable, played football to a high level and was in the Wales under 19 squad before a broken leg ended his sporting ambitions. In 2005, at age 20, he started working as an administrator at the firm.
Redman threw himself into the role, ultimately working his way up to financial planner, then director in 2015. Now he is taking over as managing director as Gould and Gait reduce their hours.
In the past four years, the firm has expanded its niche of high-net-worth clients with an average investment of more than £600,000. This has come mostly through word of mouth, with minimal marketing, says Redman.
Funds under advice have grown from £136 million to £190 million in that time. Overall profits have fallen from £338,000 (42%) to £145,000 (14%), according to figures the firm provided to New Model Adviser®.
However, Redman says the firm tends to look at operating profit, which adds back in amortisation, bonuses and interest. This was £273,000 (29%) in 2016; falling to £247,000 (25%) in 2017 before recovering. The firm is projecting £357,000 (30%) in 2019.
‘[Profit fell in 2017 because] we identified several shared costs that had not been allocated to the accounts properly for several years and these arrears were made good,’ he says. ‘We also had more costs in 2018, associated with meeting the general data protection regulations, Mifid II and other regulatory changes.
‘In 2019 and beyond, we hope to return to operating profit approaching 30%. But more than that would be an unnecessary cost to clients.’
Redman plans to achieve £209 million assets under advice this year. He plans to create a proposition for younger clients to help achieve that goal.
‘Over 2018, we have been streamlining and finding a cost-effective service for smaller fund amounts,’ says Redman. ‘This year, we will continue to do this by using our systems better and reducing manual human input [for example, by introducing a portal that will address questions that staff previously had to answer].
‘The proposition also involves fewer meetings and simpler investments. When existing clients pass away, money will go to their children and [we want them to] be clients already. To promote this, we have run family days out and will also run workshops for younger clients.’
Redman says the Top 100 accolade means a lot to clients as well as staff. As managing director, one of his ambitions will be to go a stage further and win an NMA regional award (see page six for this year’s winners).
‘Having a long-standing team around us is crucial to that level of excellence,’ he says. ‘We set no ceiling for the staff. They can go as far as they want in the business and we encourage them to get qualified in their specialised field. Three of our directors joined the firm straight from school.’
Having two young, female board members also adds value to the business, he says.
‘My new role will bring different challenges,’ he adds. ‘But I am proud to have got to this far and I am enthusiastic about our future.’
The fee bit...
Between 2015 and 2017, Gould Financial Planning moved from hourly charging to individually quoted fixed fees. These are based on funds under advice, meeting frequency, and adviser time.
‘Clients said they prefer knowing in advance and not feeling they are “on the clock”,’ says Redman.
Regarding this year’s new product intervention and product governance sourcebook (Prod) rules, he says: ‘The fee calculation is a function of the client-specific service level. We have been offering a Prod-based, client-focused service proposition for years.’
The firm’s fees for private clients comprise five segments.
‘E clients’ typically receive one meeting every two to three years and a single multi-index fund. They pay fixed annual fees that, for a typical client with £100,000, would be between £650 and £1,000.
‘D clients’ receive one annual review plus a simplified model portfolio. For a typical D client with £200,000, charges are between £1,300 and £1,800.
‘C clients’ have a fully bespoke portfolio. Ongoing fees for a typical client with £600,000 would be £3,000 to £4,500.
‘B clients’ usually have £1 million to £2 million. In addition to annual reviews, they receive an interim statement. Charges for a client with £1 million would be £4,000 to £6,000.
‘A clients’ typically have over £2 million and receive two full meetings a year. For a client with £2 million, the charge would be between £5,000 and £8,000.
Clients receive full access to the team, technical bulletins, economic commentaries, an information pack to help clients with tax returns and a pack for wills where relevant. Next year, they will also have access to a portal through Intelligent Office.
For a typical new client with around £600,000, initial fees are fixed, usually between £5,000 and £8,000 (0.83% to 1.33%), depending on complexity. For a £100,000 fund, initial fees are £1,500 (1.5%).
The firm aims to keep total costs, including adviser, fund and platform charges under 1.5%, but Redman says Mifid II has made this target harder to achieve.
‘We arrived at the 1.5% all-in charge pre-Mifid II,’ he says. ‘The only charges historically not communicated to clients were transaction costs in each fund. Under Mifid II, these costs need to be detailed to clients. So, post-Mifid II, the target is still 1.5%. But it is a challenge.’
Redman says he prefers fixed fees to percentages because it is harder to prove the firm is adding value with the latter, especially for a large fund requiring relatively straightforward advice.
The investment bit
Gould Financial Planning uses in-house bespoke portfolios. Investment director Richard Haines heads the six-member investment committee, which meets every month.
He says an in-house proposition helps suppress costs and maintain control over investment decisions.
‘We asked clients and they want a one-stop shop,’ says Haines. ‘Also, we think many discretionary fund managers (DFMs) are esoteric and overcomplicated.
‘We have generally produced more return for less risk compared with [DFMs in] the Asset Risk Consultants benchmarks. We also use Natixis, which measures the performance and volatility of our typical model portfolios against market averages.’
Gould Financial Planning sets asset allocation with the help of research from FinaMetrica and it filters funds using FE Analytics.
‘We score filtered funds using our algorithm, looking at performance, alpha, R squared and downside capture ratios,’ says Haines. ‘Then we do qualitative analysis on the top quartile of those.’
A current favoured fund is iShares Automation & Robotics, which the firm says is ‘at the bottom end of the “S” Curve’, meaning its growth curve is about to steepen.’