The founder of Paradigm feels IFAs are not getting the credit they deserve and plans to streamline the way business is written to create more value for advisers.
There was never any doubt Paradigm founder Paul Hogarth would be a successful businessman. He says: “I spent my childhood exchanging my toys with other kids to make a few pounds.”
Now executive chairman of IFA consolidator Perspective Financial Group, which celebrated its third birthday this year, Hogarth has continued to make a success of his ventures, albeit with a different target market.
There was a family reason behind his decision to enrol into a graduate traineeship with RBS. “My dad was pretty senior at Prudential. He said, ’I want you to go into a recession-proof industry’ and that meant either banking or insurance.”
He opted for banking but got two written warnings within eight weeks of being at RBS and moved on to Scottish Provident. After two years, he joined Vanbrugh Life, then part of Prudential, but the biggest turning point for Hogarth was setting up IFA support service Bankhall in 1987.
“It was not something I planned to do. I felt like I was in a straitjacket at RBS but I never thought I was IFA material either.”
Bankhall was founded when one of Pru’s retiring advisers asked Hogarth to take on his client bank and the firm was named after the street where the adviser lived. “He lent us the cash to get us started and off we went, looking for national domination.” He achieved that to an extent, with 25 per cent of IFAs using Bankhall support service at one time.
The business was sold twice, first to Lynx and then to Skandia, whose UK board Hogarth joined. “That was an eye-opener,” he says. “I saw how product providers made their money and I could see how much they were going to struggle if they continued taking such big rebates.”
Armed with this knowledge, Hogarth set up Paradigm, which consists of a network, an asset management business, a mortgage arm and pension service.
“We have 340 partner firms and 450 network members. I would like to see those figures reach 500 and 800 by the end of the year. We got too big at Bankhall and I want Paradigm to stay at a size where we can still support our members.”
Hogarth believes IFAs have not been getting the credit they are due. “You only need to look at the offices of IFAs and the head offices of product providers and you can see where the value lies. A typical total expense ratio is about 2 per cent. The adviser at the moment gets about 0.5 per cent of that and the other 1.5 per cent goes to stakeholders such as product providers and fund managers.”
He wants to see a more even split, with the adviser receiving 1 per cent. “That is where Paradigm is getting to,” he says.
According to Hogarth, Paradigm’s point of difference to its competitors is in acting in the best interest of its members.
“We treat our directly authorised and appointed representative firms the same. Most networks charge ARs a percentage of the commission IFAs write, even though DAs moved away from that a long time ago. An AR proposition should be no different from a DA one.”
Paradigm has charged all members a flat fee since launch, which Hogarth believes has helped prepare the company for the retail distribution review. “We have been going down the RDR route for a long time. It holds no concerns for our members.”
Hogarth believes this is the case for more IFAs than people think. “Most IFAs are getting on with the transition and the evolution is well under way.”
In his role at Perspective, Hogarth has seen the company successfully integrate 20 firms and he wants to acquire a further eight over the next year. But although more IFAs are seeking exit strategies or consolidation, He does not think we are going to see either the huge drop-off in numbers or the increase in restricted advice forecast.
“If you must have the same qualifications, why would you want to limit yourself? I lived though multi-tied and there was little take-up then. The same is happening this time.”
Hogarth sees the RDR as a means for IFAs to streamline their propositions and he thinks technology will help. “We had a client three years ago who was going to leave the industry. He had had the worst six months of his life trying to switch all his clients from property to equity funds and said if he could move people en masse he would stay. That spurred me to adopt the Nucleus platform, which now has £800m on it.”
Paradigm’s use of Nucleus is already moving in the direction of the bespoke platform Hogarth sees as the future.
“We control the pricing and if an IFA wants a new fund management group added, then we do that.”
Paradigm will extend its platform offering in September when it launches a corporate pensions platform with the help of Jargon Free Pensions co-founder Steve Bee.
“The opportunities arising from pension legislation such as autoenrolment are massive for IFAs. There are 1.2 million schemes to be written by 2016, which gives advisers a chance to get into the corporate area. If you are going into a corporate market, you will need the same capabilities as people on wealth management platforms. Ours will have a human resources function and will link to Jargon Free Pensions, Sipps and Nest. It will be a superhighway.”
This year will also see Bee working with Hogarth to bring pension advicecharging guidance to Paradigm members in the form of a ratecard.
“It cuts out the prohibitive administration. We have given our first seminar to 50 members and we will get another 50 firms on board in September, then another 50. Bee thinks we are going to have a second golden age of pensions, all built by IFAs.”
But Hogarth’s aim remains more broad, “I would like to see advisers get more value out of the way business is written. I want to see IFAs get what they deserve.”
Born: 1959, Durham
Lives: Cheshire, with his wife and three children
Education: Heriot-Watt University, Edinburgh, BA in Economics
Career: 2007-present: founder, Paradigm Partners LLP; 1987-2001: co-founder, Bankhall Investment Management; 1983-97: investment consultant, Vanbrugh; 1981-82: inspector, Scottish Provident
Likes: Professionalism, competitiveness and passion
Dislikes: Sloppiness, arrogance and negativity
Drives: Porsche Panamera
Book: Shunt: The Story of James Hunt by Tom Rubython
Film: Le Mans
Album: The E.N.D by The Black Eyed Peas
Career ambition: To see IFAs become the most valuable part of the investment and pensions industry
Life ambition: To continue to live life to the full
If I wasn’t doing this I would be…Bored, frustrated and endangered