The Avalon director blames a lack of interaction between smaller platforms and the FSA on the regulator’s lack of understanding about how they operate even though smaller platforms are a lot closer to IFAs than their bigger counterparts Interview by Sam Macdonald
Once you are attached to something, you can’t just give it up, you have to stick with it,” says Avalon director Harry Kerr referring to his beloved football clubs - Hibernian are his Scottish team and Arsenal his English affiliation.
But he could easily be talking about his platform business, which he has stuck with since it launched in 1999.
Although born and bred in Scotland, it was not long before Kerr set his sights on employment in London and moved down at the age of 16.
After a short period researching equities for financial IT company Datastream, he realised that education was key to further successes.
“I realised after a while that the people I were working with all had degrees and if I wanted to make more money I would have to get one myself. I embarked upon a degree in international history at the LSE.”
This was followed by a role with accountancy firm Arthur Andersen.
Emerging from the business as a chartered accountant, he joined life insurance company Laurentian Life and then moved to Merchant Investors. When MI refused to move towards the Isa market and remained focused on life bonds and pensions, Kerr and other former MI staff set up wrap Avalon.
“We wanted to set up something that was completely open architecture, with good quality technology, but we did not want to run around throwing millions into sales and marketing. Our aim was to establish really strong links with good quality IFAs.”
Kerr is proud of the fact it only cost the business £600,000 to set up the Avalon platform compared with millions of pounds spent by some life companies.
The platform reached profitability in 2004 and has around £260m in assets under administration.
“The money that some have spent is a lot to do with status and prestige. They focus on turnover rather than profit, that is why they allow such huge marketing and sales resources and that bleeds capital.”
Avalon has a core adviser group of just 30 But Kerr says although the overall number of IFAs is relatively low, the important aspect of these clients is loyalty, which can only be achieved through a personal service.
Kerr blames the lack of interaction between the FSA and smaller platforms on the regulator’s lack of understanding of the market. He believes that because the FSA only seems to listen to the fund supermarkets and life companies, legislation is weighted in their favour, along with other rules which could result in customer detriment such as a cash rebate ban.
“There is simply no evidence for the idea that IFAs were using cash rebates to hide their charges. It is something that has come from liaising with guys with the biggest market share, not smaller platforms who are a lot closer to IFAs.”
He believes there is room for new entrants to the market but only those who are willing to make the platform the core proposition, which he says IFAs should be considering when carrying out due diligence.
“Nowhere in the FSA guide on platform due diligence does it stress the importance of whether or not the platform is the core proposition of a business but this is one of the most important aspect to look at. You can talk about the financial backing side as much as you want but that is not the only factor. Macquarie had plenty of that and still pulled out, so it is a difficult choice for an adviser to make.”
He says the level of technology is another issue for advisers to consider and something that can help to service mid-market clients. Avalon is helping an IFA firm set up an execution-only service for simple products such as Isas.
Kerr believes the RDR will bring about a number of changes to the industry but IFAs should not feel threatened by the Money Advice Service and says IFAs could benefit. “You may well end up with people going on to these services and realising how complex their financial situation is and seek out advice from an IFA. Advisers should not feel threatened because they provide a really high quality service to clients.”
With his three sons now grown up, Kerr says a big part of his life outside the office is spent shuttling 12-year-old daughter Holly to athletics competitions. Kerr proudly reports she has been ranked first in her age group in the Great Britain athletics rankings in the 100m and the long jump.
Back in the office, Kerr says he accepts the industry consensus that there will be consolidation in the platform market but says he does not envisage a time when Avalon would be acquired.
“There is something a lot more appealing about being in control of your own destiny, that is what I like about Avalon. Once you have that, you do not want to give it up, it is a personal thing.”