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A private function

Bestinvest chief executive Andrew Barnes says last year’s private equity takeover has enabled the firm to develop its strategy and strengthen its business model.

Barnes was appointed chief executive in January 2007. Last summer saw the firm bought out by US private equity firm 3i, resulting in the departure of founder and former chief executive John Spiers, although he retains a stake in the business.

Barnes has spent most of the past 20 years working in the Australian financial services sector, most recently as managing director of ASX-listed Australian Wealth Management. In addition to family reasons, Barnes says he wanted to return to the UK and work for a financial organisation that practises the highest ethical standards and has the potential for substantial future growth.

He says: “When I took the job here, I felt at some point John would take a step back from the business althoughI was surprised at how quickly that happened. The private equity deal has been a great move in that it allows us to develop our own strategy while I am now responsible both to 3i and the staff here.”

Barnes highlighted low staff turnover as one of the rationales behind his decision to join but following the 3i deal, the firm has lost several staff for varying reasons.

Barnes says he expected those outflows and points to the fact that the firm is believed to have made seven millionaires out of the 3i deal. He says: “Once employees had crystallised their earnings, we expected changes and we lost people who wanted to follow their own career path. We predicted we would lose some 15 staff and that is what we did and we have restructured to accommodate for it. I lost someone who wanted to be a hairdresser and another who wanted to be a school teacher, so there is little I can do about that.

“The business is going along nicely and although growth will not be as high, due to falls in the FTSE, we modelled for scenarios like that. If one were to do a straw poll in the market, that would not be the case, as most IFAs are marginally profitable at best.”

Barnes says the firm is still looking to acquire new IFA businesses if opportunities arise. He says: “The challenge is that a lot of IFA businesses are not particularly scaleable. We need fee-based financial planners with a good client base to put the infrastructure to work.”

Barnes says the company is talking to IFAs who would like to use its discretionary management service and call-centre service on a white-label basis to help them deal with smaller client books, something which he thinks will be important in light of the retail distribution review.

He says the retail distribution review has been broadly positive so far but one of the problems it still has to tackle is the difference between independent investment advice and independent financial advice, which are areas that he sees as fundamentally separate.

“We have got to get people saving. In this country, there is a huge disproportion between the amount of people in employment and the amount in retirement. We need to have some sort of compulsory pension like in the Australian market. We need people to save from a young age.”

Barnes is bullish but says some people are making the mistake of timing the market wrong and buying into niche vehicles. He says: “I feel it should not be that long a downturn, especially when you look at the macro-indicators, but much of it comes down to how low investor sentiment gets. We could be set for a sluggish year.

“There is good value in bigger US companies and UK and European businesses but I am cautious on emerging markets and am worried about the number of people pushing big sums in there after the big returns already seen.”

Barnes says he is looking at estate planning and structured products. “The trends on structured products indicate that this is a growing sphere and we are also looking at the whole ethical question,” he says.

Barnes pays tribute to the growth of Hargreaves Lansdown in recent times but says Bestinvest is not the same marketing machine. He says: “We are much more a research and investment-led firm and historically we have not been great at setting out clearly what we do. In terms of our business model, I think it stands up to anyone in terms of capability and pricing.”

Barnes says it is crucial that advisers learn how to deliver financial advice to the mass market and not just to high-net-worth clients.

He says: “If the business model depends on the creation of a number of small offices, I do not see how that can be a cost-effective way to offer mass advice to the population who need it. Most people do not have enough money to retire or offer enough money to interest financial advisers and unless we look to remedy that, we will continue to lose territory to the banks in that battle.

“The RDR could help but I have my doubts as I feel that many will give input to reinforce the old model and that may make it very difficult for us to evolve.”


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