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Chelsea plays to its strengths

It has been 25 years since Chelsea Financial Services blazed the trail in discount broking.

The company has gone from strength to strength through the full turn of market cycles and is the biggest private discount firm in the UK. It was founded in 1983 by current chairman Dr John Holder, who had been working in tied sales for Hambro Life and wanted to widen his range.

Managing director Darius McDermott says: “He had two issues. First, he wanted to offer some sort of rebate to clients as well as offering whole of market products which he could not do, given his tie to Hambro Life.”

Discounting did not exist at the time and Holder set up Chelsea to offer rebates to encourage the sale of all types of policies, including life, broker bonds and unit trusts.

McDermott says: “The group advertised in the likes of the Telegraph and quickly built up a cult following of clients who were enthused with the idea of getting something back. The firm found itself busy pretty quickly, thanks to this and word of mouth.”

The introduction of Peps in 1987 saw a marked growth in the firm, as Chelsea became one of the first brokers to offer the new plans with a discount.

Then came Black Monday and the stockmarket crash, which meant Pep business slowed down.

McDermott says: “The performance of markets and the UK, in particular, has always been an integral factor in new business.

“That is clear for people at our end, which is execution-only discount broking all the way up to high net worth. The simple fact is that people spend less when times are hard.”

He joined the firm in February 1996, with markets in a far better position. By that point, the company had a discretionary arm and a client base in the region of 10,000 to 15,000.

He says: “Everything was on the up for long periods, barring the Asia crisis and the failure of LTCM.”

But he admits that much of the growth in business was due to the technology sector. He says: “When you look at our buy lists, we had technology funds but they were not relied on any more than UK all companies or UK equity income whereas some brokers did technology guides.

“I would suggest that while we sold large amounts in that period, we had the wherewithal to recognise that it was not all about this one sector.”

He says the most popular funds sold by the company since the early 1990s have been Invesco high income and Jupiter high income.

In the run-up to the introduction of individual savings accounts in 1999, Holder took the business a stage further by giving away all initial commission on Peps and then on Isas.

McDermott took over running the firm in February 2000, just before another market collapse, with an agenda to move the focus to existing clients. He says: “It was a difficult time, with markets struggling and then diving following the attacks of September 11, 2001.

“Towards the end of the bear market, the FSA also started to force life companies to dump equities to meet capital adequacy ratios, sending the markets even further south before the US invasion of Iraq in March 2003, which was globally seen as an inflection point.”

McDermott pays testament to the nature of the firm, saying everyone pitches in on the administration side.

He says: “You need that in a firm the size of ours. I can remember when we had a single day where we processed 1,000 Peps, which is a phenomenal achievement.”

The arrival of platforms also helped the firm as it looked to offer the best service and admin to clients in difficult markets. It consid-ered FundsNetwork, as well as looking at building its own platform, before Cofunds appeared on the radar.

McDermott says: “It was part-owned by groups we have our closest relationships with, such as Jupiter, and it has developed into the most efficient way to run portfolio in one place, replacing what had been a disparate system.”

He says Chelsea is proud to be the biggest independ- ently owned discount firm and there is no intention to sell.

Looking to the future, he says: “If you asked me what we are good at, I would say funds, wrappers, platform and service. We recently launched a Sipp, the flexible retirement plan, in partnership with Cofunds. As charges have become more moderate, we believe it is an area of the business we expect to grow over the coming years.”


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