Clearwater Financial Planning
Staff: four and rising
RIs: two and rising
Technology: First Software, Voyant
Risk profiling: Dynamic Planner
Investment: Active/passive blend
Duncan Carter began the thorny process of transition in 2006. That was when he and his business partner Debbie Turner acquired the financial planning practice of a general insurance group. Clearwater Financial Planning was classically old model, with no database, no review structure and no terms of engagement. The past four years have been spent turning that into a fee-based business.
Unfortunately, there were no short cuts and Carter’s approach was – of necessity – unscientific. It involved trawling through paper files, digging out historic clients and re-engaging with them by phoning them up or through meetings. The group had plenty of clients but the majority were of the “transactional” variety and Carter had to ensure that they moved from reactive to proactive as his business changed.
The move to change Clearwater’s business model was less generated by regulation than by a realistic appraisal of the market. Carter says: “We saw the old model as broken. I have been an adviser since the mid-1980s and I have seen a whole host of different rules. I was always confused by the business model. As you got more new business, there was a greater servicing requirement and less time to do it. Having a recurring revenue model was a way to offer an ongoing service and embed value in the business.”
Carter admits that lot of the group’s remuneration is still fund-based, albeit through funds under management rather than initial commission. Ideally, he would like to move as much of that as possible to a fixed fee structure. The urgency of making this change was reinforced by the difficult markets of 2008, where the group found that its work load increased while its income dropped. It wanted to ensure that it was not left vulnerable.
There are now four people in the practice – two administration and two consultancy staff. Carter is looking to increase that in near term. Within the next few weeks, an introducer will join the firm and merge his business into Clearwater. Carter is hopeful this will bring a number of new opportunities. In the end, he would like teams of three – a client-facing consultant, a paraplanner and then a back-office administrator.
There are still decisions to be made on the shape of the business in the future. For example, the group is still in the process of defining its ideal client. Carter says: “Only around 35 per cent of our current client base would be an ’ideal’ client but, equally, we are not specific about certain professions with which we want to work. We would like to take a family office mentality, advising each generation and watching wealth cascading down. However, the reality is that we still have some elements of cross-subsidy, which we are keen to iron out.”
In an ideal world, Carter says that each of his consultant/paraplanner/back-office teams would have a portfolio of around 100 clients of medium net worth (around £100,000 in investable assets, or higher earners). He would also like to see around 80 per cent of income coming in as recurring income and around 20 per cent as new business.
Like many groups, Clearwater is struggling with the issue of what to do with clients that don’t fit its new model. It is a locally based business and its reputation is very important.
Investment proposition has a foot in both the active and passive camp
Carter says: “We are looking at how we can create a transactional side to the business. We need to work out how we can elegantly position ourselves so that we can either do one-off pieces of business for this part of our client base or package that into a different business.”
The group’s investment proposition currently has a foot in both the active and passive camp. For some clients it is still picking funds, whereas with others it is taking a core/satellite approach. Carter adds: “We recognise that 70 per cent of total return comes from the market and we want to obtain that beta as cheaply as possible and then add alpha from active managers.”
In the last few weeks, Carter has been reviewing discretionary fund managers as an outsourcing option but has struggled to see how the majority add value. He says a lot have proved to be expensive and closet index-trackers. This has led him to some of the new propositions on the market based on asset-allocated passive portfolios.
He says: “We have also started looking at groups such as Parmenion Evercore and 7IM. These groups are offering innovative solutions. We recognise that the transition would take two to three years but we will certainly be outsourcing in some way.”
Technology has been a significant focus for the group. It has invested heavily and Carter believes it is the only way to offer an efficient service. He says: “We acquired a database from First Software. The group has its fans and its critics, but we took a conservative view in the end. We looked at a number of emerging technology groups, but wanted something tried and tested.”
Carter uses platforms almost exclusively for investments and pensions, adding: “We don’t just use one but aim to use the most appropriate platform for each client. We also use financial planning software and have recently switched from Truth to Voyant, a choice with which we are very happy. We also use Dynamic Planner for our risk profiling. All along, we have been keen to use technology to make our processes more efficient.”
In general, Carter has found clients receptive to the changes he has made to the business. He adds: “When we moved our back-office system, we did it quickly, but with everything client-facing, we have done it more slowly. The reception has been very positive.
“We have converted a lot of reactive clients to proactive clients, who expect reviews and will happily ask for them when we see them on the high street. If anything, we have done too much and created too much expectation but we are a locally-based business and are mindful of public opinion.”
The group has now achieved chartered status and feels ready for 2012. That said, Carter is aware that there is plenty to keep him busy between now and then.
- At launch, the firm was classically “old model”, with no database, no review structure and no terms of engagement with clients
- Much of the transition process has been manual, trawling through old files and ringing up clients to bring them on board
- A lot of the group’s remuneration is still based on funds under management rather than initial commission. Ideally, Carter would like to move to a fixed fee structure
- The group is striving to move towards a family office model, advising each generation, but is still wrestling with what to do with clients who do not fit the new business model
- Carter is reviewing investment outsourcing options, in particular, asset allocated passive portfolio through groups such as Parmenion, Evercore and 7IM
- Technology has been a significant priority for the group during the transition process