For some family businesses, the transition to RDR compliance has proved particularly difficult: successful in their current guise, a long list of clients who like things just as they are and older generations who also aren’t keen to change can all slow business transition. Nevertheless, Adrian Murphy of Ayrshire and Glasgow-based financial planners Murphy Financial is showing how it can be done.
Murphy Financial has been in existence since 1977, started by Murphy’s father Brian. It has already gone through one transition, when the financial business separated from the general insurance business, but had some adjustments to make in the run up to the RDR deadline.
At the same time, the group has been contending with some strong growth. It has forged some fertile partnerships with legal and accountancy firms in Glasgow, which have delivered a steady stream of new business over the past two years.
But Murphy held a financial services degree and knew the type of business he wanted to create. He has spent much of the past two years spent re-engineering the business, and building it into the business they wanted to be in the future.
Outsourcing has helped facilitate this process. The first target area was the group’s investment proposition. Murphy decided to take a partially outsourced approach for this, recognising that there is a level of client assets above which it is simply too risky and complex for them to manage. All portfolios of over £500,000 are therefore outsourced to a discretionary fund manager.
The process of finding the right partners was a significant undertaking. Murphy says: “When we first decided that we wanted to outsource this area, we did a huge due diligence exercise on the discretionary funds market. We ended up sending out around 30 due diligence request letters.”
Getting rid of the first tier was relatively easy: “We instantly dismissed those that didn’t reply! We isolated those companies that had put together a proper proposal and answered our questions. We concluded that anyone who was simply giving one word answers to our questions probably wasn’t going to do a great job for our clients.”
At the end, Murphy said that eight companies put together a sufficiently credible proposal. They then looked at other factors, such as how many other advisers they worked with, the quality of their process and whether they put everyone in the same models.
With the final shortlist, Murphy found that what separated the various propositions was the personality of the people involved: “We chose Standard Life Wealth and an adviser we knew from William de Broe, which became Investec. We were very comfortable putting our clients in front of these people.”
The amount that a client will interact with their investment adviser depends on the nature of their investment needs. Murphy says that a Sipp client may not need the same review schedule as someone with more complex and esoteric needs.
To date, the group has had relatively little push-back from clients. Murphy says: “We say that we are getting this particular person to manage this part of what we do for you and we believe this is the most suitable service. For the most part, people have been absolutely delighted with the service, particularly larger clients with an interest in their portfolios, who are pleased that they can ask whatever they like in relation to their investments. This lump sum has got to last them a lifetime and they are reassured it is in good hands.”
The remainder of the group’s clients are in a series of portfolios, designed to fit the Finametrica risk models. At the higher end, the group may do some structuring around the sides. Murphy concludes: “We believe that the areas where we can really add value are around long-term financial planning, cash flow modelling and complex tax structuring.”
The group is too small to have its own compliance function and so outsources that to threesixty. Murphy says: “We’ve been focused on the outcomes of RDR and good business practice. we have also wanted to do more of our own decision-making and threesixty has been tremendously supportive.”
He adds: “We can be very good at what we do, but we can’t be very good at everything. There is no sense in us trying to fill gaps just for the sake of it.” For example, the group does not do mortgages, but has a strong mortgage adviser to whom they send all their clients who need mortgage advice.
This keeps clients close and ensures they are not lured away by another adviser. A lot of Murphy’s business comes through professional connections and he is convinced that it helps both sides. “Private client law is transactional requirement and therefore likely to be sporadic. Through a partnership with us, we make sure that people go back to that same lawyer when they do need advice. The same is true with the mortgage adviser.”
Murphy believes that his business is now largely RDR-ready, having made the adjustment to fees, done the relevant qualifications and changed the business model. However, he believes that to claim complete readiness ahead of the January deadline is naive because so much of the legislation is interpretive. In particular, the practicalities of implementing adviser charging may prove tricky. Around 65 per cent of his business is currently recurring income and he believes that it will probably remain at around this level because of the amount of new business they are taking on.
It is difficult to transition a well-established family business that was already successful , but Murphy Financial now looks ready for the next phase of its growth.
Underpinning the advice
Number of advisers: four
Total number of staff: six
Platforms used: Nucleus, Standard Life
Investment strategy: Outsourced to Standard Life Wealth and Investec Wealth, Brewin Dolphin
Estimated assets under advice: £40m +