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Paradigm Norton chief on firm’s fees and platform puzzles

Barry Horner discusses the options for his firm as it stands at a crossroads

Having held positions such as president of the Institute of Financial Planning and chairman of the Financial Planning Standards Board, Paradigm Norton chief executive Barry Horner has seen a host of changes to the advice market from a privileged vantage point.

His own firm is at an interesting crossroads. Having made a significant acquisition, London-based Red House Consulting last year, Horner is mulling how to grow the business further, and which way the advice market will turn.

Puzzled over platforms?
Paradigm has for a long time taken a low-cost market return approach to investing, rather than a pure passive one. In the past, Horner says, the decisions over platforms were made easier because of this philosophy, since large players such as Fidelity could not access the likes of Dimensional and Vanguard.

While movement is afoot in this space, Horner says the firm will be sticking with its tried and tested processes. “We go through a whole due diligence process with platforms,” he says. “It would take a huge change for us to move. We are incredibly positive about Transact. The service is outstanding.”

Paradigm Norton mostly uses Transact and 7IM, and has more recently started including Standard Life and Parmenion. It considers this position “reasonably well-diversified”.

Horner says: “I don’t think we have seen the platform consolidation that many predicted.

“Some of the activity seems to be incidental to bigger business objectives.

“Ownership structure plays a part, but at the end of the day, we are looking at functionality, and cost is probably the biggest thing.

“Clients are fairly agnostic in terms of what platform they are on. If you put a million quid on Transact, they might say they haven’t heard of it, but if you use someone like Standard Life, they may already not like them.”

The exception to this agnosticism has come with a few clients that
are considered sophisticated investors. Some have said they do not like Transact because the platform also acts as the custodian for the assets, so they would prefer to use 7IM, given its relationship with Pershing for that function.

Horner adds that some of Paradigm’s bigger clients, accounting for, say, £20m to £30m, have asked to spread their funds across multiple platforms for reassurance. “They recognise there is a cost of doing that,” he notes.

“But peace of mind is the key thing they get from spreading it around a bit.”

One case involving this was a former FTSE 100 chief executive who is a client of Paradigm and used to work closely with risk committees at large corporates, so wanted to mitigate risk in his own finances too.

“There is not always a lot of logic to it,” Horner admits. “But if the client sleeps more soundly at night, that is fine.”

Building a pipeline
Spread across Bristol, Torquay and London, Horner notes there are significant differences in the supply of quality advisers, with Bristol being the far easier market in which to recruit.

Apart from a lack of adviser numbers more generally, Horner says a huge opportunity exists for those that can take planning down the value chain to people who currently cannot afford it.

“Planner availability can be a real constraining factor for firms that want to grow,” he says.

“A good level 4 paraplanner is in really short supply. We’ve got to engage with universities, but talking about proper financial planning, not the old-school product-selling stuff; a degree when you come out like that is when we will see the profession emerge that people are hoping for.”

Horner cautions about what can happen if firms attempt to grow too quickly through acquisitions or recruitment.

He says: “We’ve had around 10 approaches from firms wanting to sell, but I don’t think we are in a position to do any that sizeable right now. We have to bed the Red House acquisition in. You see consolidators bringing in firms, then another
one three months later. Our non-executive director calls it ‘acquisition indigestion’.”

No fudging on fees
At Paradigm, clients are given the option of paying through ad valorem or fixed fees.

The majority opt for ad valorem. Despite Paradigm offering fixed fees dating back well into its history, only a quarter pick that option.

Horner says: “Some people say in 10 years we are not going to have any asset-based fees. I don’t agree with that.”

He  notes that while some countries around the world are many years behind the UK in terms of fees, others such as the Netherlands are taking steps to separate planning from investment work.

Horner concludes: “As a community, we are very bad at showing value-add. All the fee models are flawed.

“There is no perfect answer, but there is so much more evolution of the market to come, and where the value will be is in the behavioural stuff and around coaching.

“The firms that do that will be able to charge what they want, but others won’t be able [to charge] 1 per cent when a few hours could have generated some of that stuff online.”



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