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Profile: Newell Palmer boss on keeping acquisitions simple

Newell PalmerIFA Newell Palmer is growing through acquisition but group managing director Philip Stepp will not retain the staff of acquired firms.

When Newell Palmer group managing director Philip Stepp founded
the Midlands-based IFA 25 years ago, he had big ideas. Rather than create a lifestyle business and keep it small, Stepp was determined to grow his company, which started from a small office above a shop.

It now operates from three offices, in Bromsgrove, Nuneaton and Wolverhampton.
Given the scale of Stepp’s ambition, it’s not surprising that, within a month of Newell Palmer’s 25th anniversary, it completed its first acquisition of 2018. Last month it bought Worcester-based Moneyfax FPS – a deal that added £20m of funds under management and 80 active clients to the advice firm.

For Stepp, the secret of successfully integrating acquired businesses is simple. “When integrating businesses, we don’t want to retain the employees; we want the opportunity to deal with the client. That is what keeps integration simple,” he says.
“We don’t want to take on staff and advisers as it takes too long to integrate. The IFA who is retiring works with us to persuade the clients to stay on board. We focus on how we can ensure the service improves on what they are currently getting. Unless we determine we can offer a better service, we’ll walk away.”

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Stepp says he has had one experience of buying a firm and keeping its staff, which showed him that it takes a long time to change the culture and persuade employees to buy into your company and systems.

“We know that some companies do keep employees; it works for them. But that is a different business model from ours,” he says.

CV – Philip Stepp

1993-present: Group managing director, Newell Palmer

1991-1993: IFA, Corporate Investment Services

1988-1991: IFA, Bayliss & Lindsay (Sydney, Australia)

1984-1988: Director, Newell Palmer Securities (Sydney, Australia)

1982-1984: Self-employed insurance consultant, Anthony Bryan & Co (Sydney, Australia)

Newell Palmer – named after Stepp’s father, Newell Palmer Stepp – initially grew through joint ventures with accountants.

“When I look back they were a stepping stone for growth in Newell Palmer but I didn’t know that at the time. We had six at one time,” recalls Stepp. “The set-up costs were negligible – they were being run in accountants’ offices and they referred clients to us.

“But as they grew it got to the point where you get as many clients as you are going to get and you hit a brick wall. Our advisers, BDO, were saying to us: ‘Where are you going with this? There is no value in what you’re doing and the business could be interfered with by the accountants.’

We have joint Christmas parties and we talk as one company

“So we bought out the accountants from those joint ventures and that is what gave us the scale. They became 100 per cent subsidiaries of Newell Palmer and then we bought smaller businesses.”

Newell Palmer began focusing on growth through acquisition when the RDR created opportunities to buy quality small IFA firms from advisers who wanted to retire. However many firms it acquires and however many offices it has – each with their own managing director – Stepp is adamant that Newell Palmer is one company with one identity.

“That is very important. We are one company – our Nuneaton and Bromsgrove offices are essentially branches. We have joint Christmas parties and we talk as one company,” says Stepp.

Like many in financial services, Stepp isn’t thrilled about Mifid II but he says you cannot argue with what it’s trying to achieve.

“As much as it’s difficult and advisers are struggling with it, [Mifid II is] on the right track with suitability – which is also about where the client is now and what is now appropriate: not only what’s appropriate when you are making changes,” he says.
“It creates a headache but it’s the right way to go. And with transparency of fund manager charges, how could that carry on? There’s all sorts of charges going on beneath the surface. Now IFAs understand – and clients have the right to know.”

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Stepp started his financial services career in Australia. “My father was American and was an expatriate for a lot his career. He moved every four or five years,” he says. “We were in England in the mid-1970s – I was at school in London – and we moved to Sydney in 1980,” he says.

In 1984, Stepp co-founded Australian firm Newell Palmer Securities with two former colleagues. “It’s a niche IFA in Sydney, smaller than the UK Newell Palmer but I’m proud it’s still going. It became our policy to put the client first and we will come second, “ says Stepp. “There is no connection between the Australian business and the UK business but when I go to Sydney I still go to see Paul [Newell Palmer Securities co-founder Paul Bourgeois].”

By 1991, Stepp had returned to the UK. “I felt as great a country as Australia is, it’s too far away from everything. I was brought up largely in England and France – I wanted to come back to Europe and my wife at the time was from Wolverhampton. We had a return ticket so if things didn’t work out we could have gone back to Australia,” he says.

In the UK, Stepp had a spell as an IFA with Corporate Investment Services, then set up Newell Palmer in 1993. He has never been particularly interested in management but he is passionate about business and finds he is always looking ahead.

“I read the autobiography of Steve Jobs, who came back to Apple when it was on the verge of going under. It had so many projects on the go and he axed all of them except one or two. I try to do that – ascertain what the key projects are and focus on them,” he says.

Should IFAs get discretionary permissions?

So what key projects does Stepp have now? “The most exciting thing for us is obtaining discretionary permissions. We applied to the FCA looking to set up an Oeic later this year. Assuming we get it, the idea is to set up an Oeic as another offering to part of service to clients,” he says.

“We manage a significant amount of money for clients on an advisory basis but, as slick as we try to make it, there is always a delay between the investment decision and the client authorising us to make the change. We felt we needed to offer clients an alternative where we could act a lot quicker.

“We are not looking to make any additional fees through the Oeic and we will carry on running portfolios on an advisory basis, so clients will have a choice.”

Five questions

What is the best bit of advice you’ve been given in your career?
Think first to understand and then be understood.

What keeps you awake at night?
People – fractious relationships with clients and employees.

What has had the most significant impact on financial advice in the past year?
Mifid II.

If I was in charge of the FCA for a day I would…?
Slow down the pace of change and review regulation, giving advisers time to absorb it.

Any advice for new advisers?
Always put the client first.

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