Simon Chamberlain knew financial services was for him when he went for a job interview and interrupted the boss complaining to a pet-shop owner that the £200 bullfrog he had bought his daughter was keeping him awake. Anyone who could afford to spend £200 on a frog, he reasoned, must be doing pretty well out of life. As the chief executive officer of the newly merged Thinc Destini, he aims to create the first nationwide advisory brand. After 20 years at the top of the financial services industry he could certainly afford all the bullfrogs he liked, but what is his vision for the future of financial advice?
Could you explain about the background to the merger of Thinc and Destini?
Thinc Destini was set up to prepare for the end of polarisation. The directors left various companies to create a depolarised model and a multi-distribution platform. It aimed to provide consumer choice under one roof and is modelled on a professional services framework.
Thinc was formed in 2000 as a multi-distribution platform. It is a national provider of financial services and all clients are owned by the group. One adviser will manage the relationship, but will also see other specialists within the organisation. People are clients of the organisation rather than individual advisers. Around 50% of the advisers are IFAs and 50% are multi-ties. The network side - Destini - runs along similar lines. It was started in 2002 as an IFA consolidator.
Why did you decide on this structure?
To me it is all about what is delivered to a client and what they will pay. The whole debate about fees or commission is a total red herring. It is actually about transaction versus advice. We have a multi-tie transactional proposition, where the adviser gets paid through product sales. If they don't recommend a product, they don't get paid.
Then we also have an advice-led proposition. Although the multi-ties do financial planning, in this case the client pays for advice. It is £1,200 for a report. If he then buys a product, the commission is rebated, but the adviser is paid either way. Most advisers operate in a transactional manner. This is a sales culture. The other is a professional services culture. We offer both as a single solution - all is in one place.
Does the client split tend to be as simple as rich clients pay fees and less-rich clients pay commission?
Yes. On the wealth management side, the clients are already wealthy and are looking for proper allocation of existing assets. The trouble is that 98% of the population have no money. They are aspirational - they are trying to build up wealth through products. These people need a transactional approach. We've bought all this under one roof. A client could come in under the multi-tie proposition and have access to over 600 funds. But they could then move across if their needs change.
What have been the most significant changes?
Advisers have tended to move to the protection and mortgage market over the past few years because they have generated the highest commissions. We needed to try and adjust their skillsets. We helped all non-regulated advisers get their regulation back in different areas.
Under our model a client can choose multi tie or whole of market. The multi-tie will refer a client to an IFA if they can't get the right product. But it also offers the advisers a career path - they can move from being a pure mortgage or protection adviser to other things. Multi-ties can develop into fully-certified financial planners. It is an education process. More importantly, each adviser can do this without disturbing the clients.
Are you finding more clients are seeking independent advice?
The key thing is that our multi-tie is more independent than many of the other multi-ties. Among our pension providers, for example, we have Axa, Standard Life and Friends Provident. For someone investing £200 per month in a pension, the commission is exactly the same for all of them. We can never be accused of a commission bias. Our PI costs have come down 30% because we have made this independent.
On the multi-tie side, we are linked to pension managers who did 85% of the pensions business in the UK market last year anyway. We have thoroughly researched six companies. Anyone who claims to have researched the whole of the market is being ridiculous.
How do you generate business?
We have over 1,000 introducers - accountants, solicitors, surveyors. We have acquired 32 businesses and now have over 250,000 clients. In normal adviser businesses, 80% of clients haven't been seen for three years - they become 'policyholders' rather than clients. Our clients are all active clients. If an adviser doesn't service them properly, we will do it as a group. Recently the mortgage business wasn't advising clients on insurance to go with mortgages sold. So we did it centrally and they didn't get paid. Through this method we have managed to improve the take-up of insurance enormously.
We are delivering on our promise to be the first national brand for advice. Our multi-tie is not inferior to full wealth management. It's just specialist. If a lawyer specialises in will-writing, it is no less than advising on Sipps and Sass. It's just different. We need much more mutual respect between advisers. The whole multi-tie versus IFA conversation is ridiculous.
What else would you like to see change in the industry?
We need just one professional body. At the moment we have Aifa, which says it represents whole of market and IFAs. Then there is the IFP. There is also Sofa, which says it represents everybody. It's all over the shop - too much of it is about ego. We could have one representative body with one part looking at, say, regulation and government, another could represent us to the consumer, and so on. Each part could work on creating greater trust and respect for the industry.
If you go to the US there is one trade body, which spends millions on advertising the benefits of financial advice. The culture is more entrepreneurial. We should aim for unity rather than division. The product of choice should be secondary to the advice.
Is there widespread use of wrap at Thinc Destini?
Wrap providers like Amex and Transact can create real embedded value for the adviser. Many businesses don't have any embedded value. We use wraps to consolidate assets. We aim to have £3bn held on platforms by 2008, generating 0.5%.
It is passive income. That way, we could float at 15x value (and all our employees are in our employment benefit trust). Most adviser businesses would sell on a price/earnings ratio (P/E) of less than 1.
I was involved in the float of J Rothschild Assurance for £365m. It had 500 advisers and £2bn under advice. In contrast, we recently took over a company that had a fee income of £120,000. We paid just £240,000 and will get our money back in two years.
What are the biggest issues facing advisers at the moment?
I define the issues according to five 'P's:
1. PI: The costs have gone through the roof.
2. Paperwork: Administration has also gone through the roof. If you join Thinc Destini, we pay the PI and have central administration. We have invested heavily in technology to do this.
3. People: You need the right paraplanners and administrators. These need to be able to service the client base so they don't just become policyholders.
4. Profit: Advisers become businessmen by mistake. They start off as a decent sole trader. They hire more people and find their costs go up and their income goes down. They have a load of liability and margins go through the floor. We help them become more profitable.
5. Prospecting: We control that here with centralised prospecting. Our advisers get as many leads as they want - the banks have done that for 20 years.
All this helps advisers establish an exit time. For many advisers, they know they have to stay in business to collect their renewal commissions. They can't sell their business, because the day they stop servicing clients they lose that renewal.
Do you think products and
technology are getting better?
The market is changing. In the 1980s if you could sell, you could manage portfolios. Now products have become irrelevant because they are all so similar. Platforms will take time to settle, but they will. In Australia, 80% of investment business goes through wraps. There will be a fundamental change in the power base from fund management to distributors rather than product providers. Each wrap will offer 1,000 different fund managers at institutional rates. Money will move with the press of a button. Product providers will not be able to use their charging structure to keep business. This will be the big change over the next 10 years. New advisers will use platforms and the control of money will be handed to the distributors.
On the network side - formerly Destini - there is exactly the same proposition. There is a multi-tie network and IFA network. We are a broad-cottage industry. We can link to get better rates or give them better technology or teach them how to segment their client base properly. It can also be a 'suck it and see' approach - once people get used to the technology and our general proposition, if they like it, they can join the national side under the full Thinc Destini brand. Or they can simply use our multi-tie proposition as a commission club.
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