Profile: Carl Melvin, Affluent Financial Planning

"Current RDR proposals appear to support the old model of advice and penalise firms like mine."

Carl Melvin’s office in Paisley, slightly south of Glasgow, is about 400 miles away from the financial regulator’s imposing glass empire in London’s Canary Wharf, where officials are busily putting the final touches to a blueprint that will transform the intermediary market.

But the geographical distance is not the reason why Melvin feels disconnected to the regulatory powers that be.

“There is a lot of backlash among the IFA community about various aspects of the RDR and other proposals, such as capital adequacy rules and qualifications,” he observes.

“I happen to agree with what the FSA is trying to achieve, but not always the way in which they go about it.”

Keen to position himself firmly in the new model adviser camp, Melvin, who is a director at Affluent Financial Planning, can’t help criticising the paucity of contact the FSA has had with smaller IFA businesses like his own in the formulation of the new regulatory framework.

“Take the new requirement for advisers to increase the amount of capital held in the business”, he opines.

“I agree with the principle that an IFA firm needs to be properly capitalised or the temptation will be too great to use client money to make up any shortfall.

“But the current proposals appear to support the old model of advice and penalise those firms, like mine, who have moved away from upfront commissions and invest in quality back-office systems, support staff and compliance to provide a better client-centric service.”

Outsourcing compliance to Threesixty and hiring award-winning paraplanner Rebecca Kowalski earlier this year are some examples of how the Scottish financial planner is shaping up for the post-RDR landscape and that means higher monthly expenditure.

He suggests the FSA scraps the expenditure-based capital adequacy approach and goes back to the negotiating table to come up with a better way of working out how to identify a “good, well funded business from a bad, financially weak business”.

He is not alone in raising concerns about this area of regulation, with IFA groups, including AIFA and IFP warning the regulator these plans could inadvertently punish pro-RDR firms.

But apart from feeling a little sidelined from the consultation process, Melvin broadly agrees with the FSA’s desire to raise standards and professionalism in the industry.

It is “entirely reasonable” for the regulator to introduce more professional exams and for an adviser to have to demonstrate higher qualifications, he argues.

“I would be fairly concerned if I was on a plane and I heard that the last time the pilot had a medical was 20 years ago!”

Melvin, 45, has been happy to embrace the requirement for further study and has just completed a two-year BA (Hons) degree in Financial Services Management at Edinburgh Napier University and was awarded a First.

His 10,000 word dissertation was an analysis of how advisers have been impacted by changes in the external environment, including alterations in consumer behaviour, technology and most conspicuously regulation.

In fact, the biggest change in consumer behaviour has actually been driven by changes in technology, according to Melvin, who began his career like so many as a tied adviser but now has Chartered and Certified Financial Planner status.

“The internet has made people much more demanding,” he says. “Clients want to do everything online now and want instant access to information, to their portfolios and fund valuations. If you tell them you’ll have it in two weeks, that is not going to go down very well!”

He adds: “As an IFA, you also need to be prepared to communicate with clients electronically, which obviously includes email but also teleconferencing.”

Yet, despite the obvious consumer appetite, Melvin marvels at the tortoise-like response from the industry.

His belief that his firm is way ahead of the game is reflected in the firm making the shortlist for the Professional Adviser Innovative IFA of the Year 2010 award.

To enhance client service, Affluent has introduced web conferences for clients unable to meet face-to-face. Using online software Go to Meeting, the client is able to view the adviser’s PC screen remotely.

In addition, the firm also offers 24-hour online portfolio access to clients through website provider Screen Business, which is integrated with Affluent’s back office and Adviser Office from 1st Software.

Melvin also uses Truth software for integrated financial planning, O&M pension profiler for pension analysis and Transact wrap accounts for wealth management.

“With Transact, money can be moved quickly between funds often at a cheaper rate and fees are genuinely transparent. We charge

typically an initial 3% and then 1% per year,” says Melvin. “It is the missing link for IFAs who are struggling with the crucial move away from upfront commission,” he adds.

In addition, it provides the recurring income that has allowed Affluent to be cash positive despite a significant drop in new client revenue and transaction income as a result of the weak economic climate.

Plain speaking

Apart from the internet and other technological advances, Melvin believes what consumers want from advice hasn’t changed: honesty, plain speaking and sensible reasoned advice.

But what needs to change is the perception that this service should be free.

Of course, it has never been free. But the charges have come out the back door from the policy or product sale, creating the illusion that advice is free, while fuelling the sales-led approach the FSA and many in the industry want to move away from.

“People have to realise that if they want decent treatment by a genuinely independent investment specialist, then that comes at a cost,” Melvin says.

He agrees that everyone who wants independent advice should be able to access it, which many not be possible under the new regulations.

But Melvin makes it clear that it is up to the Government, not him or his peers, to plug the gap. “Income tax relief against adviser fees could be one way of doing it,” he suggests.

The way it works at Affluent is there is a minimum £600 engagement fee for an assessment of current arrangements and a full financial report of what the client should be doing.

This is followed by an implementation fee or commission on the basis of the product should the client instruct Affluent to make the transactions, and a service fee for continuing reviews.

As a result, and unsurprisingly, Affluent’s client base is mainly, well… affluent. Many are approaching retirement and pension planning accounts for the bulk of the firm’s business.

Hence, preparing for anti-forestalling measures has dominated the agenda over the past year.

Melvin has also been busy transferring investments in actively managed funds to multi-asset passive portfolios, a decision borne out of an epiphany from studying for his degree.

“One of the modules was fund management analysis and I was inspired by the very well reputed US economist Eugene Fama’s work on the efficient market hypothesis,” he explains.

“There are already a whole bunch of risks in investing in the financial markets without adding to that of human error.”

The move is again evidence of Melvin’s pragmatic and dynamic approach to his business and clients.

“You can’t ignore change so better to embrace it,” he says, reflecting on the positive response he received from Chinese officials who came to hear him speak about the benefits of good regulation at Edinburgh Napier University recently.

“The core of my presentation was to advise them to learn from our mistakes and try not to repeat them!”