Profile: Steven Martin, Smart Financial Planning

“No adviser wearing the independent label should be financially rewarded by the products they sell."

Looking back over 2009, there are few who will raise a glass to the good times, except perhaps pawn brokers and pound shops.

Steven Martin, 34, could be the exception. Since he launched his own business Smart Financial Planning in October 2008, the Chartered and Certified financial planner has seen assets under management triple to £25m and he has taken on 12 new clients.

In regular market conditions, Martin would have ample reason to pat himself on the back.

But considering that much of the financial services industry has been engulfed in a crisis of epic proportions since that time, his achievement is nothing short of remarkable.

While nonetheless chuffed, Martin is nonchalant about his Altrincham-based firm’s success against a background of market volatility and uncertainty.

“What is going on in the world doesn’t affect the performance of our business,” the 34-year-old Scot says.

“People’s goals and aspirations do not change in difficult market conditions and so the financial planning sector should be much less reliant on the external environment than the old model IFA business.”

Indeed, some of the clients Smart accrued over the year were panicked clients of other advisers, who became inaccessible once valuations plummeted.

People came to him with portfolios full of tactical positions in trendy assets, such as global Reits, which had bombed Martin says, giving him further ammunition to fire at the current commission-based system.

“No adviser wearing the label independent should be financially rewarded by the products they sell,” he remonstrates.

“But currently, this is the situation. People who go to IFAs who do transactional work believe that they are getting independent and impartial advice designed for their benefit.

“Many are not qualified enough, not impartial enough and, most concerning, may actually believe they are doing a great job for the client even when they aren’t as a result of a lack of knowledge. It is the Donald Rumsfeld scenario of unknown unknowns – not knowing what they don’t know!”

In other words, an IFA may take a client’s £100,000 and look for the best method of investing it, studiously doing a risk profile and enhanced allocation, but the best use of that money may be not investing it at all, but paying off their mortgage.

This conclusion can only be reached through discussions about financial and non-financial goals and aspirations and paying one fixed sum regardless of product choice, Martin explains.

He feels there is no option for the financial services sector but to embrace the new regulations in the FSA’s retail distribution review (RDR) and if anything suggests the rules on qualifications don’t go far enough.

But Martin sympathises with advisers for whom the transition to fees is likely to kill their business from blue-collar and middle-income workers. The higher qualifications are not necessary to satisfy the requirements of their unsophisticated client base, but still mandatory.
He believes these advisers would not be in the invidious position they are in today had the FSA not muddied the waters with depolarisation five years ago.

Before depolarisation rules came into effect in June 2005, the industry was divided between the salesman who was employed by a product provider and the adviser who gave whole-of-market advice.

Martin believes instead of introducing the multi-tied agent (a grey area which led to less clarification for consumers not more) the FSA should have maintained the two-way split but introduced higher qualifications and a fee-based approach for those who wanted to stay independent.

Advisers who opted out could remain in financial services and still make a valuable contribution to the lower end of the market.

After all, he points out, it is more important the person is saving £100 into a stakeholder pension than whether the pension is provided by Axa, Scottish Widows or Legal & General.
“It is only when we are talking about big sums that you move into a different, altogether more complex world that requires a more sophisticated approach,” he says.

He says it is like the FSA has wound back the clock five years but sadly now the alternative route for IFAs who do not want to adopt the new model of advice is no longer available.

“They can’t take clients back to the old world of tied advice and are unable to afford to continue in the new one,” he adds.

But he points out it is not just certain segments of the population, such as young professionals, who look set to lose out in a post-RDR world, with the industry itself potentially suffering a skills shortage.

The gradual erosion of direct sales in financial services has cut off a vital entry route for the next generation of advisers, with nothing adequate to replace it at the moment.

Not one of the few relevant degrees available for those interested in a career in financial services currently provides a graduate with the equivalent QCF 1-5 qualifications to allow them to be immediately employable as advisers, Martin says.

Martin believes this absolutely needs to happen to make candidates attractive to businesses.
“It is acceptable if they were then to take QCF Level 4 while they trained in a practice because that would be difficult without real-world experience, but it is ludicrous that budding advisers should be coming out of university with no standard professional benchmark,” he says.

Martin, who started in his position as chair of the Manchester branch of the Institute of Financial Planning (IFP) at the beginning of the year after being elected last summer, is also concerned about the lack of commercial skills of the current crop of graduates.

With the independent sector a cottage industry, firms want and need people that can bring in clients, not just advise them well technically when they get there, according to Martin.

He gratefully recalls the compulsory 20 hours a week of cold calling at his first job in 1998 at a subsidiary of US insurance giant Lincoln Financial Group and wonders how today’s budding advisers will get the nous to be able to cover their costs, let alone generate income for their employers.

“There needs to be a lot more joined-up thinking between the regulator, the qualification bodies and the industry when structuring university courses to match up the academic with the practical,” Martin persists.

“In his TV show Kitchen Nightmares, Gordon Ramsay hammers the point home that branding, marketing and selling are just as crucial to success as top quality ingredients and cooking and so it is the same with the business of being an adviser,” he adds.

Looking to grow assets under management by a further 35% this coming year, Martin is
preparing to follow the foul-mouthed celebrity chef’s lead in earnest.

As chair of the IFP’s Manchester branch – the second largest in the country - he will have plenty of opportunity to raise the profile of financial planners and encourage more to gain CFP status, which he believes was transformative to the way he approached advice.

He says he would be interested in buying a rival firm should the opportunity present itself, but it would have to be local and have clients in the right target group ie: pre-retirement with about £500,000 in liquid assets.

Martin is not holding his breath. But he is sanguine about the prospect of growing organically and Smart has started to develop professional relationships with solicitors and accountancy firms to mine the seams of one potentially profitable avenue.

But unlike many of his peers who are failing in this pursuit, Martin is not interested in introductory fees.

“It is about generating revenue for both of us,” he says. “The logic goes that as a result of our advice, a client may need trusts created, tax calculated or their will redrafted.”

Other strategic partnerships Smart has are with a mortgage broker, one of Martin’s old Lincoln pals, as well as a paraplanner and an IFA practice to which he passes all less sophisticated lower-earning work.

This helps keep down fixed costs, which will be even more important when the FSA’s new capital adequacy rules come into force.

In general, though, Martin is confident he has proofed his business against the onslaught of regulation to rain down upon the industry in just two years.

And to be honest, he’s quite looking forward to it.