Adviser Focus: Simon Fitton, Baxter Fensham

Simon Fitton, partner at Baxter Fensham, on what it means to be a truly fee-based IFA.

Simon Fitton worries he sounds “quasi-religious” when speaking about financial planning, and at times he does tend towards the convert’s zeal: “Our world is populated by a welter of experience and wisdom, but if we really want it to be the profession of the 21st Century, let’s start building it now.”

Fitton’s passion is a far cry from the egoistic “I’m doing God’s work” mantra of Goldman Sachs, however.

The Advanced Financial Planning Alliance (AFPA), a mini-network he launched in February with fellow IFAs Steve Martin and Jon Slater, aims to foster a ‘do as you would be done by’ culture across its firms. Martin calls Fitton “the nicest man I have ever met”. Fitton just believes treating people like people makes good business sense.

“Our motto is ‘wealth as a means to an end’”, says Fitton. “We look to create and consider people’s objectives. So much of the work we do requires soft skills. We have paraplanners for their technical ability, but advisers need a multi-dimensional skill-set to discuss what people want for themselves and their communities. It’s about quantifying how they are going to meet their goals.”

If Fitton and his philosophy sound a bit too ‘Good Samaritan’, they are also firmly rooted in the practical. The Alliance only formally went public last month, but the catalyst was a much earlier, failed attempt by his former directors at Leeds-based Baxter Fensham – the company he now co-owns – to switch to a divisional model, with clients rotating between different advisers.

“It didn’t work, it made everyone feel uncomfortable”, says Fitton. “Customers struggled to connect with constantly-changing advisers. Some advisers left. In our experience, clients like to deal with the same team of people consistently; it fosters a greater degree of trust.”

The firm eventually reverted back to a ‘one-adviser, one-client’ model. “The feedback when we returned to the old model was positive,” Fitton adds, “confirming our belief the individual adviser-customer relationship is vital to what we do.”

Dig a little deeper and fee-based Baxter Fensham’s ‘old model’ begins to sound suspiciously like today’s ‘new model’, except he says a decade ago it was advancements in technology, and not the RDR, that prompted change.

“Our move to fees came hand in hand with the software which enabled financial planning as a model. Baxter Fensham made the move a decade ago, so the adviser charging argument is a little hackneyed for me now,” says Fitton.

Candid but not complacent, he admits the transition period was tough.

“No doubt about it, it hurt us financially when we moved to a CAR (customer agreed remuneration) stance, and we lost some customers on the journey. Our view that a customer cannot be guaranteed impartiality if they have to buy a product for the adviser to get paid was our primary motivator.

“Also, that it was unfair for those customers taking action to subsidise those that didn’t take action. So out went contingent business, replaced only by work agreed to be paid for.”

Re-evaluation

The experience made Fitton re-evaluate how he wanted his business to interact within the industry as a whole.

“I was on the look-out for like-minded advisers to work with, and Jon [Slater] had previously worked under the new adviser model at Baxter Fensham. He also shared our evidence-based, passive investment philosophy, so we kept in touch on that side.”

Fitton is a firm believer in adding value without taking undue risk. “We espouse passive investments, and our risk profiles reflect that. Evidence suggests there is no benefit in playing the markets.” He looks to diversify globally to reduce volatility. “Stock selection and market timing add unnecessary costs and speculative risks to a portfolio. Why take risks when you don’t need to? ” he says.

Central to this strategy, as with every other aspect of Fitton’s business, is the belief in designing practices around customers. “As a financial plan creates the context, the investment strategy can be engineered to best meet the expectations of customers’ objectives and their respective risk tolerances,” he says. “This can be undermined by constant trading, and the consequent increase in costs on a portfolio.”

The importance of consistency is another theme Fitton returns to again and again.

“I’m sure there are some pretty good fund managers out there, all with access to the same information, but I’m damned if I could find many consistent ones; so who would know who to choose, and when to back them? For us it’s buy and hold, then rebalance.”

Already aligned on investments and CAR, Fitton and Slater then met Martin, the third part of the AFPA trinity and a long-term and vocal advocate of financial planning.

The idea for the Alliance quickly sprung out of their shared professional outlook. But Fitton says bringing his idea to fruition took longer than he expected and admits it would have been easier simply to join an already established network.

“But we didn’t want to give up any of our individuality. Plus there wasn’t a network doing what we wanted to do. Our experience was they just offered the lowest common denominator.”

Currently AFPA unites seven advisers across Baxter Fensham, Slater’s JPM Financial, also in Leeds, and Martin’s Altrincham-based Smart Financial Planning.

All firms remain directly-regulated, but share the same compliance service, financial planning processes, fees structure. They use the Transact platform, as well as the fund adviser Dimensional for their model portfolios.

AFPA is looking to add new members, but only if they comply with the same level of harmonisation, says Fitton.

“Together we share compliance costs and software, have benefits of scale, still all run our own businesses in our own way, but with the unifying belief that we act for the good of the collective and not just for profit. It has been hard work, so we would only welcome like-minded advisers.”

Advisers like the three IFAs Fitton partnered with in 2006 to buy up the remaining shares in Baxter Fensham, all of whom are Certified Financial Planners.

Qualifications

Fitton believes qualifications are a good benchmark for clients. You need to demonstrate your understanding of the knowledge then apply it to real-life situations, he believes. A financial planner of twenty years, he sympathises with those advisers who have experience and now have to sit exams, but believes, deep down, advisers are driven to meet the prevailing standards of the RDR.

“Wisdom and experience are vital, but if an adviser has both of these I fail to understand why they would not embrace change for the good.”

Fitton doesn’t just believe in consistency, but in remaining consistently on top of his game. A pragmatist, he embraces what he sees as “progressive” transformations. “Whenever the industry has gone through changes before, it has evolved, and it needs to keep evolving to survive”, he says.

For Fitton, everything is about looking ahead, making decisions and putting in the work now for steady returns in the years to come – for customers, himself, and the wider industry.

He currently employs two paraplanners, one at CFP level, and expects to recruit and train more. It is another part of his long-term plan. “My main concern is that we drive our industry towards a ‘profession’ and, as a consequence, attract quality young graduates in much the same way as into any of the deemed professions.”

For Fitton, this means minimum educational entry levels for all financial services staff. IFAs, he believes, should go even further. “People need to strive to the highest level, probably at least QCF Level 6.”

Fellow AFPA founder Martin sparked controversy on Professional Adviser’s sister website IFAonline recently when, in an open letter to the Association of IFAs (AIFA), he rejected an invitation to join the trade body and accused it of “pandering to commission-based, low-qualified advisers”.

He was referring to a speech AIFA director general Chris Cummings made in October last year in which he said that, without AIFA’s resistance, regulators and consumers would have set minimum post-RDR qualifications at Level 6, not the current Level 4.

Fitton is uneasy about Martin’s adversarial approach to the issue of adviser education, and he is quick to point out “Steve is not the official spokesman of the Alliance”.

But he is just as certain which side of the argument AIFA should be on. “AIFA needs to be seen to be making the profession better. I sympathise with Steve; there has been some dumbing down.

“If we want a profession people want to go into we need to give them something to aspire to. Otherwise young, motivated and enterprising people will not be attracted to it. Universities are starting to open courses, some under the guidance of the IFP (Institute of Financial Planning) and I’m sure more will do so given that it’s a relatively cheap course to set up.”

Some within the adviser community have criticised the IFP for failing, in their view, to properly define what a financial planner is, thereby making it harder for customers to spot the difference.

But in his reassuring, measured way, Fitton is having none of it. “It’s difficult. The IFP is a not-for-profit organisation. We direct clients to its website for information because its ethics and principles are closest to our ideas and we try to educate people.

“A lot of it is down to us – advisers – to communicate that finance is about planning, not reacting.” He also believes it is about treating people like grown-ups. “If people really want to, they can find out the difference.”

Fitton is not overly-fussed by a homogenised financial planner ‘label’. For him, the value of an adviser is in the practical application of a values-based system of business.

Speaking about AFPA, he says: “We are all very different people. We each bring a different skill-set, but with commonality of purpose, to build a progressive yet secure and compliant business.”