Big Interview: Stephen Kavanagh, AWD Chase de Vere

"We spent a lot of money recruiting the wrong people."

“We are on the cusp of greatness,” AWD Chase de Vere chief executive Stephen Kavanagh declares. “We were a bit dishevelled but we are close again to being a company everybody can be proud of.”

Sixteen months have now passed since the FSA fined AWD £1.6m – later reduced to £1.1m – for exposing as many as 800 customers to unsuitable pensions advice.

In that time, the business, formed via the amalgamation of Thomsons Financial Planning – rebranded to AWD Group in 2004 – and Chase de Vere, has undergone rapid change and today stands virtually unrecognisable from that described by the regulator in 2008 as having serious “systemic failings”.

The company has sold mortgage consultancy Home Finance, adviser firm Read, online price comparison service AWD Moneyextra and a corporate services business.

It has gone from a group with five businesses, 1,000 employees and almost 300 advisers to one with two businesses, 420 employees and fewer than 180 advisers.

"This is a different company,” Kavanagh says. “The slate is wiped clean with the FSA. Quality [of advice] is no longer an issue. Our systems and controls today are a lot tighter than they were a few years ago.”

It should be noted here that, while the FSA was highly critical of the advice given by AWD to some customers on pension transfer, pension annuity and income withdrawal business, it praised the company for its response.

As well as conducting an independent review of its pension switching business and pledging to compensate affected clients, it revamped its bonus scheme to provide incentives to its adviser force for checking the suitability of advice.

“Our relationship with the FSA is as strong as it has been in a long while,” Kavanagh says.

“There has been huge change here in the past couple of years. This was a loss-making business in 2008 and a profitable one last year. In the first three months of this year we are already at a higher profit level than we were throughout the whole of last year.”

Overhaul

Kavanagh has been in the job for three months, replacing Mike Kirsch, but he first joined the company 13 years ago, when it was Thomsons (our interview is on his 13th anniversary with the company).

He began his career in financial services in 1985 with Bank of Scotland, where he worked as a private client portfolio manager, before joining TSB and, later, Allied Irish Bank.

But his career really took off when he joined Thomsons in 1997. Kavanagh climbed through the ranks until he could climb no higher; he went from IFA to regional sales director to national sales director. Now he is the CEO.

“By joining Thomsons I thought it was a chance to become a proper IFA,” he says. “I was right.”

Household name

Kavanagh says he is determined to turn AWD into a household name in the UK. He says, in 2013, the RDR “will have everyone talking about financial advice” and he wants AWD Chase de Vere to be around – and on their lips – when they do.

But it all starts with the advisers. Kavanagh admits the company “spent a lot of money recruiting the wrong people” in previous years, but says there is now a focus to ensure it brings in the right individuals.

“Recruitment has, in the past, been a bit of a thorn in our side,” he says.

“We had a poor due diligence practice and our interview process was not as robust as it could have been. We recruited the wrong people and this was one of the reasons we were not profitable.

“We are not going to get it right every time, of course, but we are going to get a higher percentage of the right people. This is a drive to quality.”

As part of its plans to attract the best the advice industry has to offer, Kavanagh reveals plans to overhaul AWD’s remuneration strategy in a bid to boost its adviser base by 15%.

Advisers’ base salaries will at least double, while bonuses will be more closely linked to what it calls “assets under influence” (AUM) and recurring revenue business.

The company currently has 178 advisers but Kavanagh says AWD Chase de Vere’s business strategy is being built around an adviser base of about 205.

“We are looking for people to join and we will, in effect, be asking them to show us their medals,” he says.

“I have been an IFA for 19 years and it is the best part of the job. We say: ‘if you have been an IFA for the past six years you must have clients who want to follow you wherever you go. Show us how good you are.’”

All about the qualifications

A central tenet of the RDR is the increase – from QCF Level 3 to 4 – of the minimum qualification standard for UK financial advisers.

A recent estimate by Unbiased.co.uk suggests less than 40% of the adviser population is qualified to QCF Level 4. The remainder have until 31 December 2012 to do so.

But the qualified figure at AWD, Kavanagh says, is closer to 50%. He says one of the company’s main focuses in the coming 18 months will be to ensure every individual is ready and able to be client-facing on 1 January 2013.

“We have bespoke training plans for every single one of our advisers,” he says. “We have 47% of advisers already at QCF Level 4 and another 20% who are two or fewer exams away. The average age of our advisers is also 35. That is quite young.”

AWD is also spending £1m revamping what it calls its standard operating platform to ensure its advisers can spend as much time with clients as possible.

“By January 2011 we will transform the way we do business,” Kavanagh says. “We will be able to give our advisers much slicker end-to-end processes. It was a real show of confidence from our parent company (AWD, owned by Swiss Life) to agree to this. We hope it will free up advisers’ time a bit so they can spend it in front of customers.”

Adviser charging

According to Kavanagh, adviser charging, an RDR directive designed to remove the potential for product or provider bias from the advice process, has been up and running as part of a pilot at AWD for more than two years. It is all part of an ideal, he says, to eliminate upfront commission entirely and “get to a 1% [charging] world”.

“We were out of the blocks pretty quickly on this,” he says. “We have been carrying out a customer agreed remuneration (CAR) pilot for the past two-and-a-half years with 25 advisers working in offices in Birmingham, Woking and London.

“We are moving towards eliminating up front commissions. We started in January 2008, at the start of the crash, and we made significant losses. We had low initial, and now we were looking at lower trail too.

“We want a 1% world. That is the ideal. No upfront commissions, no charging for switches. Just a 1% charge. We have an adviser who works to a 1% world and he has no resistance from the client.

“Obviously a HNW individual with £5m to invest is not going to hand over 1%, but I’m saying that is the ideal. I have been an adviser for many years and I appreciate what it takes to be a good adviser and to reach a good level of income.”

Consolidation

The number of adviser firms, according to the FSA Register, has been steadily falling each quarter since the middle of 2008.

Market consolidation has been one of the main drivers of this decline, as has the move by some firms to join national or network propositions, but Kavanagh says there will always be a place for sole trader businesses.

“I have a couple of friends running a firm up in Glasgow,” he says. “There will always be a place for these guys because they run a brilliant little business. I wish I could buy it, but why would they come here? Why would they go anywhere?

“If I went back ‘on the tools’ I would want to be part of a slick, boutique-like operation.”

And this is where Kavanagh gets to the hub of the matter – he may be chief executive of AWD Chase de Vere, but he is still an IFA, and “getting back on the tools” is something he still does.

“I still go out with the advisers. I’m still registered and I want to show the guys I can still do it. I’m always interested in sitting and listening.

“I want to know how our advisers are doing their business. I want to know why one office is doing better than another.

“I love working for this company and I am as passionate today as I was 13 years ago.”