Are Towry's transfer problems just the beginning?

David Stevenson asks whether the adviser industry can really cope with in-specie transfers, or will there be more cases like Towry’s in the coming years?

A couple of weekends ago, in my Financial Times column, I noted Towry Law’s teensy-weensy transfer problem.

The gist of this slightly depressing saga is that in-specie transfers are a real mess. Towry’s takeover of Edward Jones – by all accounts a much-admired business by its clients – has apparently prompted hundreds of incoming customers to request an in-specie transfer out.

With straightforward liquidations, this can be accomplished within a matter of hours if not days, but problems obviously ramp up when you try to deal with customers boasting a myriad of different funds as well as a sack load of listed stocks within their portfolio. The combined effect seems to be overwhelming the back office functions at most registrars and fund management companies.

These worthy but costly functions have not been receiving the same amount of investment as fancy fund manager hires and ludicrous marketing campaigns, so when the wave of transfer requests comes in prior to RDR, it will be customers left in the lurch.

Quite rightly, Towry Law is now working with all and sundry to speed up the whole process, but the adviser also points a finger, rightly, at the FSA, which until recently did not even seem to know there was a problem. Funny that…

Clearly, this takeover will not be Towry Law’s last, and I suspect we will see a number of controversies surrounding transfers as RDR-inspired consolidation intensifies. The big networks will clearly now invest even more in their back offices, but I have a nasty feeling we will be hearing a lot more about in-specie transfer disasters as 2012 approaches.

But this affair highlights two other more subtle trends, both under-reported by the media. The first is that the rules governing investment wrappers are needlessly complicated and in some cases positively antideluvian.

Yet lurking behind the Towry Law affair is an even bigger issue. Talk to the investor activists, and they say that their new advisory firm did not make a convincing case why they should pay between 0.75% and 2% in fees based on funds under management. One investor told me he wanted to know what “their unique approach to managing my money”.

I have always had the view that Towry Law is a principled firm whose stand on fees is to be congratulated, but many of its Edward Jones customers begged to differ.

The point here is although the rationale for the deal was clear to both business parties, it was not necessarily clear to the poor old customer. Simply cosying up to a bigger and better network is not very convincing to many customers – they want to know what they are paying for and getting in return. Scale is not a selling point to anyone except business development directors. Nor is “we have decided to exit investment advice and have signed a deal with XYZ national network”. Do not be surprised when these customers bunk off within a few months.

As consolidation and restructuring ripples through the advisory space, customers need to understand why they are being shunted around. What is your USP? How will you treat your new customers differently? Fail to make the pitch to these new but captive clients, especially the wealthier ones, and they will transfer out quicker than a Premiership footballer.

If you are really unlucky, you might even find yourself the targets of investor activists with better marketing skills than your in-house team.

David Stevenson is a Financial Times columnist and consultant. Email him at davidcstevenson@gmail.com