“Who wouldn’t want to take over a financial services advice business right in the middle of a global pandemic and economic downfall? That’s one hell of an opportunity, isn’t it?” jokes the new boss of Quilter Financial Planning.
Speaking to Money Marketing about his first few months at the helm of the advice business, Steve Gazard says it has been interesting, to say the least.
“It’s not the first time that I have stepped into this kind of role, but it’s certainly the first time I have stepped into it when having to deal with it remotely.
“That’s definitely been a new one for the CV,” he says.
With more than 23 years’ experience in the financial services industry, Gazard succeeded Andy Thompson as chief executive of Quilter Financial Planning in June this year.
Gazard joined Quilter’s advice arm in 2017 as group managing director, and prior to that was managing director of Sesame Bankhall Group for four years, where he was tasked with delivering a corporate restructure and cultural transformation.
In his new role he has wasted no time in implementing the next phase of the advice arm’s strategy to fully integrate into the wider Quilter group.
Quilter Financial Planning, and Intrinsic before it, was previously focused on building scale through acquisitions. This has seen the firm take over the likes of Caerus and Positive Solutions, with more recent purchases including Charles Derby and Lighthouse.
Charles Derby rebrands as Quilter
Financial planning business Charles Derby rebranded as Quilter in January 2020 after it was acquired on Valentine’s Day the previous year.
Quilter Financial Planning managing director Darren Sharkey previously described the deal to Money Marketing as a “marriage made in heaven from the start”.
But the firm’s purchase of Lighthouse doesn’t feel quite as rosy with the advice giant having to set aside £29m for potential claims by British Steel Pension Scheme members.
In half-year results for 2020, Quilter outlined that the anticipated redress figure along with a “prudent view” of other writedowns had wiped £19m off the acquisition balance sheet since it was signed.
In April 2019, Quilter agreed a £46.2m deal to buy Lighthouse, which completed in June the same year.
Lighthouse advisers eye practice buyouts after Quilter merger
Does Quilter regret the purchase of Lighthouse? Not as such, but it is now at a “pause point” on the adviser business acquisitions front, Gazard confirms.
He admits: “This is largely because there aren’t many others, if any, that we are interested in left in the marketplace.”
According to an investor presentation for autumn 2020 outlining Quilter’s journey to date, the Lighthouse acquisition integration is “progressing well” and in line with the firm’s plan.
The strategy is now less about building scale by swallowing up firms and more about integrating “appropriately”, Gazard tells us.
“Our historical model was based on: we acquire businesses, and they adopt our advice propositions, our advice process and our advice standards. But we haven’t necessarily integrated processes and procedures, and operations and technology.
“Our focus is more on the operational side now and driving some efficiencies for both us and the advisers, rather than just chasing the next acquisition.”
That also means Quilter is looking more closely at the advisers it works with. Almost 100 have already exited the business after discussions surrounding productivity levels. More could be following them in the coming months.
Rather than hunting for advice firms with ‘For sale’ signs above the door, Quilter will look at its existing adviser population and focus its “time, energy and resources on helping them grow their productivity”.
Why Quilter went restricted for DB permissions
Gazard says this will be the mission, “whether that’s on a one-on-one basis in our national advice business, or whether that’s supporting our network members who are inevitably running their own business but under our umbrella”.
He adds: “We’re looking at how we can make them more efficient and more effective. Part of our strategy is to look at how we can leverage the structure of the wider Quilter business to deliver that for our advisers, our staff and, most importantly, our clients off the back of that.”
However, for those unwilling or perhaps unable to up their game, the most likely outcome will be a parting of the ways with Quilter.
While Gazard points out that some advisers “have been having their best year” despite the pandemic, others have found it more of a struggle.
He admits that he was nervous about the delivery of ongoing service during this time, but his fears were soon laid to rest as “that’s the bit that has really stepped up”.
He says: “It’s been an interesting time and I’m sure we haven’t seen the end of it.”
But Quilter has observed a fair number of advisers who “haven’t been able to adapt quite as well or as rapidly”, notes Gazard.
“They tend to be our smaller sole traders, who probably don’t have the infrastructure and support around them, nor the paraplanning and administration that some of the bigger businesses in our network or even our own nationals have.”
The group has been prompted to look at advisers at the lower end of the ‘productivity spectrum’ not only by the current crisis. Quilter started an engagement process — its sole trader to business programme — with a number of advisers last year to examine where they might be “better served”.
Gazard says: “That might be working in our own national, where they can just go back to what most of us joined the industry to do, which is going to see clients. We will look after the paraplanning, client support and lead generation.
“Or it might be that they don’t want to be part of the Quilter-branded national business, in which case we’re matchmaking them with some of our biggest strategic partners that are still smaller, entrepreneurial and focused.
“With every acquisition you make, you inevitably acquire a tail of advisers in that process who you may not have organically recruited.
“We are mindful of the Covid environment and mindful of our need to run a sustainable business; and, again, engaging with those advisers who are, to put it bluntly, at the unprofitable end of the spectrum for us. That doesn’t make them bad people, but it probably just doesn’t work for us. Some of them have the capacity, capability and willingness to actually get back on the front foot and grow, but they just need a different environment.
“Some are just naturally on a glide path to an exit or retirement; in which case we have a well-tried-and-tested buyout proposition.
“We’ve got lots of conversations going on with advisers right now as to whether this is the time they want to hang up their boots and create that capital event for themselves in the process, and that’s something we’re very strong on and for which we have a good track record.”
He adds: “Inevitably with my background there is probably slightly more of a focus on de-risking the business and ensuring the relationships are strategically aligned. They need to be profitable and sustainable. There has to be a cultural fit, but we have to be clear in our focus on what is the risk and reward.
“Those advisers who represent too much risk, too little margin or a combination of both are where our core focus is right now.”
Restricting DB permissions
As part of the strategy to de-risk the business, Quilter’s advice arm recently took the “difficult decision” to limit defined benefit permissions to its restricted advisers.
Speaking to Money Marketing about the move, Gazard says: “We all know that DB is at the high end of the spectrum from a risk perspective. It requires a lot of oversight. We pre-approve every piece of advice in that space.
Half of advisers could quit DB transfer market
“Before it’s even advice to a customer, it has gone through a whole set of checks and balances; that is onerous for us, but entirely the right thing to do to ensure we are delivering that robust client outcome.”
If you add independent advisers into the mix, it requires “another level of oversight” for Quilter to feel comfortable that the choice of solution and the advice around it are “quality assured”, he says.
“The reality is that it is much more readily and easily done in our restricted proposition, where ultimately we are quality assuring all of the solutions in that space.”
Referring to DB transfer advice given by Lighthouse advisers in the British Steel scandal, and the compensation now due to clients, Gazard says: “Despite it not happening on our watch, we will entirely ensure that the clients are looked after, remediated and taken care of in that space, entirely as you would expect us to as an organisation of our size and stature.
“The reality is we do not need to create more own goals through that with carte blanche provision to IFAs,” he says.
Business as usual
IFAs that do not prove a risk to Quilter because of the types of business they work on, as well as those that have a “robust, proven process in the IFA space”, can probably remain safe in the knowledge that they can continue in that way.
The same goes for those bringing in significant turnover or, with strong capital security, recompensing Quilter for the additional oversight and risk the firm will inherit as part of their model.
“If, at the other extreme, I have an adviser who has little production because they’re on that glide path out of the industry anyway, or they’re operating in DB and their margin is no different from where our restricted advisers are, then they are the conversations that are going on at the moment because that’s just not sustainable for us,” Gazard admits.
But he insists the process is not a “blunt exercise” where people will be removed instantly purely because they do not meet a certain revenue or cost threshold.
“You’ve got to be really cognisant at the moment that numbers aren’t necessarily representative of the normal operating environment. We have advisers that if you looked at a snapshot now do not look productive at all, but that’s the current environment rather than anything else.
“What we’re doing is facing into candid, open and transparent conversations with those firms.
“It’s about engaging one on one, using the management information and the numbers as a starting point for the conversation.
“But that’s all it is, a starting point. It then requires engaging with advisers over a considered period of time, and seeking to understand their hopes and aspirations.”
He says some inevitably will have been frustrated with their performance; others will have been gliding happily along with a book of existing clients and are not keen to chase new ones. Some will be looking for a buyout option anyway, while others will feel their lack of systems and processes means it is time to consider being part of a national or a network where someone else can remove the stresses and do the heavy lifting.
And then there are the “middle-ground” advisers who are “not really wishing to put pedal to the metal”, Gazard explains.
“They’re not ready to hang up their boots. They’ve been on a very comfortable set of financial terms with us for a period of time and, again to put it bluntly, they will decide if a new financial term that we potentially would need to put to them, which affects the level of productivity that they’re going to drive, works for them or not, and some of those will choose to exit.
“We’ve got some tough decisions to make, as I’m sure every financial advice business has right now in the current environment.”
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