Enable Independent were recently spot lighted in the New Model Advisor:
Matt Baker and his fellow
directors at Enable Independent are confident they have a sound
strategy for growth, targeting the mid-market mass affluent through
referrals and acquisition plans.
Matt Baker, director of Enable Independent, is building an advice business aimed squarely at the mass affluent market.
Formerly a semi-professional
cornet player, Baker is happy to play his own tune in the mid-market and
disagrees with those who insist IFAs have to target high-net-worth
clients to survive.
Based in the centre of Bishops Stortford, Enable started life as County Independent Advisers. It was set up in 2000 by Mike Cooke, who is now a director at Enable. Initially the firm had an introducer relationship with a large local estate agent, Intercounty, which was bought by another firm in 2007, ending the link. Cooke then renamed his business Enable to differentiate it from Intercounty.
Joining forces
Baker joined Enable in 2007,
having previously been a tied adviser with Openwork. Cooke had been
referring a lot of clients to Baker, so they decided to join forces and
set up what they call a wealth management arm of Enable (it still
operates a large mortgage advice arm).
The following year they merged with former New Model Adviser®
cover star KMD Financial Management, run by Kevin Deamer. Deamer wanted
to set up KMD Private Wealth Management with a focus on his top 60 or
so clients, and was looking for a good home for his remaining 4,000
clients. Enable was looking for more mass affluent clients, so was happy
to take these from Deamer.
Once the process was complete, the two firms demerged and went their separate ways.
‘We had initially wanted Kevin to
remain as a shareholder and as an influence, so we could benefit from
his expertise in running a directly authorised wealth management firm
and he was happy to do that,’ says Baker.
‘Eventually, as we developed as a
management team, having learned from Kevin along the way, we decided to
gain full control and move the business forward. So we bought Kevin out
about 18 months ago. He is still a friend and we respect his opinion.
‘Soon after, Paull Hazell became a
director, and thus all shareholders and directors worked within the
business full-time, which we felt was important. That was simply how it
developed as we grew in confidence.’
Growth strategy
Baker says that, although
slightly convoluted, the KMD merger was a pivotal step in the growth of
the business. ‘Looking back, some things could have been smoother, but
overall that was the best thing we ever did and we all benefited,’ he
says.
‘It happened just as the credit
crunch came. The mortgage side had a terrible time from 2008, and the
merger was a shot in the arm for us. We learned some valuable things
about running a business from Kevin, and how to develop a service and
investment proposition. But we won’t end up where he is. We are more
mass market.’
Since 2008, Enable has worked at
turning the 4,000 names and addresses obtained from KMD into regular
fee-paying clients, and succeeded with around 200 of them. It is now
moving on to focus on finding new clients from other sources.
‘We focused on getting clients
onto Nucleus, our core wrap, and started to deliver a service
proposition,’ says Baker. ‘The key to [converting those clients] was
developing the proposition. To convince clients, you have to be
convinced yourself.’
Investment philosophy
‘We now have a well-developed
investment philosophy and service proposition, with Nucleus as
the platform of choice. Also at the core is cashflow planning using
Voyant.’
The firm uses Ascentric for some
clients for whom Nucleus is not appropriate, and Baker believes this is
sufficient for Enable to remain independent. ‘As long as you analyse the
marketplace and ensure the [wrap] you are using is competitively priced
and has all the functionality, you are independent. If you have
ultimate choice where it ends up, I don’t see anything wrong with using
one wrap provider [for most clients]. Our clients generally have between
£200,000 and £500,000 to invest and Nucleus works well for them.’
Baker says he is aware of the
Financial Services Authority’s concerns over the potential for conflict
of interest from adviser-owned platforms. Nucleus is 51% owned by
advisers but Baker believes the wrap may change how advisers stakes are
distributed.
‘I believe the FSA has said
recently it might have a problem with the way it has been possible for
IFA firms to increase their share ownership by putting more funds under
management with a wrap. I think [it may say] it is fine to own shares in
your wrap provider but those should be in Nucleus as a group rather
than dependent on your funds under management on the platform.
‘Nucleus is owned by the IFAs and
the more funds you have on it, the bigger your slice. So I think
Nucleus will change that because it is transparent. That is one thing we
like about it. ‘I don’t believe there is a
conflict of interest in owning shares and being able to shape the
development of a platform, as long as you consider the client’s
circumstances fully and don’t put their assets onto Nucleus because it
benefits you. If the FSA states that it wants things done a certain way,
I am fully behind that.’
Nucleus chief executive David
Ferguson says a future change could be to soften the relationship
between accrued revenue and share ownership but he has no immediate
plans. ‘We have looked at different models, I’m never going to say
never. Any change that occurs would reflect that,’ he says.
Enable sets minimum charges for
new clients to ensure profitability. For its full service, the minimum
yearly fee is £1,500. Baker says: ‘We have thought about charging
[existing clients] more to bring them up to £1,500 and we are getting to
the point.’
Tempering passive evangelism with active picks
Enable runs five model portfolios
that use a blend of passive and active investments. These are put
together by a committee that meets every quarter, using data from
Financial Express Analytics and Citywire fund manager ratings for the
active part.
‘In the past, we have been
evangelical about passive management,’ says Baker. ‘A lot of the
evidence is heading towards the passive approach in terms of lower cost
and avoiding the potential underperformance and higher charges of an
active fund.
‘We still educate clients to
expect the market return and that asset allocation is the biggest factor
affecting investment performance. But we have developed that idea. For
example, in the developed equity markets, like the UK and US, it is much
harder for an active manager to differentiate themselves, but that is
not necessarily true in emerging markets. Also looking at fixed interest
funds, the cost of active management is not so great, so we have
introduced a few active elements in the model portfolios, such as
strategic bond funds.’
Dimensional core
For the core passive part of
portfolios, the firm likes Dimensional funds because of the small cap
and value tilts. However, Hazell says: ‘We are not totally blinkered. We
like their approach but they don’t do everything, and where there are
gaps we will look elsewhere.
‘Until recently, we used Dimensional’s Emerging Markets Core Equity fund. But, looking deeper, the total expense ratios [TERs] between that and the rebated cost of First State Global Emerging Markets Leaders
are within a couple of basis points. If you look at the history, there
is little question that First State does a better job producing returns
in that sector, so we replaced Dimensional with that fund.
‘The fundamental approach with
the models hasn’t changed. The thrust is still passive but there are one
or two areas where there is evidence that an active tilt can add
value.’
Not a fan of ETFs
The fund previously tried using
exchange traded funds (ETFs), especially for access to commodities, but,
Hazell says: ‘ETFs can make rebalancing complicated, particularly when
you have a minimum trade size. They weren’t adding enough to warrant the
added complication.
‘For a core portfolio, if there
is a need to rebalance or if there are regular premiums to be paid, it
is difficult to reflect that when you have lots of ETFs. Besides, many
equity funds have exposure to commodities one way or another already.
‘The advantage of passive is,
although it’s not particularly clever, it does what we set it out to
do,’ says Hazell. ‘Clients will know in advance what the best and worst
case scenarios will be over time, so they can be disappointed but never
surprised.’
Attracting new clients
Baker believes the best way to
obtain new clients is through referrals from existing clients and from
the mortgage advice side of the business, which has about 2,500 clients.
‘We see them as introducers and
educate them on what we are looking for and how to get them across. We
are trying to identify ways of marketing to their clients better.’
Enable has two solid professional
connection relationships, has just reached agreement with a third and
organises presentations to try to build more.
It is also developing its online
visibility. ‘We pay a marketing company on a retainer to improve our
Google ranking and handle our social networking, and that has yielded a
few clients,’ says Baker.
Matt Baker:
Curriculum Vitae
CAREER
-
2007-present Enable Independent, director
-
2005-2007 Openwork (Paul Baker Associates), financial adviser
-
2002-2005 Clerical Medical, broker consultant
-
1998-2001 Scottish Equitable, broker consultant
PROFESSIONAL MEMBERSHIPS/QUALIFICATIONS
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FPC 1, 2 & 3
-
J04, J05, AF3, R02, R03
-
CF6
- GR1
Optimistic about equities
A commonly cited disadvantage of
passive investments is they tie success closely to that of the markets.
Baker says: ‘What is going to happen? If it was a client asking, I would
say: "I have no idea."
‘But I am an optimist. We play a
game here every year: everyone puts down what they think the FTSE will
be at the end of the year, and I am nearly always the most optimistic –
but I have never been right.
‘However, I have more concerns
now about clients who have the majority of their funds held in fixed
interest than clients in equities. I think there is mileage in equities
this year.’
Total expense ratios on Enable’s portfolios are between 1.68% and 1.81%, all inclusive. The fee is 1% ongoing.
Baker says he is target-oriented
and highly motivated to succeed. By the age of 22, he was an
accomplished musician and moved to Yorkshire to play for the Black Dyke
brass band.
‘It is world famous in its
circle, and I was the principal cornet player for six years,’ he says.
‘We toured and recorded; we had a brilliant time. We played with pop
stars, such as Elton John (pictured below), Peter Gabriel, Jules
Holland, The Beautiful South, and had some fantastic experiences.
‘I followed my passion for a
number of years. Then I thought I had to have one eye on my long term so
I started with Scottish Equitable as a trainee consultant in Yorkshire,
balancing the two for a while. But then, as I approached my 30th
birthday, I had to make a long-term decision and focus on financial
advice.’
Baker is optimistic about the
future for mid-market IFAs. He says the profit of the firm ‘stood still’
for a while between 2009 and 2011 while it focused on developing its
proposition. ‘Now we are starting to grow,’ he says. ‘Our primary
targets are to grow funds under advice and turnover by at least 10% a
year. But we don’t want costs to go up. Profit is the most important
figure.’
He plans to make acquisitions and
wants to recruit advisers who have their own clients and who want to
either retire or stay in the business.
Despite working hard, Baker finds
time to teach cornet and play with the Redbridge Brass band. ‘I am a
firm believer that you have one life, and have to live it. I love my
holidays and my hobbies,’ he says.
‘I have played cornet to a high
level as I have always been motivated to be as successful as I could at
what I do. Now this is my priority, working hard at making a successful
business. That translates to earnings – to earn enough to live my life
and do everything I want to do. It is about having an objective and once
I have achieved that, set another objective.
‘I always want to improve what I am doing, that is being put into work now. I have mucked about for enough years.’
If Enable was a musician, what
style of music would it play over the next 10 years? ‘A good word would
be bravura, which means with skill, virtuosity and style,’ says Baker.
‘The future is clear: we have the price, the proposition and the
relationships, and we want to expand.’
Five top tips
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Keep your clients’ best interests at the centre of everything you do. Without our clients we don’t have a business.
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Have a business plan, which has been discussed and agreed with all the interested parties, and stick to it.
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Develop a client proposition in which you truly believe.
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Do everything you can to stay positive, and get out of your comfort zone often.
- Surround yourself with good people and give them a say.
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