1st September 2010

People in glass houses... remember Knight Williams?

IFA letter of the week

People in glass houses... remember Knight Williams? They closed in 1995 after a sustained media campaign. Whilst purporting to be independent they only ever recommended their own in-house funds. Annual management charges were high to pay KW a high level of trail commission which KW defended by saying that it allowed it to make discretionary fund management decisions without the need to switch individual client investments.

Today we have Towry Law which likewise only recommends its own in-house funds and takes very high trail commissions. Whilst it does not take a 5% initial commission as KW did, Towry Law does however make an additional time-based charge from the initial advice, at a substantial hourly rate.

I do recall that an enterprising young journalist named Jeff Prestridge making his name as KW’s Nemesis and cannot understand for the life of me why TL has apparently escaped his notice. Perhaps it is down to the undoubted charm of the charismatic Andrew Fisher.  Now I have the utmost respect for Andrew’s achievements. It is always nice to see someone make a success of their chosen endeavour and with �£6bn under management he has certainly developed a formula that works. Towry Law pitches to the wealthy and a goodly portion of the UK’s rich obviously favour Towry Law with their business. What I find puzzling though is that an intelligent man like him should inveigh so vehemently against those of us who, like my own firm, operate mainly on a commission based model, with rebating where appropriate, and are happy and proud to care for the less wealthy part of the population that his firm so obviously disdains.

I launched West Riding in July 2004. People seem to like what we deliver because we’ve gone from zero to nearly a thousand clients in five years and now have just over �£10m under management. We work out of an office above a sewing machine shop in Castleford town centre, but we don’t stitch anyone up and the sense of humour is part of the package.

Towry Law voiced concerns earlier this year that it would be deprived of the ‘independent’ description because it ran its own funds. Around the same time Andrew Fisher started expelling large volumes of hot air about commission based advisers being the root of all evil. Amongst his wilder statements was the assertion that those of us working on commission are somehow to blame for the credit crunch. If only I’d known I would never have sold that �£10pm Level Term Assurance to the young couple in Doncaster last Sunday who were wise enough to know they needed some affordable family protection and who had the good sense to have it done properly by an IFA. Unlike the supermarkets I saw to it that full disclosure was made and the policy was written in trust. To make matters even worse of course, I did the job on a Sunday as the clients both worked shifts the other six days a week.

The irony though is that by the FSA’s yardstick, Towry Law with their high trail commissions are undeniably commission based. So they charge fees as well. So what? So do we and all other advisers where appropriate. A Towry Law spokesman was recently quoted as saying that their fee-charging model allowed them to charge clients for advising them to pay off mortgages. How wonderful. I’ve been giving that advice free of charge for years, but then of course, I’m a wicked commission-monger.

Towry Law refers to its service is ‘discretionary management’ investing clients into one or more of its in-house fund-of-fund offerings which, it says it runs “for ease and simplicity of administration and controlling tax matters” adding “that doesn’t mean we are restricted to collectives but rather than choosing individual stocks and shares we choose the most expert managers for each sector.” I see nothing wrong with that approach but fund-of-funds management is only what many IFAs do; they just don’t run them in-house. Towry Law also says it does not take commission on internal fund switches, but so what? Neither do many other advisers. We give clients a written no-churn guarantee.

Unlike Andrew Fisher I don’t like in Berkshire, have never been a banker, don’t particularly like Sushi, opera, or heli-skiing and don’t drive a Porsche 911 Turbo.  (I make do with a Rover 75 and some old British motorbikes.) Neither can I claim that my favouritebook is Voltaire’s Candide, but then I understand anyway that Candide is on the list of books that most pretentious people claim to have read but haven’t. I’ve grown a bit tired though of Andrew’s rantings. Maybe he’d like to take a long hard look at his glass house and think carefully next time before he starts throwing stones?

The example above of the couple in Doncaster is the reality of what I and many IFAs do. We provide help to all those who need it and we look after the working class in whom Towry Law’s ‘Wealth Advisers’ evince no interest. If need be, that means I see people when other advisers are out driving their Porsches. When I was wrote that case, about 2pm last Sunday, Andrew was probably just tucking into his Sushi. Good for him; I begrudge him it not; I just wish he didn’t begrudge me my living.

Neil F Liversidge
West Riding Personal Financial Solutions Ltd

Background Information
According to the information it supplied, Towry Law charges as follows - 

Portfolios under �£100,000

• 2% initial charge plus VAT.
• 2% annual charge plus VAT on 1% of that.

Portfolios �£100,000 - �£250,000

• 1.5% initial charge plus VAT.
• 1.5% annual charge plus VAT on 0.5% of that.

Portfolios �£250,000 plus

• 1% initial charge plus VAT.
• 1% annual charge plus VAT on 0.5% of that.

Towry Law says it charges 1.5% up front on portfolios in the �£150-250k bracket for “accessing the service with no exit penalties/charges or additional admin charges for portfolio switches/setting up income etc.” Once a portfolio exceeds �£250,000 Towry Law’s fees reduce to 1% initial on new monies and 1% per annum annual management fee. Its justification for its annual fee is that it “includes annual investment review with your wealth adviser which involves a face-to-face meeting (or can be conducted remotely if clients prefer)” saying that this “is a fee because it is paid by the client rather than the a product provider/investment manager and the initial charge is considerably less than the amount that would be clawed from your investment in charges if the portfolio was set up on a commission basis”. That depends, of course, on what the commission basis is. Fees attract VAT whereas commissions don’t. When pressed on this point Towry Law clarified by stating “As the assets are held in Dublin only part of the fees is subject to VAT. The initial fees are wholly subject to VAT as these are received in the UK 1% of the ongoing fees are free of VAT as these are deducted in Dublin. The additional 0.5% annual fee for portfolios of less than �£250K is subject to VAT. For portfolios below �£100K, the additional 1% annual fee is subject to VAT.”

Towry Law says “Any other charges which comprise the TER are expenses (stamp duty etc) incurred managing the portfolios and the AMCs on the underlying investments which … go to the investment institutions entirely.” This is equally true of course of the funds any adviser manages. As to the competitiveness of its charges, Towry Law says “The increase in charges has come about having conducted a review of charges from competitors (private banks, discretionary managers etc.) which showed we were ‘cheap’.

As to other costs Towry Law says “The cost of the annual investment review including the meeting element is included in the TER.  There would be time-based fees charged for time taken in researching and producing formal recommendations for other areas of financial planning and your Wealth Adviser would be able to give you a clearer idea of the costs for financial planning advice after an initial meeting when they would have assessed your situation and discussed your concerns and relevant topics with you.  We will not of course recommend our own portfolio service if it would be more appropriate to use alternatives [such as] where a client needs a portfolio in a currency other than sterling or where debt repayment should be undertaken before any investing takes place. We not undertake any chargeable work without your prior agreement in writing.”

Towry Law states: “The other advantage of fees over commission is that as you are paying for the advice/service/investment management, we are not biased by product providers. We do not rely on providers to pay for our training, business seminars, Christmas parties or our profits which many advisory firms allow them to do and do not need to maintain a relationship with them other than a purely professional one. We use a provider’s fund only if we believe it to be in the client’s interest to do so. Contrary to popular belief there is no legal obligation for an IFA to continue servicing/advising clients if trail commission is payable. On a fee basis we are of course obliged to deliver what we promise and you are not paying for service which you don’t receive as is often the case with commission.”

Time Charges on Top

Towry Law says it “does not operate the Wealth Management Service on an execution-only basis and therefore some advice is required. We are a wealth advice firm and not a product provider or broker and the services we offer are a way of best meeting clients’ financial life planning objectives rather than creating a portfolio for the sake of it and offering it on the open market. Furthermore, the FSA pays close attention to execution-only transactions and it is not something we are keen to do. The exception being 3^rd party investments where a client is topping up an existing plan is acceptable but allowing people to enter an advisory and management service without any advice would not be viewed favourably by the regulator. To adhere to our statutory and regulatory obligations we still need to produce a recommendation to demonstrate that investing in medium-long term investments is appropriate for your circumstances and that we have considered the suitability of other options and investment vehicles. We also need to take into account your attitude to risk and objectives to determine the most appropriate portfolio, version of it (i.e. there are UK onshore ones as well as Dublin which on occasion may be more suitable) and wrapper (I.e. offshore bond, ISA or SIPP wrapper may be relevant) and also a tax strategy to manage realisation of gains. Where income is required, a plan needs to be implemented to time withdrawals as tax efficiently as possible and consider any other implications such as age allowance depending on age and tax status of client. If there really are no other issues or a need for holistic planning advice then the time-charged fees would not amount to much.”

To save you counting then, that’s a 280-word answer to the question “Do you charge an hourly rate on top of the initial fee and the annual fee.”  (A simple “Yes” would have sufficed!)

Re’ the fees, Towry Law promised that “After the initial meeting and a detailed discussion of your situation which is without cost or obligation to yourself, your Wealth Adviser would complete a written file note or letter detailing what was discussed and the outcomes. They would then be in a position to be more specific about what the financial planning fees would be.”

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