Paula Hodge is preparing Old Mill for the future with a strong succession strategy.
Paula Hodge, head of financial planning at Old Mill Accountants and Financial Planners, recently added one of the advice profession’s most prestigious plaudits to the group’s already formidable reputation.
Racehorse enthusiast Hodge discovered winning ways while helping the firm achieve the 2014 Institute of Financial Planning (IFP) David Norton award for building excellence 2014. Together with senior colleagues, including board member Simon Cole and head of financial planning compliance Duncan Parkes, Hodge says she has instilled an exemplary culture of career development and focus on financial planning outcomes at this large West Country firm, which has £600 million in assets under advice
It has taken a lot of hard work, but they like to play hard too, says Hodge. ‘One of our clients is a premier racehorse trainer. [Some other Old Mill partners and I] joined a syndicate with a stake in a racehorse called Mendip Express (pictured below with Hodge and Cole). He is doing well, having won four "rules" races and was even favourite at the Scottish Grand National this year.
‘We want a good work-life balance to be the culture here as it helps create an environment that is attractive to the next generation,’ she says.
Although the firm beat other runners to this year’s IFP award, Hodge says there are many hurdles yet to jump before she will feel satisfied with the company’s progress.
From local to national and back again
Old Mill has its roots in accountancy business Berkeley Hall, later Berkeley Jackson, which created a financial services arm called Old Mill Financial Services in the 1980s. Both businesses grew successfully, were sold to national firm Tenon in 2000, and became Tenon South West.
However, Cole says they felt Tenon had a ‘crisis of identity’. ‘It had bought successful businesses run by entrepreneurs and was trying to morph them into employees,’ he says.
‘Ours was a localised business but increasingly controlled from the centre: for example, we could only recruit if we produced a business case. There was the tension of profits going to shareholders rather than being reinvested.’
So in 2006, a group of Tenon South West directors, including Hodge and Cole, staged a management buyout involving three offices, Yeovil, Shepton Mallet and Exeter, and rebranded as Old Mill Accountants and Financial Planners.
The partners had to raise their own finance to buy out the firm. ‘If it hadn’t worked, a few of us would be living in a caravan on the A303 now,’ says Cole with a grin. ‘It was a leap of faith, but the biggest risk was the reaction from the staff.’
Hodge says: ‘I remember being very nervous when we spoke to the staff, but there was actually a feeling of relief in the room after the announcement.’
Growth and evolution
In the eight years since the buyout, Old Mill Financial Planning has more than doubled its turnover. Hodge says it achieved this by reinvesting more in people, IT systems and in office space. This included moving its headquarters to the current large office building in the centre of Yeovil, which houses 80 staff.
Having already seen the benefits of having accountants and financial planners working closely together, the partners wanted these two areas to have an equal footing in the group. To reflect this, the partners all own a share of the whole firm, regardless of which side they work on, and this has been a key element in its continued growth.
But it needed to evolve beyond that, they say.
‘The one thing a consolidator structure does solve is helping older partners to exit the firm,’ says Cole. ‘To address this in the new firm, we redesigned our succession strategy by extending shareholdings from nine to 23 people; they became the senior leadership team.’
Hodge says: ‘We intend to repeat that by allowing people to accumulate a more significant stake in the business, creating a conveyor belt and allowing the elders to step out.’
Paula Hodge CV
2012-present Old Mill Accountants and Financial Planners, head of financial planning
1999-2012 Old Mill, chartered financial planner
1997-1999 Old Mill, paraplanner
1993-1997 NatWest, financial adviser
1985-1993 NatWest, bank clerk
Chartered Financial Planner
A crucial element in that is ensuring the younger generation are equipped to take it on and make progress, she says.
‘The trick is to make them want to take on equity. So we have created an environment that is attractive to them by bringing rising stars into management positions, accelerating their levels of responsibility and involving them in our decision making, which is not necessarily to our own advantage.
‘We also developed a comprehensive appraisal system and career development process to make sure we are abreast of their desires and aspirations. We have always had a strong qualification and continuing professional development ethos, including financial support for exams, study material, study days and training where required.
‘We have now developed the Financial Planning Professional Development programme, which provides a framework for new joiners to progress to chartered financial planner status with more structure and support.’
Stakes for staff
Hodge says that one further part of that strategy has been to reduce the firm’s reliance on key individuals to win work and instead strengthen the role of support staff. This includes the use of paraplanners who are authorised to give advice. This ensures all staff feel they are making a valuable contribution.
As a result of these measures, The Times has recognised Old Mill as ‘one to watch’ in its Best Companies accreditation survey, in recognition of the firm’s good staff engagement. Hodge says: ‘We continue to work on this and our goal is to be recognised among the top 100 companies to work for in the UK.’
Since the buyout, the Old Mill group has acquired two accountancy practices: LE Bull & Co, now based in Melksham, in 2008; and Dorchester-based Perks Simm in April 2011. Old Mill now has five offices, and one in every West Country county except Cornwall.
‘We don’t buy funds under management,’ says Cole. ‘We get better value buying an accountancy business and developing financial planning business with their clients for free.’
Parkes says accountancy firms are also much easier to value ‘because clients pay an annual fee for an identifiable service. With financial planning firms, it’s harder to see what service they have been getting, if any.’
Growth on the financial planning side of the business has slowed slightly this year as it deliberately entered a consolidation phase and focused on improving service and efficiency. To achieve this the firm has initiated what the management call ‘the operations project’, an important part of which is a plan to achieve the BS8577 standard for financial planning firms. Old Mill is the largest firm yet to embark on the BS8577 process and it is a massive undertaking.
‘We have so far identified 198 administrative tasks, all of which are being reviewed, critiqued and then standardised,’ says Hodge. ‘We have reached task 70 in terms of writing them. After that we will move on to the paraplanning and advice tasks.’
Another part of the operations project has been time recording all work in the financial planning business since August last year. The results will be used to set client fees more accurately, linking more directly to the costs incurred by the business.
‘This is to help maximise efficiency by getting a handle on the true cost of delivering services. Our fees are not as scientific as we would like them to be,’ says Hodge.
‘We want to ascertain not just how long it takes, but how long it should take to do the various tasks, then charge accordingly, while also enhancing service delivery. Alongside that, we have an IT project looking at how we can improve all our technology from back office to client-facing meetings. Ultimately, these projects are about sustainability and protecting our income for the long term.’
Making diverse connections
Aside from acquisitions, Old Mill has mainly grown through referrals, either by word of mouth, from Old Mill accountants or from other professional firms.
It runs events such as seminars for rural businesses and for local professionals, and also has a pensions consultancy business.
Old Mill plans to diversify yet further into later life advice. It has one Society of Later Life Advice accredited individual who runs events with local solicitors, and anticipates having more such staff. It also plans to launch a proposition for trustees.
The firm does a lot of charity work, and gives via community foundations and designated charities at each office. Fundraising events have included cycle rides and an Old Mill ‘bake off’ challenge.
A handy side effect is it helps with networking. ‘The opportunities that arise out of that community support are incredible,’ says Hodge.
Lesson in risk profiling
In October 2013, Old Mill was on the wrong end of a Financial Ombudsman Service (FOS) decision when a complaint was upheld, resulting in a £130,000 payout. In 2007, the firm had measured a client’s risk outlook as balanced, and invested accordingly.
The client’s initial preference was to be in 80% cautious, 20% higher risk investments. But following a risk-profiling exercise and discussions of her aims, the company deemed her risk score to be five to six out of 10 and invested more than 60% of her portfolio in equities and much of the rest in commercial property. The firm said because the client was relatively young, there was a real risk of her investments being eroded by inflation.
The complainant later claimed her risk profile should have been more cautious than that, given her initial preference, and that she therefore lost an undue amount when the market crashed in 2009 leaving her without enough accessible cash.
The FOS found in the complainant’s favour because she was an inexperienced investor and in a period of transition so may have needed the money, which was her only liquid capital.
The Old Mill directors say they found this a frustrating experience because the client went through a thorough risk-profiling and advice process. However, Hodge says there are still lessons to learn.
‘Now our measurement of risk is more focused on capacity for loss, because that is the ultimate test and where, potentially, you run into issues,’ she says.
Purely passive portfolios with tilts
Old Mill’s portfolios are purely passive and it has two main investment offerings depending on the level of engagement the client wishes to have.
Those who want a transactional service have access to passive multi-manager fund ranges, which are automatically rebalanced and lifestyled, so do not need to be reviewed every year. These are Vanguard LifeStrategy, Legal & General Multi Asset and BlackRock Consensus.
Those who want ongoing planning have access to Old Mill’s own model portfolios, which it launched in June 2009.
‘We witnessed the impact of the credit crisis on active funds, particularly on relative performance and, after researching, decided passive with tilts to small cap and value was the best core strategy,’ says Cole.
The strategy was designed in conjunction with consultant Tim Hale, director of Albion Strategic Consulting.
‘Two years ago, we also decided it was best to have an external presence, so we started using consultant Tim Hale,’ says Cole. ‘Investment is core to what we do and there is a risk of not getting it right. Tim sits on the committee, helps with documentation and governance, plays devil’s advocate, and makes sure the portfolios are fit for purpose. Now we have more than four years’ data, we know it works. We also have discretionary permissions to help with the administrative side.’
The firm uses the Retail Prices Index as its benchmark because, according to Cole: ‘It is an absolute measure. Clients don’t look at relative rates, only the real rate of return. The level of risk they are willing to accept reflects the extent to which they want to outperform inflation.’
Old Mill’s Growth 4 (Balanced 50% Equities) portfolio underperformed inflation in 2011, but has outstripped it comfortably in every year since, albeit it with much higher volatility.
The total expense ratio is 1.55% to 1.58%, including the wrap charge and Old Mill’s 1% ongoing charge.
*Net of fund manager and platform charges. Dividends reinvested.
Another reason why growth slowed last year is that two advisers left in 2013 and Old Mill has not yet replaced them. The firm currently has 15 advisers.
‘I see lots of opportunities for future growth,’ says Cole. ‘But I also see some challenges, especially in recruitment of advisers. We could hit capacity issues if we are not careful. There seems to be less opportunity to recruit the ready-made article.’
To address this, the firm has started a graduate scheme and the first participant joined in September.
‘Also the BS8577 work will align the resource to the work and free up capacity,’ says Cole.
Despite these issues, the managers expect turnover to keep rising.
‘There is much more focus on commerciality, particularly since we have been time recording,’ says Hodge. ‘You begin to value your time more when you record it. Advisers have become more established, relationships are stronger and this results in more work from existing clients. Also joined-up accountancy and financial planning meetings reveal more opportunities and that can spiral upwards.’
Looking to the future
Another of the firm’s aims is to achieve IFP-accredited status within 18 months to add to its existing corporate chartered status.
‘When I joined Old Mill 16 years ago, we were almost subservient to the legal and accountancy professions,’ says Hodge. ‘But actually the role of the chartered financial planner is pivotal: they bring in the accountant, tax planner or solicitor to undertake any necessary work. The chartered qualification gave us a step up into the accountancy and solicitors’ world. They understand the terminology.’
Beyond that Hodge has a clear vision for the future. ‘I want to shape the financial planning business so that it is slick, efficient, provides superb client service, with referrals coming through the door,’ she says.
‘I want to develop the teams that will succeed the elder partners, so we can hand it down to the next generations. The original financial advice firm has been going for more than 30 years, but the next five to 10 will be crucial to ensure safe succession. It is an exciting position to be in.’
5 TOP TIPS
Invest in your people by providing support for their professional development, rewarding them for their and the firm’s achievements and creating an enjoyable working environment.
Create clearly defined client propositions that underpin everything you do for your clients.
Invest sufficiently in technology and software to ensure a first-class client experience, and a slick and efficient operations system.
Clearly define who you wish to work with/work best with and create your business development strategy around those prospects.
- Have a clearly defined recruitment strategy to encourage graduates and quality A-level students to consider financial planning as their chosen profession. Offer internships, placements and/or summer work to provide an insight into a career as a chartered financial planner.