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Profile: a slumbering regional wealth giant wakes up

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Profile: a slumbering regional wealth giant wakes up

Philip Stepp is a competitive man and it is that competitiveness which led him to first take up mountain climbing and then equestrian sports as he searched for a new exhilarating hobby.

After scaling daunting mountains such as Mont Blanc, Elbrus and Aconcagua, before giving it up for his family and opting for safer pastimes such as horse riding, Stepp is still in search for competition.

That extends firmly into his work life, too, with that drive also behind the business he set up in 1993, Newell Palmer. The firm made its 51st acquisition in October, as it looks to continue growing its £2.3 billion of client assets.

The purchase of Sense Wealth Management added another £35 million in assets and 100 more active clients to its growing customer base.

While a few billion is not necessarily enough to elevate a firm to ‘big boy’ status nationally, the West Midlands is different. Wolverhampton-based Newell Palmer is the largest investment firm in the region, besides fellow wealth consolidator AFH.

In its full year results for 2017, Newell Palmer Group Holdings reported turnover of £6.7 million, up from £6.4 million the previous year, while it posted a pre-tax profit of £6,000, up from a loss of £297,000 in 2016.

Originally a well-known firm in the world of financial advice, the company later broadened into discretionary investment management and has been running model portfolios since 2008. It also offers bespoke portfolios.

The firm recently passed £1 billion assets in its models, which are risk-rated from cautious to adventurous, and the firm now runs over 5,500 individual client portfolios.

Over three years to the end of August, its balanced portfolio returned 35.29%, compared to the ARC Balanced index return of 19.8%.

The portfolios are all run on an advisory basis, clearly highlighting the fact that the firm started life in the world of financial advice. Because of this, the team needs to get authorisation from clients before making any changes.

But a new area the firm is looking to build is its new Oeic range, which features five risk-rated sub funds. Stepp says that the firm will look to move more and more clients from the advisory service to the funds.

The range was launched with Birmingham-based Margetts Fund Management acting as the authorised corporate director (ACD), after Newell Palmer gained discretionary permissions from the Financial Conduct Authority.

For Stepp, it was an obvious move, and he wonders why more IFAs have not considered launching their own products.

He says: ‘When we look into it, it was very simple. It was daunting for us initially, but once we looked through it, discussed it with Margetts and other ACD providers, it was quite a simple structure. It has left us thinking, well, why aren’t more IFAs doing it? But that’s for them to discover for themselves really.

‘In terms of fund switches it’s more efficient. There are also no tax implications within an Oeic, which is an advantage. If that reduces costs for clients, it’s got to be a good thing.’

He adds: ‘I don’t know why more larger IFAs haven’t gone down that route. I do get size does matter to a point, but I do think there are some good regional firms which could offer an Oeic themselves.’

For a highly acquisitive firm like Newell Palmer, scale is clearly important. Stepp says the business has nearly reached the growth target in its three-year plan 18 months ahead of schedule, with acquisitions having played a key part in that.

It was, after all, how he started to build the firm up shortly after its humble beginnings, with Stepp and a few administrators working out of an office above a hairdresser’s shop.

Back in Newell Palmer’s early days, he entered into a number of joint ventures with accountancy firms, providing financial advice to their clients. But as the flow of new clients started diminishing, Stepp realised that the best option was to simply buy out the accountants and go it alone.

He says: ‘So we bought them out and that gave us the building blocks, the foundation, with which to grow.

'The next thinking was, okay, organic growth is important, we hope clients will refer people they know to us, but what’s a quicker way of achieving growth? This is where acquisitions came in.’

Stepp admits to making mistakes with some of the first few acquisitions, after letting go of some individuals who could have potentially been good staff following the deals, but he looks back on this period as a ‘learning curve’.

He concedes that ‘it takes time to get people to buy into the way you do things and the culture’ and the firm has learnt a lot along the way.

He believes that the company has now honed its acquisitions strategy, which involves looking for small firms with IFAs who are looking to retire, and then spending a lot of time working with them pre-sale to help persuade their clients to move across to Newell Palmer.

Stepp adds: ‘It’s very rare we take staff. We will take good staff if applicable, but in most cases it tends to be the clients that we’re trying to persuade to remain with us.’

That strategy is something that seems to have served the business well, and so he sees ‘no reason’ to alter that plan.

Without naming names, he does, however, question how firms undertaking similar strategies at a quicker rate have been able to sustain that pace.

Newell Palmer’s big local rival and former Wealth Manager profilee AFH Financial, is two years older than Stepp’s firm and has made 18 acquisitions in 2018 alone. It has total funds under management of £4.5 billion.

Stepp says that the plans of his competitors are ‘not for me to worry about too much’, but adds: ‘I know there are other IFAs out there growing a lot quicker. Quite frankly, I don’t know how they’re doing it, because in our experience, it takes time to settle a client down.

‘A lot of our time is spent pre-sale with the IFA we’re buying to make sure they’re happy with our culture, we’re happy with them, and we can find a way of working together to persuade the client to stay with us post-completion and that takes time,' he says.

‘I just wonder with some of the acquirers out there, whether they’re losing sight of what they’re actually doing. Are they just buying businesses for the sake of it? Are they trying to retain clients?

'Our emphasis has always been about providing clients with a good service, and I do wonder how some of the acquirers achieve that objective.’

Of course, once a firm has clients on board, keeping its proposition relevant is vital to retaining them.

After getting the Oeic up and running, Stepp will then look at broadening into offering financial guidance. Although he does not have specific details, as the firm ‘hasn’t yet gone down that track’, he has both Hargreaves Lansdown and the robo-advisers in his sights.

With the robos, Stepp admits that he is watching on as they struggle to reach profitability, seeing how it pans out before committing to offering an online wealth management service.

The idea for the guidance proposition, he says, is for clients to visit Newell Palmer’s website, get simple advice ‘in terms of what funds they use’, and if things get complicated, then they can speak to one of the firm’s advisers.

He says: ‘Hargreaves Lansdown has a self-serve model, and we’re not looking to become a Hargreaves Lansdown, but certainly in that case we’d like people to use Newell Palmer and not Hargreaves Lansdown.

‘And a lot of people talk about robo advice. That, in a sense, is a simplified model. I just think the firms in the future that are going to succeed are going to mix technology with advice.

‘Robo-advisers are very new, and they’re struggling to find their niche. I think that, in time, it will work – there will be a demand for it and the right place for it, but it is very early days.

'I just want to make sure we end up in a situation where we’re not left behind. We’re too big to be niche.’

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