Profile: LEBC – moving up the corporate food chain
LEBC has a clear strategy and specific target markets in its sights, CEO Jack McVitie tells ABR editor Rob Kingsbury
In September 2013 the senior management of LEBC locked itself away for four days in the Scottish Highlands to, in the words of chief executive Jack McVitie, “try to understand what our future was and what we were about”. The result was a clear long-term strategy and an overarching goal for the business, which was to focus on advice with the following vision: “To transform the access to top quality financial advice for employers, employees and individuals.”
Established in 2000, initially LEBC was focused on the SME market, with a few larger corporate clients”, providing retirement counseling, McVitie says. Now the target market is FTSE 100, FTSE 350, US global companies with UK subsidiaries, large charities, large retail companies and the like. “We’ve gradually grown our client size as we’ve grown our capability.”
McVitie estimates that now around 30% of the company’s workload is group pensions and the remainder is with individuals within their target group of companies, “most often delivered to retiring and retired members of group schemes”.
Most new business comes from within the group schemes it advises and referrals, McVitie says. “We have reached a point where we have built a significant reputation in the corporate market. This is among large corporates directly as well as among the consultants and advisory practices, so the likes of Towers Watson, KPMG and Mercers are well aware of us, our capabilities and our ability to deliver to clients. That is what has allowed us to grow our client base to where we are today.”
The company has some £3.5bn under advice, close to 18,000 active individual clients, over 30,000 active GPP clients and in excess of 1600 corporate clients. It has some 80 advisers, all of whom are employed by the company and is currently recruiting.
McVitie believes the company has a good story in the market at the moment, which is helping its recruitment process. “We are perceived to be a growing business that is financially sound and successful, with stable and independent ownership.
“We’re also committed to developing our own advisers internally, so people can come into the business and can work their way through.” In addition, the company is in the process of formalising a graduate recruitment and development programme.
LEBC is 68% owned by the staff. This has benefits from an individual employee and a business point of view, because having a large stake in the company employees are thinking longer term, says McVitie. “It makes employee engagement in the future and lasting success of the company much more important.” The company also has put in place a reward framework that incentivises at various stages in a person’s career with the company, over the long-, medium- and short-term. This includes a part stake in the business as well as longer-term remuneration.
The company is an appointed representative of Tenet Connect, rather than directly authorised. When the company was set up it received investment from Misys and the intention was that the firm would go into the Misys network for six months “in order that we could commence trading” and then look to go directly authorised, McVitie explains. However, over time the company has found “a lot of positives to being in network”, he says. The company was with Sesame until December 2011 when it moved to Tenet.
Talking to the positives, McVitie says: “If you are growing your business organically, which we have done, and you open up in a new location, it’s much more practical to deliver supervision and oversight through a network because they have the structures in place.
“Also when you go above 25 regulated individuals the regulated capital issue sits with the network. So during the recent period where there were quite significant uncertainties around regulated capital requirements, to be free of that concern was very valuable for us. Of course, the way that capital proposals have been framed – turnover rather than expense based – that is now less of an issue.”
He continues: “What you also get that is valuable is that the people ultimately responsible for oversight are independent of your business and of the commercial concerns of your business. On a number of occasions in the past that has proved very beneficial.”
McVitie adds that while being part of a network works for the group now, the directly authorised route has not been ruled out in the future and the board regularly reviews the situation.
Opportunities for the company
The ongoing opportunities for the company lie firmly in the pension and retirement space.
“We have always been pension focused and increasingly, we are being presented with work in the retirement area,” McVitie says. “With defined contribution pensions accruing in size, employers are realising the increased complexity of the advice decisions that people have to make at retirement.” That complexity has multiplied since the introduction of the pension freedoms and many more employers in LEBC’s target market now are prepared to pay for their employees to get advice, he says.
“For example, we’re running a project at the moment for 800 people that the employer will pay us to advise should they wish it. Of those probably 500 to 600 will engage and we’ll deal with them.”
The company can have five or six such projects of different sizes running contemporaneously, he adds. “Increasingly employers, including those running defined contribution pension schemes, are inclined to pay for people to have advice and I think that is a really healthy thing.”
The company has established a dedicated retirement adviser unit, which specialises in at-retirement advice. “We started the unit six years ago because we felt the annuity market was becoming too complicated for individual advisers to advise on it, the options were changing too rapidly with the growth of the impaired market,” McVitie explains.
Through the specialist unit, he says, the company built up its knowledge on impairments. “ We took that knowledge to the defined benefit market,” McVitie says, “helping DB schemes understand where they may have specific longevity issues related to their population that are outwith the norm. That led us into projects to speak to retirees on a mass basis and then we naturally moved from there into pension increase exchange, where we are advising pensioners of large defined benefit pension schemes on whether it is in their interest to take an offer for a higher level pension as opposed to a company pension. We also do a lot of flexible retirement options advice for people over 55 both in the DB and DC areas.”
McVitie estimates that in the defined benefit market “around 30% to 50% of scheme members would benefit from taking their money outside of the pension scheme. “For example, where a benefit of the scheme is a pension for a spouse and the pension holder does not have a spouse, by transferring out they can capture that all for themselves.
“Similarly, it can be the pension holder has some impairment to health which won’t be reflected in the payments by the scheme. Or it can be that the benefit isn’t a significant part of a person’s overall wealth and they want to be more flexible with it.”
In addition, he says, in the annuity space, 65-75% of people that engage with the LEBC retirement unit will qualify for an enhanced annuity. “The average enhancement can be 20% and more of the best market rate. That’s quite a significant and important piece of advice for someone to receive at that point in the decision-making process.”
With pension freedoms, he adds, “they may want to take more complex advice – they may want to part annuitise and have more options with the lump sum payment and so on. I think employers are increasingly aware of just how significant a decision that is for people.”
Auto enrolment has been another success for LEBC, McVitie says. The company white labeled Aviva’s AME, an online monitoring tool to help employers comply with their auto-enrolment regulatory requirements, delivering it as LEBC aeComply. The firm is targeting larger companies that are coming up to the three-year review period on their AE system provider, as well as delivering a cut-down version of aeComply for the smaller employer market. It has already signed an agreement with the Institute of Certified Bookkeepers for a bespoke version that its 80,000 affiliated bookkeepers may use.
As well as seeking out new business opportunities, the board has focused on improving the company’s margins.
“We have spent a lot of time identifying our areas of profitability and unprofitability and working in a number of areas in the business which has allowed us to act much more efficiently than we have done in the past,” McVitie says.
He believes the RDR with its focus on fees and transparent charging “has been very good for advisory businesses” in that respect, because it has forced firms to analyse in detail the time spent on dealing with clients and time charged. “Those are good disciplines to have within a business and ensures you are using appropriate staff to carry out appropriate tasks.”
A large part of margin improvement comes down to efficiency and that in turn comes down to improving use of technology, McVitie says. “We have worked with different parties to put together software that allows us to interact with clients – particularly in areas where we are carrying out large projects. So we have developed proprietary systems to help us with the pensions increase exchange advice, for example.
“We’re committed to using technology to improve efficiencies and looking at where it might be able to be used within the business where there is no off-the-shelf system at present and whether we are able to build it ourselves.
“Where you have core technologies you wouldn’t self build but, where you have specific task-based ones, it can give you significant competitive advantage if you use your knowledge to build some middleware so you can have your technologies talk to each other.”
Something that all adviser firms are grappling with at the moment, McVitie says is the volume of adviser opportunities. “That has changed considerably post pension freedoms. If you are committed to transforming access to top quality advice, as we are, then you’ve got to try to meet that increase demand,” McVitie says. “The increased volumes and the complexity of the advice that advisers now have to deliver require constant assessment and reassessment of the advice given and constant review of the systems and processes, as well as working with compliance partners. For all of this you need great technology; you can no longer do it in the traditional way.”
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