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Going directly authorised, building referrals, waterfall fees and business automation

Darren Cooke founded Red Circle Financial Planning in 2013 and became directly authorised in July this year. Darren talks Adviser Business Review through the challenges of building his own IFA practice, the impact of the pension freedoms on his clients and his plans for future growth

Adviser Business Review: What challenges did you face in setting up your own business?

Darren Cooke: I spent 18 years working for a bank so setting up my own business was a daunting prospect, but the timing was right. The bank was headed towards restricted advice and that was a route I didn’t wish to go down, and one I didn’t feel was right for my clients either. I made the decision to join the network Positive Solutions, which provided me with the compliance and support I needed at the time. I imagine it would be easier for an adviser who had previously worked for a small IFA practice but my advice to anyone in a similar position to me, coming from a national, would be to join a network. Providing you can find the right match for your needs, a network can offer a good home for the first couple of years.

In July this year I became directly authorised, and it has undoubtedly been a learning curve. The biggest challenge has been setting up my own systems and processes and finding the right ones for my clients. I have employed the services of SimplyBiz to ensure I have support in doing this and I also use a business consultant, that I met through networking, as a sounding board for ideas.

ABR: Who is your target client?

DC: The majority of my clients are business owners, with average investable assets in excess of £200,000. During my time with HSBC, I worked with that segment of the market so it was a natural progression for me to continue working with SMEs in my own business. I like to think they see in me someone who is knowledgeable and capable and in a strong position to help them. The range of businesses my clients run is varied – in all my years, there are very few types of businesses I haven’t come across!

As a result of working with a particular segment in the market, I’m fortunate that I receive recommendations and referrals from professional connections. I currently work with around 4-5 accountants who refer great quality, high net worth clients to me. For me, it’s not about building quantity, but ensuring that the quality of client remains.

ABR: How did you set your fee structure?

DC: I operate an initial waterfall fee structure, whereby the percentage reduces the more money is invested. The first £100,000 is charged at 2%, while the next £400,000 invested is charged at 1.5%. Ongoing fees are also charged on a percentage basis. The fee structure means clients would have to have a minimum of around £75-80,000 to make receiving advice financially worthwhile.

ABR: What impact have the pension freedoms had on your business?

DC: In my opinion, the pension freedoms are great news. Clients really like having more options, and they no longer feel like they’re forced to take a particular path. Every client I’ve spoken to has viewed it as a positive change and I’m yet to hear an opinion to the contrary.

Of course, you receive enquiries from people wishing to empty their pension pot, against best advice, but on the whole I would say that the pension freedoms have actually encouraged people to save more into their pensions.

What are your plans for Red Circle going forward?

DC: My immediate focus is on simplifying the processes I have in place. I am currently trialing report-writing software, which I hope will help ease the whole process. I am also setting up online client access, which will provide them with the means to view their investments across the board. I’m hoping to be able to roll this out to all clients by the end of November.

In terms of turnover, I know what I need to achieve to be able to run Red Circle as a lifestyle business. I want to get to a place where my recurring income is 100% meeting my turnover requirements and right now I’m approaching around 70%. I expect to grow my client base over the next few years, ideally individuals with investable assets of over £200,000. Increasingly, I am working with the children of existing clients, who may have taken over their parents’ business and need advice, so I think my client bank will grow organically and the average age of my client will become younger.

I don’t currently have an exit strategy in place, as I think it’s too premature to plan 15-20 years ahead. In this industry, who knows what my options might be by then?

Red Circle Financial Planning

Business founded: July 2013 (originally part of a network but went directly authorised July 2015)

Staff: 1 adviser, 1 practice manager, 1 administrator

Clients: 50 active

Assets under management: approx. £14 million

Visit the Red Circle Financial Planning website

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