Angus MacNee, CEO of ValidPath, is pioneering the future of financial advice through a client-centric ethos, the optimisation, and utilisation of data, and the alleviation of the PII renewal process.
ValidPath, part of the Rimbal group, is an FCA-approved IFA network, that has been operating since 2002, and supports advisers and clients across the UK.
In this Q&A, CEO, Angus MacNee, talks to IFA Magazine’s Brandon Russell and highlights what ValidPath brings to the advice sector, how they are different from what is already available and what the plans are for ValidPath in the future.
What does ValidPath bring to the advice sector?
Angus MacNee: “ValidPath supports IFA businesses and IFAs themselves to operate and thrive. We provide all of the back-office infrastructure that they need such as regulatory authorisation, professional indemnity insurance (PII), agency management, and a suite of technology solutions.
“A key thing about ValidPath is we focus on supporting independence and independent financial advice. Firstly, because that reflects the culture we have within the network, but also because it’s the best way to support good client outcomes.
“If you break down the advice process, you’re looking to understand an individual’s circumstances, objectives, and attitude to risk. If you’re an independent adviser, you’ll undertake research, put together a portfolio or recommendation which is then implemented. The regulations then state that every 12 months you must check in and see that things are still suitable for the client. The advice process is therefore optimising for suitability. If advice is more suitable, it is more likely to deliver a good outcome for the client, and good outcomes and better managing for ongoing suitability generally means that you’re doing so with less risk.
“ValidPath is very much the champion or “shining light on the hill”, in our words, for independent financial advice now and forever. This contrasts with the trend towards a more restricted and consolidated approach within financial services that seeks to capture more margin by operating the portfolio and platform in-house and shoehorning clients into the proposition regardless of their circumstances. We’re completely platform and provider agnostic, and we’ve probably got the largest agency network in the country just by the fact that we look to honour and support an independent financial advice approach and support our advisers with the solutions they feel are in their clients best interest.”
So how is ValidPath different?
Angus MacNee: “ValidPath is part of the Rimbal group, and Rimbal exists to create and curate the essential infrastructure, technology, and services that support ValidPath and our IFA members. This has led us to solve some of the key challenges that we and the broader industry faces. For example, we’ve got our own technology development capability within our business and we’re building the fundamental IP and technology that captures, unifies and utilises the underlying data supporting the provision of financial advice, and optimising and utilising data to support good outcomes ultimately is the future.
“Another pain point in the industry is PII cover. Costs have increased, the renewal process can be like ‘Russian Roulette’ and the policy terms have begun increasingly not fit-for-purpose with multiple exclusions. Accordingly, we ended up setting up our own insurance company within the group so that we can provide stability for members, alleviate the painstaking renewal process and better manage the risk management framework.
“The most recent example of how we are looking to solve a need in the market is the launch of our succession solution. The dynamics are clear; over 50% of advisers want to retire over the next ten years. Yet it is very much a cottage industry, with over 90% of financial advice businesses having five people or less. That alongside the intergenerational wealth transition is creating huge interest with people looking to consolidate assets and consolidate funds. By all accounts, there’s over 30 consolidators in the market looking to capitalise and acquire IFA businesses.
“In our view, many of the consolidators don’t differentiate or have a compelling value proposition. Most are not really thinking about what’s in the best interest of the client and certainly not thinking about the next generation of financial advisers who are often ‘sold in’ as part of the transaction. That’s the consolidator path, and it’s particularly unappealing for an IFA that believes in the fundamentals of independence and independent financial advice.
“Yet, for an IFA seeking to exit and to try to do it themselves, it is also an incredibly painful and difficult process, from the finance that doesn’t exist to requiring personal guarantees to the distraction and considerable time required. After all, many IFAs are not M&A experts. In contrast, what we’ve built over the past two years and launched in recent months is an alternative to IFA consolidation, and that’s our succession solution.
“It enables IFAs who want to retire to access liquidity and retire on their terms, while empowering the next generation of IFAs to become business owners. We provide all of the finance and manage and support the entire process so advisers can focus on what they do best: building their business and servicing their clients.”
What challenges does the sector currently face?
Angus MacNee: “No matter what size of firm you are, there are many things that you must have and do to operate a regulated business with regulatory authorisation being one of those essentials. To be authorised, there are two distinct approaches you can take. You can be directly authorised by the regulator, or you can access that authorisation through a network like ValidPath and about 65% choose the network option.
“My view is that the vast majority of firms would be better off running on the infrastructure of a network like ValidPath because they may not have the resources or the expertise for managing all of the regulatory and back-office matters that really are important from a compliance perspective. The challenges for a small business are increasing costs, regulatory uncertainty, obtaining PII, staying on top of changing regulation and about a hundred other things. These are all important to focus on, but equally don’t enable advisers to focus on clients. For IFAs, their time is better spent, and more profitably spent, servicing clients, and therefore they can outsource those things to businesses like ValidPath.
“PI insurance has been a bit of a challenge over recent years, from both the insurers perspective and those trying to obtain it. The whole renewal process can be a complete roll of the dice particularly if underwriters are exiting the market. There’s a tremendous amount of information exchanged and often it’s quite an opaque process that may feel like it does not match the risk profile of the business. But it is important as without PII, you can’t actually operate and ultimately it is there to protect the business and clients. We’ve solved some of the challenges associated with PII by having our own captive insurance company, which enables us to manage that process far more effectively and reduce costs when doing so.
“Another challenge is technology, which increasingly advisers recognise can be a game changer, both in saving time and creating a more compelling experience for clients. We believe that the future of financial advice is one driven by a dynamic data and dynamic advice approach. The context for this is that the advice process today is the same as it has been for 20 years in-that it is based on a fact-find, understanding the client’s objectives, circumstances, attitude to risk, then doing some research, implementing a portfolio or recommendation and then undertaking an annual review. If you think about this process, it is based on a snapshot approach to data capture and data analysis, not the most up-to-date information or the entire picture, and this is where a dynamic approach can be different.”
“This is important as they may, for example, have had a lump sum inheritance or a salary adjustment which may change their circumstances, which can prompt the adviser to make that timely call to the client. For us, if you can achieve a dynamic approach to capturing data and then providing advice, you can move an annual review down to a monthly, weekly, or even daily review. That’s not to say you should, as after all financial planning is about long-term planning, but it is to say you could.
And if you could, then you can better optimise for suitability which supports better outcomes and also reduces risk. And that is the holy grail. So that’s where we spend a lot of our time on the technology side building the infrastructure to support advisers to deliver dynamic advice, that’s the future and we feel really will come to define the incumbents as dinosaurs.”
What are the benefits of becoming part of ValidPath?
Angus MacNee: “When we’re looking to support an IFA business, it’s very important for us to understand everything about the individuals and their business. By doing this, we’re able to determine whether we’re best placed to support them reaching their objectives.
“The benefits for becoming a member of ValidPath include accessing market leading infrastructure and back-office support services enabling members to spend more time building their businesses and servicing their clients. In addition, joining ValidPath means you are joining a community of business owners, financial advisers, mortgage brokers and support staff that are committed to independence and independence financial advice. Our members determine their business model, decide which providers make sense and can support their clients their way and in their best interest.
“More simply, we help firms focus on what they do best, which is serving clients and building their business whilst we provide all of the regulatory, technological, compliance and the services infrastructure that they need to operate. A lot of people in financial services, in life perhaps, lose track of what it is that they’re good at, what it is they love and what it is they should be spending time on. We want to keep advisers focused on clients because that is what they are good at and our core business is to manage the rest.”
Why is the ValidPath Succession Solution an alternative to consolidators?
Angus MacNee: “The average age of a financial adviser is late 50s and it is expected that over 50% will seek to retire over the next 10 years. In addition, most firms are boutique firms of 5 advisers or less. This means that hundreds of billions of funds under management will need to transition to a new adviser or financial organisation, and maybe thousands of business or client book sales, mergers, and acquisitions will need to occur.
“This is a market opportunity, and many private equity-backed consolidators are looking to capitalise. The best argument for consolidation is to maximise efficiencies and the focus that can be applied to deliver value at each aspect of the financial advice process which can therefore deliver benefits to clients via cost savings and unified offerings. This is an ideal, and one that is maybe unattainable. It also creates an inherent conflict of interest for delivering the best client outcome and remaining truly client focused.
“Consolidators by definition seek to consolidate clients, revenues, and assets into their own products, onto their own platforms, and into their own portfolios, and that, by definition, may not be suitable for all clients. Some may say they don’t… but in the end, they do. I also think consolidators are a bit of a one-trick pony. They speak with the vendor, they do a transaction, and often the advisers and staff are ‘sold in’ as part of the deal and then locked in contractually. In this way, the next generation don’t have the opportunity to build value for themselves. Furthermore, once you have done the deal, you’re part of the consolidator, then what? For many business owners, this often does not pass the ‘lying straight in bed’ test in that they may not feel entirely proud with the outcome for staff or clients.
“Our solution is different; we enable the firm to remain 100% independent as we are completely platform and provider agnostic. In effect, we facilitate the sale and purchase of the IFA business to enable the vendor to access liquidity and retire on their terms while empowering the next generation of ‘successor managers’ to become business owners. We provide all of the finance and manage and support the entire process from feasibility to diligence, valuation to transaction, and then financing and all ongoing deal administration. It’s completely turn-key and focused on minimising disruption and being an aligned solution for all stakeholders: vendors, successor managers, staff and clients.”
What is ValidPath’s vision for the future?
Angus MacNee: “This is very simple, we want to be the champion for independent advice now and forever. Maintaining a focus on supporting advisers to deliver better client outcomes is also key. We are on a journey towards delivering a dynamic advice model. We have built the technology that can actually connect and unify unstructured data sets and, with open APIs, push that information into other systems.
“That is the foundation of what it will mean to actually have a dynamic approach to financial advice, and one where you’re not relying on static information and arbitrary client reviews. We want to empower the adviser with more relevant client information and insights, which will support better client outcomes and at lower risk. We will continue to invest in building the technologies and the services that lead us in that direction. Like most things, it is a journey and you can’t snap your fingers and get there, but for us, it is really important that we do and we believe will define the future of financial advice.”