SCOTLAND is leading the way in the transition that is occurring in the independent financial advice (IFA) industry. Towry Law, a private and corporate wealth company with advisers across the UK, has transformed itself from a business that made its money through commission paid by financial product providers into one that charges its clients fees for advice.
The firm, with a turnover of £55 million and 35 advisers in Aberdeen, Glasgow and Edinburgh, is one of the biggest IFAs in Scotland.
The man driving the change across the entire UK business is Andy Cowan, a Scot and head of private client at Towry
Law. He moved from Edinburgh to the firm's headquarters in Bracknell last year to repeat what he had already achieved north of the Border in shifting advisers from commission to fees.
Other firms of IFAs will be attempting do the same to meet the requirements of the retail distribution review (RDR), which was launched in June 2006 by the Financial Services Authority in response to "recurrent problems in the market for the distribution of retail investment products".
One of the key proposals is a change to the rules on advisers describing themselves as "independent". To be independent, the FSA says advisers have to be highly qualified, offer professional financial planning and agree their remuneration directly with their clients and not with the product providers.
Some commentators fear that taking commission from a product provider can influence the adviser's choice of financial products to the detriment of clients. Advisers who continue to take commission will not be able to refer to themselves as independent under the new rules.
Cowan has worked in financial services for more than 20 years. He joined Aitchison & Colegrave – then Scotland's largest privately owned IFA – in 1995. He and the entire firm subsequently joined up with Marlow-based John Scott & Partners (JS&P) in 2004 and effectively became JS&P's Scottish operation.
Cowan said: "JS&P was fee-based and my job was to move the whole Aitchison & Colgrave business away from commission. I was given the task of making the firm 100 per cent fee-based, without reducing turnover. IFAs always say they can't stop taking commission without damaging their turnover and profit, but we achieved the transition and kept turnover at around the same level of £4.8m. The Scottish experience was that clients are happy to pay fees if it's explained to them in the right way."
Seeing the success of JS&P, the company's non-executive chairman at the time, Andrew Fisher, became chief executive with a plan to expand the business. He made a move to buy Towry Law, another large firm of IFAs. The acquisition was completed in May last year and since then the JS&P name has been dropped in favour of Towry Law.
Cowan said: "It was at that point last year the board asked me to effectively repeat the Scottish experience of moving to fees from commission across the whole of Towry Law, which had a similar client base and set of advisers to Aitchison & Colegrave. But the project was on a much larger scale as Towry Law had a turnover of around £50m. We've successfully achieved the transition – in the last year turnover has grown to £55m and in that time we have brought in client assets of £1 billion. Now almost 100 per cent of our income comes from fees."
Through all this change, Towry has managed to increase the number of advisers it employs in Scotland and remains on the acquisition trail. This month it bought McGowans, a St Andrews-based financial advice firm run by brothers John and Barry McGowan that has more than 1,000 clients and £60 million of assets under management.
And things do not stop here for Cowan, who has big plans. He said: "Our ambition is to have the most qualified adviser force in the UK. We also have about ten acquisition discussions currently on the go with firms ranging in size from £500,000 to £5m in turnover. We're talking to at least three business in Scotland, one of which has a turnover of about £5m.
"Scotland is a great market and I like to come back as often as possible. It's similar to London in the way there is an entrepreneurial and dynamic attitude towards business development. People really understand the issues."
