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Packing power Martin Cawley’s canny development of Devonshire Wealth Management shows how small firms can be a force to be reckoned with

19 March 2012 I Issue N° 299

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Devonshire Wealth Management may be small but chief executive Martin Cawley is giving it a shot at the big time by rapidly developing its professional connections

TIM COOPER

A cting on his belief that small companies can thrive in the modern world, Martin Cawley, chief executive of Devonshire Wealth Management,

took a brave stand in 2009, wresting control of the London-based company from then managing director Mark Kenner, who, convinced that smaller firms could no longer survive, left to join a larger firm.

Two-and-a-half years later, Cawley is proving that small, dynamic firms can compete in the London wealth management market. Devonshire has continued to make a healthy profit and, seemingly against the odds, is about to sign an introducer agreement with a large West End law firm that Cawley estimates will bring in £20 million under advice in the first year.

‘Truestone was persistent. It offered me a position in the new company. I remember going to meet them very clearly. It was a weird day, as my father had recently passed away and it would have been his 70th birthday, and that morning Nicola told me she was pregnant with our first baby. I had to put all those things out of my mind and decide.

‘It just wasn’t me. At the age of 37, I wasn’t interested in selling what I had built to that date, and going back to being an employee in a big company,’ said Cawley, who had previously worked for Halifax IFA. ‘Truestone offered a tiny equity stake.’

It was a bold and tricky manoeuvre, but he had the backing of Devonshire’s two sleeping partners and office manager, Jackie Cleary, who was an integral part of the business.

‘My instinct told me they would be loyal to me. Had any of those three disagreed with me, I would have been left in limbo,’ says Cawley.

Kenner left the company to work for Truestone in July 2009 and Cawley took over the managing director role and sole running of Devonshire.

‘I didn’t fall out with Mark. We always got on well together,’ says Cawley. ‘But Jackie knew every client. Having her stay meant it was “business as usual”.’

New model transformation

Cawley immediately started work on transforming the company. ‘It had been a traditional financial services firm but we became new model pretty quickly,’ he says.

‘I recruited a mortgage broker, Nicholas Townsend, on a trainee programme to become a fully qualified IFA. Plus, we changed the trading style from Devonshire Financial Services to Devonshire Wealth Management. I thought “financial services” created perceptions and implications that didn’t associate with the new firm.’

In January 2010, Devonshire went live on two wraps

igBold manoeuvre

Cawley is a personable family man who lives in Barnes with wife Nicola and two-year-old daughter Maia, who he says is ‘the apple of her daddy’s eye’.

In 2001, he joined Devonshire Financial Services (as it was previously known), which has been running for 30 years, as an IFA. In 2006, he became a director and shareholder alongside Kenner and two sleeping partners.

Cawley recalls: ‘Mark thought we would struggle as a small firm and should look for a larger company to acquire us. I felt strongly that, as a small, nimble, service-driven player, we still had a role to play. He followed [his idea] up, and in 2009 we received an offer from a larger firm, Truestone, and put that to the vote among the four shareholders.

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MARTIN CAWLEY CVCAREER2001-present Devonshire Wealth Management,

chief executive officer1997-2001 Halifax Independent Financial

Advisers, independent financial adviser

PROFESSIONAL MEMBERSHIPS/QUALIFICATIONS BA (hons) Business StudiesFPC 1, 2, 3RO1RO2CF2Studying for RO4 and RO6

and switched to fee-based charging. ‘We had been doing due diligence on wraps while Mark was still here and were going to go live with Ascentric and Elevate, which we did,’ says Cawley.

‘Within six months, we also had a clearly-defined, fee-based proposition. It was going to happen anyway with the retail distribution review (RDR). We just wanted to do it three years early. I didn’t want to hang on grimly receiving commissions. I had never liked taking 3% commissions upfront.’ Devonshire now charges 1% initial and 0.5% ongoing.

Losing Kenner had an inevitable effect on the firm’s income. Revenue fell significantly between 2008 and 2009 and only started rising again in 2011.

‘We lost the managing director and we agreed he would take a small segment of clients so we lost income and funds under management. Also in 2010, we reduced initial charges from 3%,’ says Cawley.

Staying connected

‘When Mark left, we kept every single professional connection,’ says Cawley. ‘To this day, we have six accountancy practices around the West End and we have just come to an agreement with a big firm of West End lawyers, which is in the process of signing off. Given that they had their pick of advisers, I was surprised they chose to work with a firm of our size.’

Being small turned out to be an advantage when it came to setting up a connection with a large law firm, he says. ‘We just went in and explained how we work. They were very impressed. They like the idea of working with a smaller firm and the level of control that will bring. They also like the fact that we decided to prepare for the RDR three years before we had to.’

One good professional connection tends to breed more, he says. ‘When we have secured new accountancy connections, it always comes from a conversation they have had with one of our existing connections. It always comes from someone you know or an established relationship.’

The connections are all based on trust and reciprocal work. ‘If they wish, they can have a fee-sharing agreement but, since we went new model in 2010, that doesn’t happen any more. It’s a long-term, service-driven model now.’

Eyes on the future

Expansion is on the agenda, albeit from a small base. ‘We are looking for more advisers, but it has to be the right cultural fit,’ says Cawley. ‘We have a hard-working, loyal, happy team and I am not going to bring someone in at the expense of that harmony. I give people a lot of trust and I don’t micro manage. I give people freedom to express themselves.’

Despite the dip in income, the firm has maintained a healthy profit throughout and funds under advice are projected to increase from £70 million to £90 million this year on the back of the new law firm connection. ‘That is factored in but with a very conservative estimate,’ says Cawley.

Income is growing organically even without that, he says. ‘Even on the mortgage side, they have started putting through some pretty chunky deals recently. Nick joined as a mortgage broker while getting his exams and is currently going for his diploma. He is very capable and I hope he will have a long-term future with Devonshire. I am lucky to have fantastic staff.’

Along with Cawley, Cleary and Townsend, mortgage

adviser Claudia Alves and receptionist Penny McCloggan make up the rest of the team.

Devonshire’s office occupies the top floor of a Georgian townhouse in New Cavendish Street, in London’s West End. ‘It’s a great location. The majority of our clients are from London. They love coming into the West End, as do the staff. There are always things to do after the meeting,’ says Cawley.

‘At 40, I’m the oldest person on the team. The average age is 35, which, in IFA terms, is very young but every decision we make is for the long term. It has to be. We are just aiming to hone every part of the new model now.’

One of Cawley’s ambitions is to expand the mortgage side of the business; something that is easier in the West End, where the property market is still booming compared with other parts of the country.

‘We have a series of connections in the estate agency world, and do lots of mortgages,’ he says. ‘Many other advisers are closing down their mortgage business and are looking for a firm with integrity to refer to. We have a reputation for that.’

Finding a balance

The thing that motivates Cawley is his relationship with clients. ‘Above everything else, I enjoy meeting them,’ he says. ‘I am a people person. Many of my clients are friends: I go to their weddings, we go to the cricket together. Living in Barnes, we often have a party on Boat Race day.

‘The work-life balance is fine,’ he continues. ‘Nicola works in communications and is senior in her career, so we have a full-time nanny who is part of the family. I start

early but leave the office at 4pm so I can spend time with Maia before she goes to bed. She’s an important part of

my life and otherwise I’d never see her.’With a young family, Cawley does not have much time for hobbies. When he does have some spare

time, he enjoys clay pigeon shooting. He is a member of a local gun

club, which organises shoots in country estates around the south of England, such as the

illustrious Highclere Castle where he shot in the week before this interview.

He has targets set at work too. ‘I want to get recurring income up to half a million as soon as

possible. We should do that within two years,’ he says.

‘But we don’t have a big target written above the door; we’re not like that. It’s all about building it with the right clients and employees, people we enjoy spending time with. If you focus on that, the targets will look after themselves.’

BUSINESS FIGURES: DEVONSHIRE WEALTH MANAGEMENT

2008 2008 2010 2011 2012*

Total number of employees 7 6 5 5 6

Total number of clients 2,850 2,800 2,660 2,520 2,400

Total number of active clients 630 580 610 635 680

Total income £577,077 £475,000 £460,000 £560,000 £650,000

Total costs (ex. dividends/drawings) £467,292 £366,588 £291,668 £315,458 £370,000

Funds under advice £70m £70m £60m £70m £90m

Recurring income 44% 46% 40% 45% 54%

* projected figures

CAWLEY CV

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Combining outsourcing with own model portfolios

When Cawley took over the sole running of Devonshire Wealth Management and made it new model, he decided to keep its links with discretionary fund managers (DFMs), which had been running for many years. To add to the investment proposition, he set up seven model portfolios for clients with less than £500,000.

‘Previously the proposition wasn’t that consistent,’ he says. ‘Running model portfolios meant not having 500 clients with 500 slightly different sets of funds. It also meant we were able to review all the portfolios quarterly.’

For the model portfolios, Towers Watson sets the asset allocation and OBSR selects the funds. ‘But it is not a dogmatic solution,’ says Cawley. ‘Some clients want their own input. They might use the portfolio as a core but also want a particular steer towards emerging markets or passive investments, for example.’

Considering passive

Like many advisers, he is considering a passive approach and has met with several providers, including Vanguard, Evercore and Architas. ‘We haven’t seen one with sufficient savings that passive would need to offer,’ he says. ‘OBSR portfolios, on average, have total expense ratios (TERs) of between 0.77% and 0.91% excluding wrap and adviser charge. Some of those passive providers’ TERs are not a lot less.

‘Also, we could build it ourselves using exchange traded funds, but we want something more packaged. We are a small business and have to be careful not to start designing portfolios ourselves.’

Devonshire’s cautious balanced portfolio has outperformed its benchmark, the FTSE All Share, over one year with half the volatility.

Keeping costs low is an essential part of a wrap-based model, says Cawley. ‘It’s all very intangible. You can’t expect clients to understand what wrap is. They would start to understand by logging on; they

would see reports at a far more forensic level than they had before and get quarterly reviews.

‘But you have to get them on there before they understand. If you double your costs, half the clients will trust you but some won’t. You have to take them with you on the journey.’

Outsourcing

On the DFM side, Devonshire has had a long-standing relationship with Brooks Macdonald and places all appropriate new business with it. ‘Brooks is a very impressive and confident offering,’ says Cawley.

He takes a hands-on approach and speaks frequently to James Keen, Brooks Macdonald’s investment director. ‘Actually we talk about cricket and nothing else,’ jokes Cawley. ‘Seriously, I don’t want to create the impression that we are old mates but, when you are dealing with the same person for a long time and he looks after many of your clients, naturally we have to talk a lot. When you share common values, you do get on well. It is much easier

if you have an affinity with someone. In the same way, I get on with my clients.’

Brooks Macdonald has continued to expand recently through acquisition and recruitment. ‘The threats to Devonshire are either that James will go and/or that they get so big they lose their focus with clients. But we are still happy with them,’ says Cawley.

‘Part of our promise to clients when we introduce them is that we won’t sit back. We keep a close eye on what Brooks is doing and we are always talking to other DFMs as well.’

Devonshire Wealth Management model portfolio performance

1 year 3 years

Devonshire Wealth Management Cautious Balanced Portfolio

3.70% 49.28%

Devonshire Wealth Management Balanced Portfolio

2.33% 53.89%

FTSE All Share 3.59% 76.35%

Figures as at 24 Feb 2012

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FTSE All Share 3.53.53.59%999% 76.35%

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TEAMED UP: (L to R) Jackie Cleary, office manager; Martin Cawley, chief executive; Nicholas Townsend, IFA; Claudia Alves, mortgage adviser

FIVE TOP TIPS

• Have passion for our business: work should be fun. Passion helps overcome difficult moments and as a result all staff, irrespective of level, become ambassadors for Devonshire.

• Create a culture of integrity. People have confidence in trustworthy individuals and wish to work alongside them.

• Be flexible: plans and strategies will need to be adapted over time.

• Believe in the company’s future success. This confidence is contagious for both staff and clients.

• In current austere times, cash flow for the business is king to ensure we are able to carry out the above.

Page 44: ISA special report Market confidence could lead to a late surge in ISAs