Best Practice: Smith & Williamson's co-chief executives

WHEN the figurehead of a firm leaves, and said firm puts two co-chief executives in his place, the obvious question is: who’s in charge?

This was how Accountancy Age’s interview with David Cobb and Kevin Stopps of Smith & Williamson began.

Smiling, Stopps and Cobb’s faces suggest that they both are.

“The structure’s an evolution of what we’ve been doing for the last ten-plus years,” explains Stopps.

“In practice, we jointly run the business. We talk to each other about issues, and jointly agree them…and haven’t yet come to a stage where we don’t agree.”

The business has been run as two separate divisions since 2002 when Smith & Williamson incorporated. Stopps runs the accounting division, while Cobb oversees its very sizeable investment management arm. A holding company oversees the two. The co-chief roles were created following the retirement of long-time Smith & Williamson chairman Gareth Pearce at the end of 2013.

“We effectively have the power of veto, along with our other executive colleagues” says Cobb. The board always operates unanimously, we all have to be signed up. At a holding company level, the decisions are pretty straight forward.” They give an example of a potential team hire that was discussed at the end of 2013, which involved the whole board.

Dual businesses

But with two such diverse businesses, how can executives that specialise in one or the other make a decision on whether to go ahead on strategic?

Cobb says that Stopps is the specialist in his division and vice versa, and as such rely on each other. “We have a broader spread of knowledge between the two of us than an individual could carry.

We’ve worked with each for 27 years, mutual clients,” Stopps explains. “We have a broad understanding of each other’s disciplines, but at an in-depth level I don’t need to have that on investment management. What is helpful is that we can provide additional insight to each other’s businesses as we have different experiences and expertise. It’s helpful having a different view – an advantage.”

But with two very different businesses, is there much value beyond back-office synergies and efficiencies?

“Clients don’t see, and don’t care, about how we organise ourselves internally. What is important to the client is that they receive a seamless service and access the different expertise. They don’t all require advice across the piece…but we have the range,” says Stopps.

So how has the rest of Smith & Williamson staff dealt with having two chiefs? Stopps answers the question indirectly. He talks of the “journey” that the firm has undergone in recent years. With the two divisions sat in separate LLPs under the holding company, it gives staff more “financial ownership” over their own work. With this, he implies that co-chiefs fit with this plan.

Servicing clients creates a natural, mutually beneficial, arrangement. The better they’re served, the better the client will perform and be more likely to need more Smith & Williamson services – whatever the division.

But if the firm’s business model is so virtuous and successful, why don’t it’s accounting rivals also have several billion pounds of funds under management?

They simply took another path, the co-chiefs explain, one where audit sits at the heart of the firm. At Smith & Williamson, audit only accounts for 15% of its revenues, while it sits at around 50% for other big firms.

“The others are focused on big multinational clients,” says Stopps. “We focus on individuals who own things – investments, businesses, property – that’s what I think we’re very good at.”

That isn’t to put down the firm’s audit efforts. “For a lot of our clients, the audit provides the glue – they want their accountants to look after their financial, and corporate financial, affairs. If we weren’t able to offer those audit services, then others wouldn’t happen. To me, we need to have it.”

LLPs under fire

A hot topic is the government’s plans to crack down on tax avoidance in partnerships and LLPs.

With Smith & Williamson operating with two LLPs, are they concerned about the wide net that HMRC guidance on the crackdown seems to have?

“For genuine partnerships such as ours, the rules shouldn’t bite. But the fear is that they legislate and catch innocent bystanders,” says Stopps.

“The draft of the rules is far wider than any previous commentary had led us to believe. On the first reading, most professional practices have got an issue. So yes, it’s a concern but not something that will destroy the LLP structures. It’s something that shouldn’t apply if you genuinely run a partnership.

One hopes it won’t impact on us, but we’ll look at it carefully. If the Revenue want to stamp out the abuse, they’re in fundraising mode – so not going to be very sympathetic to the majority of partnerships, but we hope common-sense prevails.”

If firms find themselves having to deal with PAYE and NI issues for their members, this would cause many firms huge cashflow problems, he warns. “If we had to hold PAYE and NI – that’s a big number. Most partnerships would wonder if they could afford to do that. But we do have cash and liquidity.”

As a firm that’s more than 130 years old, and with a reputation for setting up long client and staff relationships, it’s understandable that the firm is looking for evolution, not revolution.

Technology to grow

But there are changes afoot. Investment Management has performed well during the downturn, with advice provision around personal pensions being a boon. And now, where the firm tends to look after people with assets of £250,000 and more, it is looking to move down the market.

Cobb explains that rule changes, in the Retail Distribution Review, force IFAs to offer clients an investment ‘strategy’. Through the use of technology platforms, the IFA could now potentially choose a Smith & Williamson strategy.

“We’re able to take our services to lower and lower price points because of technology,” says Cobb.

The upshot of entering this market is that the firm needs to move beyond marketing and branding itself to referrers (such as lawyers and IFAs), and gain some direct recognition with clients.

“We’re number nine in the wealth management league tables. But the brand question is what I want to press on through, so the client has heard of us, so they recognise the name,” says Cobb.

The firm is talking to consultants about the next step, they reveal.

“We could spend a lot on a vanity project – that’s not our style – but we need to have a deeper penetration of our brand and services offering. We’re a much bigger business than many people take us for…we’ve got some catching up to do in promoting ourselves,” Cobb adds.

Pictured (l-r): Kevin Stopps and David Cobb

Smith & Williamson in numbers

Top 50 ranking: 8

Revenues: £185.7m (y/e 30/04/13)

Offices: 12

Partners: 261

Bluffer’s guide: Co-chief executives Kevin Stopps and David Cobb have both served with the firm for more than 25 years. The firm has £15bn of assets under management. It has 28,000 clients in investment management, and 8,000 in tax and business services. The firm was formed in 1881.

David Cobb CV
1985 joined Smith & Williamson’s investment management division
1992 became a Director
2007 appointed Head of Investment Management and Banking
2013 appointed Co-Chief Executive of Smith & Williamson Holdings Limited

Kevin Stopps CV
1987 joined Smith & Williamson
1991 became a Partner
2010 appointed Managing Partner, Tax and Business Services
2013 appointed Co-Chief Executive of Smith & Williamson Holdings Limited