One stop shop
DW: About 10 years ago we went to speak at a conference in the UK and plugged into a firm in Leatherhead in Surry. This guy was an ex-legal and general agent … and in summary, had 250 staff in this building, and had £5 billion under advice that he had built up. And you know how he built it up and how he kept his people?
He basically broadened it … People could go in there and get top-level financial advice. He had limited banking, which is security lending, being the UK he had travel, all the things you would imagine, risk insurance, general insurance, broking and share broking. He had the whole thing. And the fact that he had it under one roof, and that his staff were trained to deal with not just one [area], he did not have burn out. We found a lot of burn out. People get bored. We duplicate it. We brought accounting in, and we brought law in, and we brought tax in. We just broadened it out. Our people now have a much broader level of knowledge.
I reckon that is the way to go. I think if you are going to strive for something like a really successful practice, you do a broad level of advice, but you have got to have the expertise, like in law, they franchise the law because they did not want to have lawyers in-house that are ordinary.
In accounting you can attract them. We have had no problem in attracting good accountants.
We duplicated that, in a smaller way, of course. In our co-op nationally, we duplicated it in Perth. We do mortgage broking and insurance now. We have clerks who understand underwriting and all that sort of stuff, but you can’t ignore that.
It is also very profitable.
DW: You actually recruit all these young people, and they get to say, 32, and they are pretty good people, and they have a lot of friends that are 32. Now these 32-year-old professionals who are their friends really need professional advice.
Their problem is they cannot afford it, because to go to someone in their 40s, say a qualified financial planner, is going to cost them $10,000.
And $10,000 to them is important, and that is a problem in our industry, so they give their advice away. A lawyer or accountant would not.
Now you think about it. When you do a proper, comprehensive plan for a 32-year-old, [his] family, you know mum and dad, see that [it involves] a lot of hours, and I know because we work on time sheets, so I know exactly how many hours go into a plan …
Well think about a 32-year-old. What do they need? They have got cash flow problems, they normally have debt, and they are going to need to mange debt, and they have the traditional insurances, your critical illnesses and discount debt, and income protection, and that creates brokerage, and their argument was, say, okay, the bill is $9,210, minus, we received brokerage on this and minus we receive brokerage on that, and it comes back to an affordable bill.
And I was against it. I don’t want to be in the mortgage business, I think it has a limited life, etcetera. But they were all convincing us that this was a legitimate part of financial planning, and it was a method, using the traditional methods of commission in that particular area, as long as we said, ‘Okay, your fee is this’, minus the rebates we got, of course, they are all net 30, so we did it.
IS: We have a lot of young, aspiring advisers in country towns who are growing, who would love to have a client pay them $10,000, but they don’t have them, so they have to be full financial planners. However, they then have to structure their remuneration methodology, going forward, and say, ‘Yes, it is worth my time and effort to put in now, so that I can get the benefit down the track’.
Meanwhile, you have to service the client, and I am sure when you started out you did a bit of that, good client/bad client.
When you become a big, successful business, you can make your choices, whereas for young people who are coming through they do not have that choice. They have to take what comes.
But, to give the right services, and not shirk on the services, the risk that we have with them is where compliance comes in. So it might cost them initially, but they get the benefit down the track.
DW: Yes, I just wonder, when we have come out of the sales industry, if we are taking the wrong tack. If I parallel the accounting industry, that does not happen in the accounting industry.
IS: Well I know a few accountants who are starting up, who subsidise.
RO: One thing that concerns me a lot is that you get a lot of very well qualified, very intelligent people, maybe lacking in experience a bit, who give their services away. Now that is just giving it away. They work for absolutely nothing.
DW: I think we all agree, we are only talking a degree of it. For instance, the ones who give away Statements of Advice for free will be kicking themselves later.
IS: We may not charge them thousands, but we say, look, this is a client who could give me $10,000 a year in terms of fees for the services I provide down the track. Today I am happy to accept $2,000.
I will build that relationship, and I get their relatives, I will get somewhere, whatever. So they have to build a business. That is where I was coming from. Giving it away is ridiculous.
I have got nothing against selling frankly, we are all selling something, whether we sell our charisma, like you, or style ... It is really a means of communicating in a nice, simple, good way that the person can understand.
The marriage begins after that, after the courtship. That is the important part that you have done successfully. This is a long-term relationship with the client. And if it doesn’t work well, divorce is obviously the plan.
DW: I was thinking more in a country area, where you would have a young person who is trying to get established, that you would encourage that young person to be linked to someone who has been around a bit longer.
IS: Well, how we do that is we actually have a roving ambassador, people who have been doing it before, who go and sit with them, who bring them down, and then these guys sit with the senior planner and see how the transaction is done and see what the relationship is and how we train them into the business.
And we have got examples of people … I think there is a guy up in the country who is really old family, [has a] father in an accounting practice for 50 years, this guy never made it.
He finally came to us, [he] is a young fellow who is very smart.
He presents now, he has got something like $30 million under advice, which he has built up over three to four years. His clients are extremely happy, they come and meet me here, we go there. It is a good story to have someone going into the industry, from Cranbrook, went to university, did not know what to do, and is becoming successful in his community, in this small country town.
So it is a good feeling, we have to build people like that. I would love to have a couple more businesses like yours, which I can’t, obviously, but there is another angle to it.
RO: I see your point.
I remember there was a guy out of a country town; he was an ex-banker, about 50 to 55. I was involved in a development program for a quality dealer group and the whole idea was to lift their fees up. With the climate getting better we were basically testing, and we were saying you are giving your services away. This was a major problem. They were losing money because they were working for nothing.
The perception was if you work for nothing, you are not real good.
So anyway, the story of this guy. He is in a county town in NSW. We said to him, ‘You need to take on a couple of apprentices. Advertise in Melbourne for someone who wants to live in this nice country town, you can give them a career together.’ The guy was about 56 or 57 at the time, he was ranked about 70 in his organisation, and we said the first thing you have to do is charge correctly, because you are a really experienced person, and these younger people can charge correctly too.
And the first one was the mayor of the town. He said, ‘Are you telling me you are going to charge me $4,000 for this Statement of Advice. I can get it for nothing down the road and for $500 from the bank.’ He stood his ground and said, ‘Yes I am’. The reply, ‘You must be good’.
Now, all I am trying to do is get that perception of it. The bottom line is he moved up to number three. That is a true story.
And as he moved off that bottom level and started to charge correctly, the perception of him out there in the marketplace was that he must be good.
We are a profession of so many good people, and remember our industry in Australia has so much to be proud of.
IS: Don’t get me wrong on that. If someone has come to me from one of our clients and said, ‘I want it for free’. I said, ‘Just do it yourself. Because if you can do it, don’t pay’.
But there is a cost, and there is a charge, and this is what it is upfront.
Now, remember also that country towns are not as expensive as Sydney. And it is also all relative.
RO: That moves you away from the perception in general … of being a sales profession or a member of a sales profession to being a professional.
DW: I have this issue with an industry that keeps telling us that if we become a profession, we are suddenly going to be [well regarded]. Well, I can tell you solicitors aren’t well perceived in the community. And accountants are a mixed scenario. If this is what we are heading to, I don’t think that is the answer at all. I think we are perceived as well as anyone else.
IS: Well I don’t; I think we shouldn’t, or maybe the Financial Planning Association or some other body, or even the media, is trying to portray us as what we are not. We are not insulated, disinfected, sanitised, beauty queen lovely guys who do everything for free and what nice people we are.
We are human beings, warts and all, we do our jobs, we sell ourselves, our goods, our products and we get paid.
That’s what we are.
RO: No law against that.
IS: The battleline with the media, as you are saying Phil, you know it is a common behavioural finance story.
The risk has now been transferred; first from the Government benches to the defined benefit fund, to the superannuation fund, to the individual, and the media is pushing people to take that decision themselves.
And the risk is now transferred to the individual, who can get it wrong. So who do they blame? That normal thing, after risk transfer is regret. And you will never accept regret. You will never agree that you bought a stock that fell. You don’t want regrets, so you blame the Government, or hey, let’s find a financial planner.
The other thing that is happening is the media is taking some of that, the general media, not our industry media. The general media is taking on that risk transfer, they are not just conveying information, they are conveying it in the guise of knowledge. Where people are making decisions. Now, they are seriously competing with the financial planning business, because who can bring a balanced view to that information? We [can].
And, therefore, if we say, ‘Don’t believe that journal’, they are not going to sell newspapers. I have got newspapers that I put up at my conference just two weeks ago. Morning paper, ‘Shares dive’. Big bold headlines. The day after, ‘Strong re-bound’. What has happened to the poor bloke in the middle?
What is happening? And that is where we bring a balance. I think that is where the battlelines are being drawn, because they don’t like financial planners.
We bring a balance. They want to sell a newspaper.
I ask the head of ASIC [the Australian Securities and Investments Commission] at the policy day at the last Master Funds conference, ‘Just tell me Mark [Adams], have you ever been to a financial planner?’
After having rubbished everything he said. ‘Ah, no I have to pay my mortgage off.’ And I said: ‘Well, thanks for your sense of humour, but, maybe if you go and see a financial planner you will find the money you don’t think you have, and he will plan for you to be able to pay that mortgage off better.’
[ASIC] don’t know, because it’s filled with lawyers, it’s filled with accountants, and I came across one of those TV programs that said, ‘Look, ASIC needs to get a planner on board, because all the lawyers see is the dark side of the industry’. And that is how the legislation is coming and that is how all these guys are promoting it. They don’t see the right side. We do a heck of a lot of good … People are happy. The legislation thinks every one is sad. That is the sad part.
RO: With the journos I know, I started to work with journos and mainly thought if I could get Anne Lampe on board I would be doing real well.
IS: Oh, now you have got 200 of them.
RO: And then, through her, I got a whole lot of others, and you know, the trouble is you see the bad and the ugly, you don’t see the good.
MM: If you look at our industry compared to others, say, around the world, there is so much to be proud of.
JB: Oh, we are leaders.
RO: Leaders by a mile. I went to the states in the 80s and now we are leaders.
But if you think for a moment, you have the highest level of consumer protection in the world, [it’s] something to be really proud of.
All the layers you have to have in place to comply. All the educational requirements, the ethics requirements, there are so many things to be proud of. And looking at the old IMG days, there is some bad mob in South Australia, and IMG makes good, whereas in the USA, we will go and get the house they don’t own.
IS: I was in the US looking around, and in the UK like you, and when I came back I got the distinct impression that we were the leaders in the industry. The empathy, the client relationships, the ethics, we are way ahead.
However, we then had one person from ASIC get up and say, ‘Why would I ever go through a financial planner?’
And I wrote to [Federal Treasurer Peter Costello], and the others, and I said, ‘Look, we want to go overseas and get established, we are told that you guys are great, and our own regulator gets up and says … ‘Why would I ever see a financial planner, they are a bunch of rogues’.’
RO: Because she sees her own.
IS: Well, that’s it.
The only time a lawyer sees a financial planner is when there is a legislative battle.
Or there is litigation, and that is all they see with us. And it is all bad, nothing good.
DW: But there is a lot of good
Shelf space fees
JB: At the end of the day, I think we are all unanimous in our voice that a platform is an admin service. Full stop. End of story.
RO: And that it is a commercial product, so that, therefore, they can pay shelf space. I think the bigger issue is that, what we’re all doing here is that we’re getting a rebate on some of these platforms. Right? And again …
IS: No. Not me.
RO: Well you own the bloody thing.
IS: And we don’t give rebates either. Sorry.
RO: And I don’t see anything wrong with that. We are actually getting paid for that. It’s not costing the client. We’re disclosing that. And yes, that might be the reason why we’re using a particular platform. It’s part of the reason we use that platform. But still that saving goes back.
IS: You’ve got scale and you get rebate. But let’s face it; if you didn’t get the rebate there’d be very few dealers in business.
The other problem is this focus on advisers getting the income. Where does the adviser get the income? Now on a salary, what’s the commission got to do with them? What has the fee that the dealer charges or the scale that the dealer sets got to do with the guy getting a salary?
The adviser really doesn’t set the fee. But the media, the general media, is proclaiming the advisers are ripping the guy off with fees.
Hold on, there’s the cost of the product and if the system changes and ASIC says we don’t want a dealer to regulate their fraternity, then that’s fine, everyone can go their own way and the cost will go up.
But when the dealer takes the responsibility, then he can be paid. And what do you get? Five per cent or 10 per cent of an adviser’s fee.
So you get 10 per cent and someone’s earning 300; you get $30,000 and he’s got $300 million or $200 million, he’s getting 0.6, let’s say, he’s earning $600,000, you pick up $30,000 or $50,000 from that person.
And you want another technical guy, you need another $600 million to pay for that guy that wants $140,000. How are you going to do it? We’ve got to be in business and … I don’t think it’s immoral to make a dollar for my shareholders. It’s my job. So we charge and we disclose the fee and the business succeeds, otherwise we might as well become communist.
I ask the ASIC guys at an AFP lunch, ‘Just tell us the fee. Set a fee and then everyone charge it. But don’t surreptitiously say that’s high and that’s low and that’s not right and that’s better, or that’s a better product.’
Well, how is it a better product? I don’t know.
JB: And then there’s no commission either.
IS: And then if everyone has the same fee that’s fine, but then isn’t it the most expensive? A lot of people say that because that is the only fee. It’s the most expensive fee you’ve got. And that’s not a free market.
RO: Does that even surprise you?