Problem solvers

When Kate McCallum left her job at Westpac Financial Planning to set up her own business she admits to having some qualms.

Having been heavily involved in corporate strat­egy both within BT Financial Group and Premium Wealth Services, she was concerned she would miss the problem-solving aspect involved in project management.

But since launching boutique advisory firm Multiforte Financial Services in December 2006, McCallum has realised that corporate strategy and financial planning bear striking similarities.

“When you’re dealing with people and their fi­nancial requirements, you’re doing exactly the same thing, it’s surprising how similar it is,” she says.

“Like a firm, the person has a set of goals and objectives; just like a budget in a corporation there’s a financial constraint or opportunity, and you have to make the most of what’s available to you. You do all the modelling and analysis and then you work out the trade-offs.”

McCallum believes the fact that she and her two business partners, Terry Downing and Tony Clark, have come from a corporate and strategic view of the world makes them quite different as advisers.

All three have extensive experience in financial planning, but have also worked in senior manage­ment roles.

McCallum cut her teeth in financial services at State Street, before moving to Commonwealth Bank and later Westpac.

While at the banks she held positions across product management and development, financial services marketing and client relationship manage­ment, and when the Budget changes to superan­nuation were introduced in May 2006, she spotted an opportunity to pool all of her expertise.

The Budget effectively streamlined superannua­tion, making super more tax effective.

Despite cracking down on after-tax contribu­tions, which were capped at $150,000 per year, the government relaxed the restrictions on benefits, increasing the appeal of super as a savings vehicle.

Australians aged 60 or over were made exempt from tax on their end benefits, and individuals were given greater flexibility around how and when to draw down their superannuation in retirement.

“It got people shifting their thinking around how they treated super,” McCallum says.

“I was working within the [financial services] marketing team [at Westpac], analysing the changes and what they meant for people and doing a lot of education for clients as well as internal education sessions. I spoke with heaps of people who didn’t think they could get good advice and were very distrustful of traditional advice. They would come up to me and say ‘Can you advise me? You are the first person that has actually made sense of all this’. It blew me away, so I thought, ‘this is it; it’s time to put all of my study and experience into practice’.”

At the time, Downing and Clark were running a management consulting business primarily fo­cussed on financial services and were also exploring new business opportunities. McCallum says it was a case of serendipity.

“They were looking at financial advice at the same time that I was saying ‘this is something I want to do’,” she says.

“We started to investigate different models for setting up our own business, and we wanted to be as independent as we could be.”

While they contemplated owning their own licence, in the end a decision was made to establish with a dealer group, with Axa considered the pick of the bunch.

The attraction, McCallum says, was the ability to remain agnostic about product, as well as having access to a large organisation with deep technical, product research and compliance capabilities.

Additionally, McCallum says being associated with a dealer group gives the consumer a second level of recourse should something go wrong in Multiforte’s advice process.

Multiforte charges a flat fee-for-service based on the complexity of the advice. The three partners were keen to avoid the blended model which many fee-for-service advisers have adopted, where the fee charged is based on a percentage of assets.

“Our view is this still looks and smells like a commission,” McCallum says.

“Yes, there are caps to help manage [the fee] but we feel it is far more objective if you charge a flat fee which is based on the complexity of the advice. Just because you own a $2 million house versus a $200,000 house, if you have someone come in to change a light bulb, you shouldn’t have to pay 10 times as much.”

Another benefit of the fee-for-service model is that the remuneration does not rely on a product sale, McCallum says.

In fact, Multiforte does not deal only with people who are investing money; the firm also has clients for whom it is implementing debt manage­ment strategies.

“They’re people who have set up a business and are trying to grow it, so they don’t have thousands of dollars to invest but we’re helping them to use debt effectively and are making sure they don’t get exposed to too much non tax-deductible debt,” McCallum says.

“Traditionally those people can’t get advice from the generic commission-based adviser because the only way they can get paid is to make a product placement. In this case, there’s no product place­ment at all.”

Given her background at large institutions, many of which are targeting the average Australian with low-cost financial planning platforms, it might have been logical for McCallum to adopt the same approach for Multiforte.

However, she has deliberately taken the nascent business in a different direction, offering tailored financial solutions to professionals in the process of accumulating wealth.

Why? McCallum believes this is where Multi­forte can add most value.

“One of the things that struck me [at Westpac] was the advice we were delivering was very mass-produced,” she says.

“It was accessible for a lot of people, but it didn’t necessarily meet the needs of the people who were demanding it most. What people need is not just good technical advice; often their needs are really unique. Our clients want financial strategies that respond to their particular lifestyle requirements.”

This strategy, along with the CBD location of the business – on the corner of York Street and Market Street in Sydney – means Multiforte counts executives, senior management and small business owners on its list of clientele. Many of these, McCallum says, are women.

“What I see in that professional or executive market, where women are working in corporate roles, is that they are very good at outsourcing,” she says.

“Women are very good at saying ‘here are all the things I want to achieve, I’m going to get help at all the different levels so that I can be successful’.”

Looking into her crystal ball, McCallum says the market could become “more barbell”, with a place for simple, transactional advice at the level of the product provider.

The former Coalition government issued pro­posals in late 2006 which recommended financial service providers be allowed, in some situations, to provide sales recommendations that are not consid­ered financial advice.

McCallum believes there could be a place for such a service in the advisory market.

“There are a lot of people who will never seek the type of advice we’re delivering, either because their needs aren’t that complex or they don’t have the willingness to trade,” she says.

“If you can find a place for good, mass-market advice, the other end of the spectrum will be much more bespoke, strategy-related advice.”

The then Howard-led government also proposed removing the requirement to provide a Statement of Advice when personal advice is provided that does not involve the recommendation of a product and when no remuneration is received for the advice. Instead, a Record of Advice would be required to be prepared by the adviser.

Such a structure could lessen the compliance burden for advisers, McCallum says.

“There’s a complexity in the documentation and reporting that’s driven by the commissions and the structure,” she says.

“If the offer from advisers and product provid­ers was clearer, and product providers disclosed that they were only advising on products that they manufacture, then the disclosure requirements could potentially be less onerous because it’s clear in your offer upfront the service you are providing.”

As the baby boom generation approaches retirement, McCallum sees a growing demand for advice at the more complex, strategic end of the wealth management chain.

She quotes Gordon Mackenzie, senior lecturer and specialist in superannuation and financial plan­ning, who estimates that the level of income and consumption of the baby boom group is around 40 per cent higher than the previous generation.

“If you look at the research around the boomer group, who are in that sweet spot and are quite prepared to seek advice, that has a lot to do with the fact that they’ve lived through relative prosper­ity,” McCallum says.

“The challenge is that they are distrustful of traditional advice, so there is demand for something different.”

Name: Kate McCallum

Position: Partner, Multiforte Financial Services, Sydney

Years in financial services: 15

Qualifications: Graduate Diploma (Advanced) Financial Planning

Graduate Diploma of Applied Finance & Investments

Master of Commerce

Bachelor of Arts (Honours)