Late in 2008, Luke Rathborne faced a choice. Having spent several years working for large financial institutions in Australia and overseas, and convinced that financial planning was a long-term career option, Rathborne had to decide how his own future was going to look.
It would have been relatively simple to take a job with a large dealer group, with all of the infrastructure and support that would entail. But instead, Rathborne took a slightly trickier path, joining the boutique firm Capel & Associates, alongside the firm’s founder, Richard Capel.
Capel & Associates holds its own Australian Financial Services Licence (AFSL). That has some drawbacks, as well as benefits, but Rathborne believed it was the best set-up to build a financial planning business of which he could be proud.
The ability to define a service proposition and to develop a business model that suited his style of working and philosophy was too good an opportunity to pass up.
It helped that Capel and Rathborne already knew each other, and that both came from chartered accounting backgrounds.
“I’ve had the pleasure of meeting many good operators – and some not so good – in the financial planning industry, and with Capel, who I’ve teamed up with, is a guy I’ve known for over 10 years,” Rathborne says.
“He headed up Coopers & Lybrand’s financial planning arm, which evolved into PWC’s [PricewaterhouseCoopers’] planning arm. He’s also a chartered accountant, and he has his own licence.
“It ticked all the boxes. What you don’t get is the big head-office support that you might get from some [big] brand names…and the resources they would have, or [from] some of the financial planning groups, which might be institutionally-owned [and] might have very attractive fee arrangements.
“That was a very small positive versus the very big negatives I saw going with a big group.
“We can build our own business, we can decide what our business model will be, and our business model is very aligned philosophically around focusing on the client. We are professionals. We’re both active members in the Institute of Chartered Accountants, we’re financial planning specialists within the ICA and we participate actively within that specialist designation.
“We just believe in growing a business based on the principles of putting the client first, on having a fiduciary responsibility first. Transparency, trying to get costs down with all product providers – if products are ever necessary – so that gives us the ability to implement direct assets for our clients, and a lot of our type of clients do like the direct assets.
“We operate, wherever possible, on a fixed fee for-service basis.” That includes a fixed retainer fee, for ongoing service.
“For that, they get unlimited access to us, which is how a relationship with a professional should be, we think,” Rathborne says.
“To pick up the phone to speak to your lawyer or accountant, most clients would hopefully respect and value the offering, but at the back of their mind there may be this nagging thought that they have to get off the phone quickly because I’m being charged for this.
“With us, they don’t. We encourage them to ring us when they want to run anything past us. So that’s how we classify ‘fixed fee’: a dollar amount, on an annual basis, which [we] will typically charge by direct debit on a monthly basis, to retain our services.
“I would have thought the traditional financial planning model is around about 2 to 2.5 per cent that their clients have to pay on their assets.
“Just say you’re investing a million-dollar portfolio for clients, and if you’re lucky enough, under the traditional financial planning [portfolio] model, to generate 4 per cent [investment] income, out of that million-dollar portfolio, that’s $40,000. If a client is paying 2 to 2.5 per cent, courtesy of a platform fee of 0.5 to 0.7 per cent, a fund manager’s MER of 1 per cent and then the financial planner wanting 0.8 to 1 per cent – that comes to 2.5 – that’s $25,000 of that $40,000 is gone.”
“With us, we are charging for advice, ongoing advice and an ongoing relationship with the client, and let’s say that comes to – it would vary with the client’s circumstances – buy let’s say it came to $7000.
“We can assess or estimate what the income will be from their portfolio, we know what the cost to us will be, which will be $7000 in this example, and there may not be any platform fee, but if there is a platform fee – for example, if we wanted to access managed funds – we can access several high quality platform providers but not get any dial-up on the platform fee.
“So we’re getting clients as close to wholesale pricing with those platform providers, and not taking anything ourselves.
“We’re about advice; we’re not about trying to build assets under management for us to get paid.
“We’re about advice. So in that example, if it’s 0.3 per cent for the platform, that’s a cost of $3000, and our fee of $7000, that’s $10,000 total fee, so the client will be getting net income of $30,000 from us versus perhaps under a traditional model, $15,000.
“Income from investments is something that every investor needs to focus on – the cashflow, wherever possible.
“Whether you’re a retiree or you’re a young wealth accumulator, cashflow is incredibly important. For wealth accumulators, cashflow is important to help eliminate [things like] non-deductible debt, like your mortgage; and for retirees cashflow is everything.”
Rathborne says that from the age of eight, when he took his first paid job – a job “offloaded onto me” by an older brother – he has “just enjoyed accumulating wealth”.
“Spending less than what I earn has always come naturally to me,” he says.
During high school he developed an interest in portfolio management. But he initially followed two older siblings into accountancy.
“So my working background, my first eight years, was in the respected profession of the Chartered Accountant, and I really have loved that background,” he says.
“It’s a background focused on continuing education, it’s a background focused on the client, on giving advice – there was no such thing as a ‘product’; everything you do in a CA firm is about an advice-based relationship. It’s about a fiduciary responsibility to the client; it’s about having high calibre people around you and [having] a focus on quality and thinking laterally about everything to do with the client.”
Accounting was not Rathborne’s long-term plan. Moving overseas, he worked in investment banking, and returned to Australia in late 1996. Luke’s uncle is Bill Rathborne. Bill has had a long career in financial planning, starting in 1981 with Robert Morrison, before joining Bain & Co in 1984. Deustche Bank purchased Bain – and the business changed its name – and in 2001 Bill joined Godfrey Pembroke, where he remains to this day.
“I didn’t necessarily know he was a financial planner,” Luke Rathborne says. “But I knew he had some involvement in managing portfolios, so I spoke with him on returning, and he was quite influential in saying you’d be a great planner, but at the age of 26 there’s no rush – go and work with quality organisations in the industry.”
He spent four years at Rothschild, and four years at BT, during which time he completed his Diploma of Financial Planning, and completed his CFP educational prerequisites.
After Westpac acquired BT, Rathborne moved into the bank’s private banking area.
“I really cut my teeth there, and was fortunate enough to learn the art of planning with the bank’s most treasured clients – being their high-net-worth client base,” he says.
After just less than three years at Westpac, Rathborne wasn’t necessarily looking to move, but he was made “a very attractive offer by a private investment management firm, to go and work with high-net-worth individuals, and to manage Australian equity portfolios for these clients”.
But market conditions changed, and the firm was forced to downsize.
“I finished up with them in October  and had the…opportunity of really thinking about what I wanted to offer to my clients, which was more than just a direct equity portfolio,” Rathborne says.
“It gave me the chance to meet with the heads of all the major private wealth businesses in Australia with these global brand names, or more boutique brand names. I wasn’t interested in going back to the Big Four private banks; I was more interested in what the offerings were of the Merrill Lynches, Credit Suisses, Deutsches, Macquaries.
“And I pretty quickly realised that I did not want to find a home in those sorts of environments; I really wanted a clean, independent licence that I could build a business in.
“I wasn’t really thinking about how the industry might go, but if the industry was going to go any way, our business model would not be impacted by how the industry went, because they would have to evolve more towards our business model.
“Clients find our model so refreshing that it doesn’t matter from my perspective whether 90 per cent of the industry stay in the current model, or the model of the dark ages.
“Over time, we’re out to grow a business by doing the right thing, by putting the client first, fixed fees, transparency and keeping unnecessary costs down. Surely that would be what the regulators would want, and what advisers should do: give quality advice.
“If the industry is going to evolve into a profession, it has to go towards our way.
“It hopefully can evolve into a profession, but to do that they have got a lot of work to do. It’s a complex topic, trying to get rid of trail commission, because lower-net-worth clients perhaps can’t afford the fees of good-quality advisers out there, so maybe that’s required for a certain part of the industry, but it’s not part of our business model and we will not operate that way.”