Thirty years ago, a life insurance agent turned Dominic Alafaci onto the potential of financial planning. A lot has changed over the intervening years – but a lot remains the same. Simon Hoyle reports.
Early experiences are often formative, and for Dominic Alafaci, an encounter with a life insurance agent set his career on a path that has now lasted three decades.
Alafaci was visited on his 21st birthday by an agent bearing glad tidings and a cheque for $500.
“My parents took out a small policy,” he says.
“I was packing up to go on an overseas holiday, having finished uni, and this agent came around and said you have a policy, you’ve got $500. I can bring the due date forward – and by the way, would you like to buy another one?
“Ern Getson was his name, a lovely old-school T&G agent – deceased some years ago; a salt-of-the-earth guy. He came out to Monash, and explained that there were these new policies that help you can save for your retirement, or if you have a family there was a life insurance component – it was a Flexipo life insurance policy that he was selling me and. I thought that was a good idea.
‘It’s just easier, and we become addicted to it. For all of us…that was the norm’
“Why I said you’re going to laugh is a third of the premiums went in costs, a third went towards life insurance cover, , and a third went into investments. I thought that was a good deal back in 1980 and to be fair the policy did provide me with a convenient way of saving. These days if a savings plan has a 3 per cent MER people jump up and down, and that’s one eleventh of what I paid back then.
“I said that when I get back from my European trek I’d like to look at putting some of the brochures in my office, as I think it’s a great idea, saving for the future. I was planning to open a small tax practice – I did economics at Monash. I rented an office with a 5x5x5-year lease and a telephone, with no clients and no idea, and sat down there and thought, ‘What have I done?’
“I started doing some marketing and built up an accounting practice, and got more involved in the investment side with a number of clients looking for the Age Pension using bonds and managed funds and self-managed super. I think the first self-managed super fund I set up was in 1983. I had a multi-product menu approach back then, rather than a single-product approach to fixing all ills.”
Thirty years down the track, Alafaci is still at it, at the helm of Collins House Private Wealth. Alafaci is well known to Melburnians, thanks to his regular appearances on radio station 3AW.
Over three decades, a lot has changed in the industry around him. And a few things have remained stubbornly resistant to change. Alafaci says one thing he’s learned is that resistance to change is often due to simple embarrassment.
“Those people who are too embarrassed to charge a fee for their advice and are still transaction-driven still exist,” he says.
“I think they rely on the fact that the product pays them, rather than the customer, and they haven’t made the jump or switch to realising that the actual product – the transaction, I should say – is the least valuable part of the relationship. It’s the strategy and the intellectual property that we have which is the valuable bit. But they do not seem to value that.
“It’s really hard to charge a fee and put it in front of the client. It’s really hard. It’s much easier to say, ‘She’ll be right mate, it comes [from] over there; it doesn’t cost you anything, it comes out of the product’ – which is a nonsense – or ‘I get paid by the product manufacturer’. And sometimes they don’t even tell them that. It’s embarrassment.”
Alafaci says it’s not so much a lack of confidence in the quality of the advice being given that creates the resistance to change. He says it’s more that “you get addicted to it”.
“It’s much easier to do a transaction and get paid, and charge the client virtually nothing for your time, than it is to charge for your time and get paid next to nothing for the transaction,” he says.
“It’s just easier, and we become addicted to it. For all of us – [including me] up until about 1988, so for about seven years – that was the norm.”
Alafaci decided fairly early on in his career that he’d rather get paid for what he did – what he was good at, and what was valuable – than rely on transactions. There was a specific event that acted as a catalyst.
“It was a management meeting, where I wanted to cut a better deal,” he says.
“I wanted to grow my business. I had been in small business myself in 1981, I started then and joined a larger firm, which was Bain & Co, in I think it was ’88, and was doing pretty well. Within a few months I was working hard and thought I wanted to grow my own business again, having been a self-employed person previously.
