There was expectancy in the air on the morning of July 26, when the finalists in the Professional Planner/Business Health Best Practice Competition 2013 gathered in Sydney.
One of the practices would less than a week later be named as the winner. But for now, in the boardroom of Conexus Financial – the publisher of Professional Planner – no one knew who it would be.
It was a meeting of equals: the six financial planning practices determined by Business Health as being the best of more than 200 firms nominated for the 2013 competition.
Just getting to this stage was a significant achievement. A total of 118 practices completed a comprehensive online HealthCheck, administered by Business Health. Only one in 20 of the practices on Business Health’s total database are ranked “super fit”. A total of 39 practices – about one-third of all practices that completed the full HealthCheck – were judged as “super fit”, which is the highest level of financial fitness under the Business Health assessment methodology. It was, in other words, an incredibly strong field.
Business Health owner Rod Bertino described it as the highest quality group of entrants he’s ever seen in such a competition.
“To be around this table, to be invited to be around this table, whatever happens next week – you should be extremely proud to be in the top six practices in the country, because we’ve seen them all,” Bertino said.
“Without a doubt, the group of finalists we have this year is the strongest by far.”
Jasia Fabig, head of practice management for MLC Advice Partnerships, says the competition gives a fascinating insight into what makes the best financial planning practices tick, and what licensees can do to support them better.
“A lot of feedback that we’ve had as a group is that advisers feel that their businesses have evolved and the better advisers…are running very sophisticated practices and feel like the average practice development manager or licensee is not adding value anymore,” Fabig says.
“So one of the things that I’m really interested in is where do we add value, is there still a role for us in practice development managers and how do we skill PDMs to have discussions with you that make a difference and that help you grow and develop business?
“This is a fantastic opportunity to have access to people like this in the room and to see what’s out there so we can make sure that we continue to evolve the industry, really.”
The average revenue of the six finalists is about $2.9 million a year. The figure for average funds under advice or management is just a shade under $280 million per practice. The average profit margin is about 35 per cent – and some achieve significantly higher than that.
These practices, as a group, have a ruthless focus on efficiency. They are crystal clear on their value propositions and ideal clients – which includes being sure of what they do not offer, and the sort of client they will not work with.
They market their services effectively, and harvest healthy referrals from a supremely loyal client base. They are wholly unashamed about charging a healthy fee for the services they provide.
For them, the future of financial advice arrived long ago.
BEST PRACTICE COMPETITION 2013 WINNER:
TROY MACMILLAN
The Wealth Designers
• I was initially an accountant, for the first 10 years of my working life, and went into investment banking overseas and then came back to Perth. I realised there was no investment banking in Perth and went into financial planning.
The business is about 10 to 11 years old but has taken a few tracks after those initial days. I had a business partner right at the start and moved away to start TWD.
The reason for the move away was because we had a slightly different focus. We’re focusing on what we call or what we deem [to be] the ‘new world’ of financial advice. Being accountants, our aim is to bring other accountants, other people from other professions into the industry – banking, stockbroking, legal.
We really see ourselves as financial project managers, more so than financial advisers. We’re still doing the traditional financial planning in-house that we all know. We do investments, we manage direct investments and so on.
But if we can’t do it in-house, we’ll project-manage the client. We see ourselves as the central point for all the financial facets of a client’s life.
There’s 15 people in the business. We have about 150 clients. We don’t take on everybody; we only take on clients that really have the perceived complexity where we can add significant value to their affairs. They’re the clients that we like to deal with.
We have trusted relationships with all our clients. We love our work. We’re passionate about our work.
When clients come in and see us, we’re really changing their perception around financial advice… and the way we do that, as I mentioned before, is we take them through a process that builds trust. Trust first. The trust [comes from] taking the time to understand why they’ve come to see us. Once you understand why, then you understand what we can do. So we have an engagement process in place. It’s not dependent on myself or anyone else; it’s just a process in the business.
In our business everyone’s client-facing. We don’t have a front office and a back office. And we spend a lot of time training all our staff around the engagement process.
We spend a lot of time asking those deeper questions. And really, at the end, it is those big questions that we need to understand.
We record the conversation and when we sit back with the client again we’re getting to hear in their own words exactly what the most important outcomes are and what they’re mentioning.
People come in for a super fund, or they come in for whatever reason, and we turn around and say, ‘Hang on, one thing we can do is take the time to understand why. Why it is you’ve come in?’
So that alone just changes people’s whole perception of financial advice. They understand that there’s more to it than just coming in for a product or a service. There are outcomes particular to them. I think for us that’s really been the most important thing.
And finally, we’re in the business of building a business that delivers advice, rather than just being in the business of advice.
Therefore we aim to undertake all our processes from client engagement, pricing, through to our own strategic planning in a manner that is consistent, methodical, specific, auditable and non-person-dependent.
A common theme that emerges from a discussion with the Best Practice Competition 2013 finalists is that change is a constant, but that the best sort of change is that generated from within.
When change is self-generated, it can be predicted and controlled. The most destructive or disruptive sort of change is that which is forced onto a business.
Change is often taking place in these businesses on several fronts at once.
“We’ve gone through a lot of change – we’ve acquired an FP [financial planning] practice, we’ve acquired an accounting business and we’ve had a change of licensee in the last six months,” says Jonathan Elliot, principal wealth adviser at Collins SBA in Hobart.
“On the financial planning side, the perspective is [that] the amount of compliance-generated activity is immense – completion of fact finds, distribution of FSGs [financial services guides], FDSs [fee disclosure statements] now, risk profiling – and a lot of that ensures there’s robustness to your process and your advice.
“But there are elements to the compliance which doesn’t add value to the client discussion and what they’re seeing from you as the adviser, and [it] takes immense amounts of resources and time to deliver all that.
“We noticed that in the change of licensee and bringing on the new FP business.
“With the accounting business, on the other hand, it was basically turn the lights off at that office and turn them on at our office. And yet, fundamentally as advisers, whether you have an accounting hat or an FP hat, you have the same level of responsibility. You’re giving advice about that person’s money and their life. So there’s a stark difference [in the compliance burden].”
A quest for continual self-improvement means that very little from outside the business “gives us cause for concern”, says Rob Sarafov, a director and senior planner at Australian Private Capital in Melbourne.
“We just don’t stop thinking about how we can leverage technology,” he says.
“And that’s mainly driven around Xplan. So to give you an idea on that – the last 12 months we completed six major internal projects on Xplan. Each one was designed to automate, leverage technology, deliver better client outcomes. And all of those things are very measureable.
“We’ve now got four [projects] currently underway and we’ve got another three slated. So there’s continual focus on what are we doing, how do we work, what can we automate that we’re currently doing manually without impacting at all the client outcome?
“In fact in a perfect world you would design to get a better client outcome.
“Unless something comes from left field that no one has anticipated – and I would argue that happens rarely – if there’s a continual focus on improvement, you’re likely to stay ahead of that curve more often than not. And as business owners we’re very happy we have a team that are capable of doing that.”
AHEAD OF THE CURVE
Staying ahead of the curve has also helped The Wealth Designers flourish. TWD’s managing director, Troy MacMillan, says “our business, and I guess in everyone’s business here, was developed in a way that was FoFA-compliant before we knew about FoFA”.
“It’s just we thought it was best practice,” he says. “It made sense to us, that’s why it was done.
“When you develop that way and you know this is best practice, it just makes sense to you, to the consumer, to whoever it may be – FoFA comes along and it’s not such a huge issue because your business has been operating that way for so long. It’s already compliant. You don’t need to do anything. So does it take your focus away? It doesn’t really take your focus away because you’re so focused on building a great advice business and continuing that constant push towards excellence; then the FoFA requirements aren’t such a huge issue like they seem to be for a lot of other people.”
Change is good, says Greg Cook, chief executive officer of Brisbane-based Eureka Whittaker Macnaught.
“If changes like FoFA help distinguish good businesses from average businesses, that’s a good thing for the profession. It’s a good thing for the consumer,” Cook says.
“And by definition, if we’re in the camp of the better businesses, then it’s a good thing for us. Those that have been just cruising along and haven’t had the right systems in place or have had clients that didn’t know what they were paying, or whatever, you can fake that for only so long and then you get found out, ultimately.”
Business Health owner Rod Bertino says the practices in the top six have got there partly through a willingness to spend money to make money.
“These guys probably spend in expenses far more than the average practice out there,” Bertino says.
“But they don’t spend it – they invest it. Why does the profit hold up? Because they’re getting a return on their investment. They’re not [seen as] costs to the business. They’re investments. The profit numbers are reflecting the return on the investment.
“These guys were willing to invest when others were cutting back. Others were shedding staff, others were shedding technology, others were moving premises, downsizing. These guys continued to invest. Not willy-nilly; you expected a return on your investment. And as you’ve seen with the numbers – they’re getting it. “
Trent Collins, a principal consultant with Scholten Collins McKissock in Mont Albert, Melbourne, says that as “business owners and leaders we’ve got a responsibility to embrace change”.
“And the quicker we embrace it, the quicker you can get on with things,” Collins says.
“I chat to a few peers that just are so pessimistic about the world of financial planning because of all of these legislative changes. And I think, well, you’ve got two options – you can accept it and move on with it; or not, really.
“And I think the people who are in this room are obviously ones who are quite driven and motivated and embrace change and are quite entrepreneurial, perhaps.
“Our business has been fee-for-service for 10 years. So FoFA hasn’t been an impact really. If you’re trying to do the best possible job and have the best service offering for your clients, you’ve got to be embracing some sort of change to find ways of doing things better.”
MacMillan says success rests on a commitment to trying new things.
“We have what we call ‘ready, fire, aim’,” he says.
“Just get out there and do it. There’s something better to do. Just try something different. Continually try and improve. Try something more innovative, some change in your business. Just do it, just get out there and do it. Don’t wait for it.”
Sarafov says the most robust businesses “focus on the change that delivers the biggest bang for your buck in terms of what your clients value most”.
“You can only understand that if you understand who your clients are in the first place,” he says.
“We could spend all our day long thinking about projects to improve the business, but what we want to do is isolate the projects that will help us leverage the parts of our business that will deliver the most value to our clients in the most efficient way.
“And the more you do that, the more the target clients start referring their friends who are target clients to you.”
“Fifty-two per cent of our new client growth last year came from client referrals. Now, we’re very proud of that statistic; and so I think all of that rolls into the fact that we as a business are very clear about who our target client is. And I would suspect, maybe, a lot of financial advice businesses are not that clear.”
STRONG REFERRALS
MacMillan says strong referral channels are essential to a healthy business.
“We find accounting relationships are fantastic because the leads come in extremely warm,” he says.
“But also your own clients must be referring, so you need to track around how many of your clients are referring on a regular basis. And are they referring the ideal client? Do they know what your ideal client is, more importantly?
“We explain exactly what we’re looking for. We explain it’s people very much like yourselves, with the same complexities, who are looking for advice, a trusted relationship where we can add a significant value to their affairs. We don’t put any pressure on them. We have capacity. We have capacity for five or six spots in the next three months – if you know anyone, we’d love to meet with them. And generally 25 per cent think of someone straight away. And one in two we’ll get someone through somewhere down the track.
“So there’s never pressure. It’s just letting them know. If you don’t ask they’ll say, I didn’t think you guys needed anyone – I thought you were so busy!”
A high-profile individual within a firm can also help. In Eureka Whittaker Macnaught’s case it’s Noel Whittaker; in Scholten Collins McKissock’s case it’s Neil McKissock.
For Collins SBA, it’s business-to-business relationships that have proved to be fruitful.
“People don’t come to our business because of all the services that we offer,” Elliot says.
“They come because of a particular need – [something] very specific. We probably generate more new business from the accounting side of the business. And that makes sense because accounting’s not discretionary. You have to do your financials, you have to do your tax. You don’t have to improve your wealth position – financial planning’s discretionary.
“In terms of external marketing, probably the one that’s paid the most dividends has actually been bringing other businesses into our business.
“We’ve got a good relationship with a lot of different businesses within Hobart. It creates a lot of goodwill, and then we always pull out good news stories via our social media as well. So we use Facebook, we use our website, blogs. And other businesses can use that marketing material as well. So it’s more business-to-business marketing that we focus on.
Andrew Shakespeare, a director of JSA Financial Planning in Charlestown, NSW, says the firm keeps its mass-marketing activities to a minimum.
“We have ventured into the social media space – our Facebook page, LinkedIn page et cetera,” he says.
“But your best referrals are your warmest leads coming either from your existing clients or that internal relationship with the accountant or the solicitor or the general insurer. So I think building those business relationships is so important, whilst also reminding your clients of the good work you do.
“If I get a call up, of someone just totally out of the blue, just ringing up and they say ‘Look, no one referred me’, I go a little bit cold on that type of client.
So it’s just not… it’s just a harder experience I think; and whereas if it comes from one of the warmer leads it’s a lot easier, is probably the word. Cost-effective.”
MacMillan has found some success in identifying niches of clients, researching what they need and then marketing the firm’s services to other providers of services to that niche. A case in point is women who are “contemplating divorce”.
“Yes – they’re interesting,” he says.
“So, you interview as many people as you can. You need to find out what are the complexities of this very narrow group and what they’re going through. And the idea is to just build your expertise up in that area. And once we’ve got that, we send off our research papers to all the people who helped us, and then we go out and market to that particular niche; we go out to the family lawyers all around Perth or wherever they may be.
“And [we] speak to them about this particular niche and our expertise and how we can actually help that particular niche to get the word out there that we do have the expertise.
“And keep doing that every six months or so, just finding out new niches.”
CONFIDENCE TO CHARGE
Cook says good financial planning businesses should not be reluctant to demand a good fee for the service they provide. The key is how to position the service in the minds of clients.
“The financial services guide that we all need to provide our clients – about five years ago we set out to make that not a template document that some law firm came out with when FSRA [Financial Services Reform Act] came out,” he says.
“You could describe it as part compliance, part marketing corporate brochure, but most importantly it’s describing the financial planning process and the service offer.
“The most important page that we focus on is a flowchart that sets out the six-step advice process, the process that we all would use I guess in one form or another. And that’s a starting point for describing how we deliver advice.
“That’s the basis of the way we position the cost and the value of advice. We quite clearly, in bold letters, set out the hourly-fee basis of our upfront advice. It’s not rocket science. Send all this information out via email and via post, prior to the meeting, and just set out what the expectations are for the client.”
Elliot says his firm sets out upfront exactly what value it is going to deliver.
“And we attach a price to that,” he says.
“Then the client can decide whether that’s the value they’re seeking – but we also give them options.
“Whether they’re a client touching our business from their accounting or the FP or the lending side, we actually propose our services and bill for our services the same way.
“We say back to the client what we understand their objectives to be, what the measures of success will be if they achieve that objective, and how we’re going to deliver that.
“And option one may be a very simple proposal which won’t achieve all the value they’re seeking. Option three will achieve all the value they’re seeking, and there’ll be different fee levels. And then the client can choose.
“The key thing is we’re informing the client as to what value they’ll receive, what services they’ll receive, and an option. They choose for themselves and they can choose a price.
“It’s all about the value.”
OUTSIDE LOOKING IN
Great businesses aren’t afraid to ask for help from external parties.
“Over the last 18 months we’ve put in place an advisory board within our business,” says Collins.
“You do get caught up in the day-to-day running of the business. Sometimes you can’t see the wood for the trees. And by having this advisory board, we’ve got a very key industry figure on that board, we’ve got a partner from PricewaterhouseCoopers who’s on that board.
“And that’s been fantastic from our perspective to just make sure we’re on track from a strategic point of view.
“What it’s done, it’s actually brought accountability to Matthew and I. You know, Matthew has been an individual who’s really run the show the way he wants it and he’s the majority shareholder, and he will. But I mean, Neil McKissock’s not sitting on the chair of the board just to waste his own time.”
Shakespeare says having a clear succession plan in place is crucial to enable a business to really focus on the long term.
“Dad – Jeff – has done a great job in designing [a succession plan]. I sometimes wonder if he was actually grooming me as a child to take over,” he says.
“But he’s done a great job there.
“And we have a young vibrant team – in their early thirties, and that includes the accountant and that includes the mortgage and finance, and also the people we deal with in the Newcastle area.
“So we’ve got a lot of longevity there and it means I think we have a business – and like a lot of people in this room.
“Don’t discount the fact that you have got a business that is not just a one-man band – because you can walk away from it, and you can actually delegate tasks, and you can be in this room without having to be worrying about answering emails or calls.
“I think a lot of us have built that, and Dad always reminds me: Look we’ve actually built a business here that you can step away [from]; you can take the family or have some family life there, not just a sole practitioner where everything is relying on you.”