Sam White makes two things clear about his company’s foray into the financial planning field: first of all, he is not trying to convert the network of Ray White Real Estate agents into financial planners; and second, he is not even trying to convert a network of mortgage brokers into financial planners.
White’s new financial planning business, Wealth Market, will recruit specialist financial planners. They will not advise on direct property investments.
“That would have been a conflict,” White (pictured, above) says. “Obviously.”
Wealth Market has yet to be issued with an Australian financial services licence, and given the pressure that the Australian Securities and Investments Commission (ASIC) is under for its scrutiny of financial planners White isn’t fazed if the application process takes a little while.
“And given the media of the last couple of days it’s probably going to take a bit longer,” White says. “But that’s fair enough. I know that some of the talk was, are we going to be flogging property, are we going to be doing this, doing that? So for us, we’ll go back and re-clarify exactly what we’re trying to do.”
In it for the long term
White is getting into the financial planning business for the long term. He does not expect to generate positive monthly cash flows until year three, and the true value of the new business will be seen a decade from now. A long-term perspective is one of the benefits of being, after 112 years, still a family-owned business.
“We’re going to be a bit heavy on our costs,” White says.
“We could have done an acquisition on this and been cashflow positive from day one. We’ll be losing money until sometime hopefully in year three in terms of monthly break-even point, on the numbers we’ve done.
“The reason we didn’t go with an acquisition is a bit because buying a business is like you get a lot of conscripts. They join up and then you’ve got to change habits and work on what you’re getting. If you build a business organically, particularly one in this space with all the stuff that’s going on, we want to get volunteers, who say we agree with where you’re going and we want to be part of it. And if you attracted to what we are, then here’s an option for you.”
White says it’s not the growth of the buisiness over three years that he’s focused on, but over the next 10.
“If we take a bit longer – we won’t be setting any record in terms of being up on stage around being the biggest group or the fastest-growing group – that doesn’t bother us too much,” he says.
“If we get there in 10 [years], then that’s where we build value. The biggest risk for us is that we don’t deliver on what we say, and there are two elements to that. One is getting the wrong people; and the second one is not having the systems and processes to support those people and to support the proposition that we’re promising.”
White says Wealth Market needs to have 40 to 50 advisers on board to reach its cash flow target and will be satisfied with having 10 on board in by the end of the first year. That will give the business time to make sure its systems and processes are right, and scalable.
“Whatever things we find out in the early days will be small enough to be able to deal with and change,” he says.
“If we grow too fast that becomes harder to do.”
Ownership structure
Wealth Market is a business removed from the Ray White real estate network. Ray White is owned 20 per cent by White’s uncle and 80 per cent by a family company owned by White’s father, and in which White and his brothers are shareholders.
That family company owns 70 per cent of the mortgage broking business Loan Market, and White himself owns 30 per cent; and Loan Market owns 100 per cent of Wealth Market.
Ray White’s move away from being a straightforward real estate business into a broader financial services group can already be traced back 20 years to when it launched a mortgage broking arm as a defence against competitors, chiefly LJ Hooker, which had then just been acquired by Suncorp.
“So we decided to give [our clients] mortgage broking,” White says.
“This was in 1994 – twenty years ago in June.
“We didn’t really go in there to make a lot of money – it was a defensive play for our core business. We lost money for the first three years. Over time it became a viable business for us, and then it’s gone on to be a large business.
“Over time we’ve done about $47 billion of mortgages and we now have about 500 franchisees in Australia and about 100 in New Zealand.”
Meeting clients’ needs
Exactly the same rationale is today driving the push into financial planning.
“Loan Market is saying, well, we’ve got a lot of clients taking out a debt product and we think it’s appropriate they at least be made aware there are opportunities to protect themselves and their families and not lose the home if something bad happens to them,” White says.
“In that respect, we’re following a little bit of convergence that’s happening in the planning and broking space generally, which has been: same client, different needs; there should at least be a strong affiliation or co-location of individuals who can look after the customer.”
White says Loan Market brokers will not be giving financial advice to clients. They will be required to refer clients to someone qualified – and it won’t necessarily have to be a Wealth Market adviser.
“We believe, even though it’s not a legal requirement, that everyone should be referring, everyone will need to make disclosure in their documents,” he says.
“By next year every client should be offered the ability to talk to someone, and if they decline to do that we want that noted as a file note.
“A number of our brokers already have strong relationships with financial planners outside the group. Some of those may want to choose to talk to us about joining, and some may not. But we won’t be forcing people to say you must refer here or you must refer there. As long as they refer to somebody, we’re OK. It’s only when you don’t refer to anybody we’ll have a problem.
“There’s a duty of care that we have. All our mortgage brokers know this service is available. Clients may not want to take the opportunity, they’re not offered them then I think that’s a breach of the duty that we have.”
Initial reports misleading
Initial reports that Ray White was branching into financial planning conjured images of an army of real estate salespeople being converted on the fly to be called “financial planners”. Such a strategy did not sit comfortably in an environment where there’s been a strong focus on standards of education, training, ethics and competence. But as it happens, that image was also wrong.
“It was annoying but I understand how these things happen,” White says.
“We’re proud of the relationship that we have with Ray White and we’re a related company…but it sometimes does cause people to jump the gun a little bit.”
White says there will be no direct property on the Wealth Market.
“Our advisers will not be able to offer that,” he says.
“I could understand if someone said, it’s Ray White, it’s going to sell property and therefore there’s conflict. I totally agree, and that’s why we’re not doing it. In the same way that mortgages are an extension of real estate, we see this as an extension of debt. And once you’re into risk, you’re in the financial planning space. Because you start to talk about super.”
White says Wealth Market will give its financial planners the choice of using “four or five” platforms, and although arrangements are not yet finalised he says they will be “the recognised platforms that people would expect”.
Foundation employees
Wealth Market has recruited four employees: chief executive officer Jason Powell, formerly of ANZ, Commonwealth Financial Planning, ipac and Professional Investment Services (PIS); head of risk and compliance Steve Quine, formerly of RetireInvest, Oasis Funds Management, State Super Financial Services, Financial Services Partners, PIS and Equity Trustee; head of research Andrew Ash, formerly of Financial Partners (Shanghai) and Citigroup; and Wealth Market national co-ordinator Samantha Allam, formerly of Macquarie.
White says he supports moves to raise the standards of education across the financial planning industry.
“That’s one thing that will give people confidence in the industry,” he says.
“That’s probably the biggest threat to the industry generally, that Australians start to believe advice isn’t worth the paper it’s written on.
“We fully support the proposition that the FPA put up to the [Parliamentary Joint Committee] inquiry. We’ve read that through and we agree with the elements in that.
“The thing that we would add to that is that it’s not just the academic process that’s important. There’s on-the-job mentoring process to be done – which I know they made mention of – and also the key elements of communication and the ability to engage our customers in the process. There’s real training around the ability to communicate effectively to clients, and that’s something we want to put a heavy focus on.”
Remuneration structures
Some Wealth Market advisers will be self-employed, because they will be franchisees, and some will be employees of Wealth Market itself.
“They’ll charge a fee to the customer,” White says.
“There will be a plan fee of between $440 and $990; and there will be an implementation fee, which we think will be between 0.5 and 1 per cent of [assets], capped at $10,000.
“On insurance, it’s a percentage of the insurance premium written.
“The rem structure will be a percentage of revenue for the franchisees; for the employees, there’ll be a salary.”
White says it is easier today to set up a new financial planning business than it would have been three or four years ago.
“What’s coming out of the [PJC] inquiry now is around standards, it wont be around the quality of advice or the way people get paid, because that stuff has been settled,” he says.
“We’re starting up now in an environment where that’s not up for debate any more. We know that conflicted remuneration and all those issues that were passed are now past; we get a clean start to this.
“From that point of view it’s simpler and it’s going to be easier to communicate to our customers exactly how money works. The more transparency you bring to everything, the more trust gets built in the process.”
This article was edited on 22/9/14 to correct shareholding figures for Loan Market.
