A Melbourne-based independent financial planning firm has urged other planners to test their business models against the innovative US market after they radically transformed their business model following a series of fact-finding tours in the US.
Innate Financial Services Group’s Shane Nicholas, Luke Eres and Mirko Cugura (pictured) headed stateside more than half-a-dozen times in the last three years to meet with financial advisers to explore cutting-edge developments in the US market.
“We like to challenge the status quo and the US trip definitely did that for us,” Nicholas says.
The result has been a significant shift in Innate’s model, with decisions to separate strategic advice from investment advice, and a move to gain greater scale with discretionary portfolios.
But the trips have also cemented their belief in the superiority of Australia’s holistic advice model, which has seen Innate merge with an accounting practice.
Nicholas says other planners should consider exploring the US market to help evolve their business model.
Ahead of the curve
Innate was founded in the late 90s and now has 20 staff advising 1200 clients across accounting and wealth.
The firm’s success has been built on a philosophy of always doing what is best for clients.
As an AFSL licence holder the firm faced rising compliance costs, but it was determined to maintain a superior service offering, which triggered the decision to closely study the US market.
“The US appears to be ahead of the curve,” Nicholas says.
“Particularly in financial services they do seem to be the leaders in technology.”
Innate made cold-call approaches to a range of US firms, including advisories that handled more than $US 10 billion of assets.
“They were all kind of intrigued,” Nicholas says.
Their first trip two-and-a-half years ago saw them spend ten days meeting with more than 15 investment advisers in New York, Washington and Boston, including Convergent Wealth Advisors, Pinnacle Advisory Group and The Colony Group.
They faced logistical challenges: Boston and its airport went into lockdown after the marathon bombings and they were forced to hire a chauffeur car to get to their scheduled meetings in New York.
Separation
Innate found that most US firms are primarily investment advisories, with some financial planning services offered on the side. That immediately caused them to reassess their service offering.
Nicholas says that in the Australian “bundled model”, clients seek strategic advice first, which then leads to investment advice.
“The advice part quickly loses value when they’re bundled together,” he says, particularly as clients become focused on asset performance.
Innate decided to separate their strategic advice and investment advice, and the firm now has two distinctively different service offerings with different service packages.
The investment service package focuses purely on asset management. The strategic advice service focuses on navigating clients towards financial independence.
“The change so far has been great as it allows clients to build an overall service package that suits their requirements, which has been well received from our clients,” Nicholas says.
He says US advisers are also good at tracking personal wealth over time against where the client needs to be to achieve a lifestyle goal.
Innate now has a “wealth tracker” chart that charts clients’ progress against their strategic objectives, which Nicholas says has helped shift client conversations from a focus on “my BHP shares lost 50 per cent” to putting this in the broader context of their lifestyle position.
Culture shock
But it was a conversation with investment advisory group, Convergent Wealth, in Washington who oversaw $US 10 billion that sparked the biggest change in Innate’s model.
Innate explained the Australian model: clients pay financial planners a fee to look after their money, but if the planner wanted to make a change they had to write the client a letter and get consent.
“The adviser was shocked,” Nicholas says.
“He said, ‘So someone is paying you to manage their portfolio, but to do anything you have to get permission from that person, who isn’t necessarily qualified, before you can make the change in the portfolio?’.”
Nicholas said the non-discretionary model always bothered them, and the US trip led to change.
They varied their Australian financial services licence (AFSL) model to enable Innate to provide advice on managed discretionary accounts services. They also significantly bolstered their investment committee framework.
The change has created significant scale benefits which Innate has reinvested in hiring more staff to maintain a client focus.
Getting validation
The US trip didn’t just challenge their model, but validated one crucial aspect.
While Innate saw the strength of the narrow US model, it also reinforced their belief in the need for holistic advice.
Nicholas says the singular US model is “not necessarily going to solve the problem of the investor”.
That helped Innate go down the path of merging with an accounting firm. In 2014 the firm merged with Axton Jones, a Melbourne-based chartered accounting firm, and in doing so added a fourth partner, Alan Jones.
Marketing machines
Innate was also struck by the well-oiled and targeted marketing machines of US advisers, which included lots of effort to build personal brands. “They had more awards than you could poke a stick at,” Nicholas says.
US advisors also didn’t seem phased by the threat of robo-advice. “A lot of them aren’t really concerned about it,” Nicholas says, adding the groups they met with dealt with clients with assets of more than $750,000 and robo-advisers were targeting clients with smaller sums.
“They thought their market was big enough to deal with another service line coming in,” he adds.
“They also seemed to be keen to embrace it rather than running from it. They were looking at how to make it work for them and using robo-advice as a feeder into the business.”
Nicholas says when his colleague, Luke Eres, mentioned that Innate should consider exploring the US market they were uncertain about what results it would deliver.
But “we have enhanced our service offering and built on our business model which has been great from a business perspective,” he says.
“We would encourage anyone who has the opportunity to explore the US advice landscape and see where the path leads them.”
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