Among the more scholarly pieces of trivia to have sprung up around the music business are the history and “family tree” illustrations of connections between bands and musicians, written and drawn by Pete Frame, an English music journalist.
Frame’s drawings show at a glance how the members of a given band came together – their current bandmates, previous band members and their bands, associated musicians and other connected acts of their era. The number and complexity of connections between even seemingly remote acts is startling at first.
In the financial planning industry, the Robert Morrison group forms the trunk of one of the oldest and most far-reaching family trees. It was a launching pad for a number of individuals who went on to play important roles in developing financial planning into what it is today – including Jim Clegg.
Clegg, a founder of Pembroke Financial Planners, is now officially retired, but serves as a non-executive director of Platinum Asset Management and sits on the board of the Walter & Eliza Hall Trust.
Clegg left the world of funds management at property syndication business DF Johnson in 1983 to begin a career as a financial planner with Robert Morrison’s eponymous advice business.
At its peak, Morrison’s consisted of 76 financial planners and invested more than $200 million of client funds every year. When the business broke up, it begat three new businesses: Cameron Walshe, Bain & Co, and Pembroke Financial Planners. And this is where the story really starts.
Clegg created Pembroke Financial Planners after leaving Morrison’s, then led it through a merger with Godfrey Weston to form Godfrey Pembroke. Clegg later led a group of practices to create Berkley Group, which merged with Centrestone to create Centric Wealth, before Centric itself was acquired by Findex, in 2014.
All of this needs one of Pete Frame’s family tree diagrams to truly grasp.
“Being with [DF] Johnson as an investment manager, or really more of a marketing manager, I had contact with all the advisers, and at that point it was really Godfrey Weston, Morrison and Paul Terry [the Terry Corporation] that were the main” entities, Clegg says.
“It’s fair to say that Morrison and Terry – and I don’t know that John Godfrey would like to hear this – were the main pioneers of mass advising.
John Godfrey and Max Weston were a little later than Morrison and Terry.”
The profession’s early days
Clegg says that although financial planning was in its infancy at this time, the elements that would eventually lead it to where it is today, closer than ever to becoming a recognised profession, could be detected even then. Pembroke introduced a fee-based advice model in 1989.
“If you were to look back today at the way things were done then, you would be horrified.
But nevertheless, they were the pioneers of the industry,” Clegg says.
He says it was clear from the outside that financial planners enjoyed immensely what they did and that, along with the powerful attraction of running his own business, lured him away from funds management.
Clegg received assistance from Morrison to set up his advice business, and says that right from the start he had a natural affinity with financial planning, and with financial planners.
“I was very strong with numbers,” he says. “I almost always got 100 per cent for maths, and it just felt like a good thing to do.”
Clegg explains that when he started out, while financial planners focused on “analysing the person’s financial position and their goals and objectives, and all that sort of thing”, there was nevertheless a “large component on how to weave property trusts into the recommendation”.
“At the time, almost all the recommendations were property trusts,” he says. “Shortly thereafter, some equity trusts were introduced into the mix, but it was all about selling managed products, with upfront fees.”
Clegg says it is not accurate to say that financial planning at the time was wholly unregulated and
that financial planners were turned loose on the public with no training or expertise – even though
the era predates even RG 146.
“Most firms had their own internal training programs, which I guess varied from being pretty reasonable to pretty ordinary,” Clegg says. “There was ongoing training. In terms of the context of the time, I’d give Morrison’s a seven
or eight out of 10.”
He says his introduction to financial planning was “incredible”.
“I got a few leads from head office, and they just all became clients,” he says. “And then I became pretty good at marketing myself, ran a seminar program and we’d get 70, 80 or 90 people at seminars, and we’d get 50 or 60 interviews out of it.
“And then we hit on this idea of sending out a little five-minute questionnaire. We put them in post boxes and we put them in journals, and we got an amazing number of leads out of that. It was just unbelievable. And I’d wake up in the morning almost pinching myself.”
Clegg ran his advice business in Sydney for 15 months and then moved to Toowoomba. He probably would have stayed there, except that six months later Morrison’s “got into some difficulty”. A group of its advisers left to join the stockbroking firm Bain & Co, and Clegg was invited back to Sydney to run the Morrison business.
“We changed a lot of things,” he says. “We made it a much fairer arrangement for the advisers, and put a lot of processes in place that were well accepted by the advisers.”
Founding Pembroke
In 1986, however, Morrison received a letter from the then-Corporate Affairs Commission (a state-based precursor of the Australian Securities and Investments Commission) asking him to show just cause as to why he should not lose his licence, “and that’s when we decided to leave and form Pembroke Financial Planners”.
The Pembroke start-up was backed by Larry Adler’s FAI Insurance, then still some years away from becoming embroiled in the scandal that led to a royal commission inquiry into the collapse of HIH Insurance and the jailing of Adler’s son, Rodney, and several HIH executives. Clegg says that at the time, FAI was the only group prepared to back the fledgling financial planning business, and that Larry Adler was “the best boss I ever had”.
“I know all the stories about him…and if you were on the wrong side of him it wasn’t good,”
Clegg says. “But he gave me better advice and was a better listener, and gave me more mentoring, than any other boss I’ve had. I really enjoyed working with him.”
Joining Clegg in Pembroke were some strong characters who helped shape the firm’s philosophy and ethos, including the head of research, Judith Towler, and Phil Middleton, who in 1990 moved to Adelaide to join a Pembroke office his brother had established.
“And on the advice side, we had Tim Marshall, David Child, and my sister Liz Whelan,” Clegg says. “They were all key players. We actually started off with about 25 advisers on day one, all ex-Morrison.”
Pembroke peaked with about 50 advisers, with notably strong representation in Adelaide and Queensland. If the era of financial planning spanned by Morrison was characterised largely by recommending unlisted property trusts, the era that Pembroke launched was “definitely expanding into equity trusts, mortgage trust and cash trusts”, Clegg says.
This created some challenges, as advisers were asked to provide advice across a wider range of asset classes. There were other factors, too, that meant financial planning firms started to take investment matters into their own hands.
Clegg says that following the 1987 sharemarket crash, unit trusts under pressure to meet investor redemption requests often found themselves selling off the more liquid and higher quality assets.
“When the dust had settled, you had trusts that were nowhere near as good quality as they’d been before the crash,” he says. “If you chose to do what you were advised to do, which was grit your teeth and hang in, you were left with units in a trust that wasn’t as good quality as before the crash.
“That was a major lesson for us, and that’s when we became really serious about direct shares, to avoid exactly that situation.”
It helped that Pembroke Financial Planning sat in the FAI structure under Pembroke Securities, a stockbroking firm.
Fee-based trailblazer
“There was a core group of advisers in Pembroke Financial Planners that was very keen on the idea of direct shares rather than managed funds,” he says. “We began to develop that, and Pembroke Securities were happy for that to happen. If there are two things I had an influence on in the industry, it’s offering direct shares to clients and…converting to fee-based remuneration.”
This was in 1989, and Clegg says the fee-based approach was introduced at his recommendation, after a visit to the United States and the United Kingdom gave him an insight into how fee-based advice could be made to work.
“[The thinking was] the whole basis of commission-based advice was not consistent with doing what’s in the best interests of clients,” he says. “We became very wedded to the idea of having the intent to do the best thing you can for clients. At that point, commissions just don’t hack it.”
Clegg says that on his return from the overseas trip, Pembroke held an adviser conference “and we said, OK, from now on, this is the way we’re doing business”.
“Even having done that, there were some that were slower to convert than others, but the bulk, and particularly the better advisers, just embraced it straight away,” he says. “They were a little bit concerned initially, when those big up-front commissions weren’t coming through – we were rebating those to clients – but within about a year, it just felt so much better. Instead of having this initial fee upfront, you had an ongoing fee, and you were working for it as well, so it was fair. You were actually doing things for the client. It was just so much more satisfying.
“I maintain that [Robert Keavney’s Investor Security Group] and Pembroke were the first to
move into fees. John Godfrey might take issue with me on that.”
Clegg says this latter development, in particular, led planners to have “a far greater focus on diversification and asset allocation”.
“So we had a strategic asset allocation, and a tactical asset allocation as well,” he says. “We made calls, though looking back they obviously weren’t as scientifically based as the calls that are being made now.”
It’s fair to say that Clegg and his cohort were pioneering what we recognise today as personal financial advice. He says there were two elements to how this came about.
“One was the actual financial advice part of it, and the other was the investment advice,” he explains. “We saved our clients a lot of money through the financial advice side of things. And the investment advice was a work in progress, and continued to be a work in progress, and was developing, and we continued to get better at it.”
Larry Adler died in 1987 and management of FAI was taken over by his son, Rodney. FAI wanted to move Pembroke into its own office space, but Clegg wanted to retain perceptions of Pembroke’s independence. In 1992, Clegg decided to move back into advice, and set up a Pembroke advice office in Market Street, in Sydney.
Around the same time, the accounting firm Ernst & Young chose to quit the financial planning game, and Clegg’s advice business began receiving referrals from that firm. It was also around this time that the late Kerry Packer stepped in to save Westpac, and when the bank undertook a round of redundancies, Clegg again was in the right place to pick up referral business.
But even as this was happening, he recognised that Pembroke itself needed “a bit more critical mass”.
Godfrey Weston merger
“You stay in contact with other people in the industry, and I recommended they talk to Godfrey Weston,” Clegg says. “[Godfrey Weston] were obviously thinking the same thing, and very quickly there was a meeting of the minds.”
Clegg says there was a similarly strong culture of direct shares in Godfrey Weston, and the two groups came together easily in “a marriage of equals – absolute 50-50”.
“So if you had 10 per cent of Pembroke, you ended up with 5 per cent of Godfrey Pembroke.”
After the merged group was bedded down, Clegg says it became apparent that it’s not always the best idea to leave advisers in control of the portfolios recommended to clients.
“Regrettably, within Godfrey Pembroke anyway, while we had our research department and recommended list, the actual investment recommendation to a client tended to be adviser-led,” Clegg says.
Some of them were better at it than others and, “I’m not saying that was a good thing,” he says. “What’s happened since, of course, is we’ve seen massive growth in individually managed accounts and separately managed accounts; listed investment companies have become more palatable, and exchange-traded funds [have as well].”
“With all of those you’ve seen a total swing away from adviser-led portfolios to professional-led portfolios, and that’s been an extremely good thing, in my view.”
Clegg says that if the same options had been available back in the day, life would have been very different for many financial planners.
“I believe we would have embraced it, and loved it, and taken more time to grow the business, and it would have taken that massive responsibility off our shoulders,” he says. “I see that as being a very positive development in the industry, both before and since the GFC. But I think the benefits have been muted a little bit by the extent of the compliance that’s now been imposed on the industry.”
