The greatest risk for advice practices bringing on Professional Year advisers is making an investment in non-revenue generating employees who then become attractive to recruiters for other firms once they finish their training commitments.
But one of the country’s leading wealth firms, Koda Capital, believes it has found a way to create an attractive career pathway for its PY advisers, and to retain when they become revenue generating by offering equity stakes as those employees progress in the company.
Koda’s “Pathway to Partnership” program currently includes a dozen staff either doing their PY or soon to commence it, with six others that have completed the program and are now advisers.
Koda founding partner and CEO Paul Heath said that when the firm started a decade ago, the goal was to build an “enduring” business model.
“It’s a forever firm and the principle was around a professional services model [rather] than a traditional advice model,” Heath says.
“The idea of partners nurturing the next generation of partners was in our DNA. We knew to do that you had to get to a certain level of scale so that you could invest back into that, because growing your own talent is the best talent, and it’s the most expensive talent.”
The firm’s chief of staff Quentin Reeve – known as Q and described as the “hidden hero” of the business by Heath – previously worked with the now-Koda CEO at Goldman Sachs and JB Were. Reeve has been at the company since the beginning and has primary responsibility for the program.
“Everyone at the firm today has equity, it’s at different levels of seniority,” Reeve says.
“You don’t have to complete that PY and you don’t have to be an adviser to get a piece of equity to begin with – as soon as you hit your 12 months first year anniversary you get that first tranche of equity coming your way and that helps retain the top talent.”
While giving equity stakes to new advisers seems like a generous deal, it also presents an opportunity for senior advisers to put an adequate succession plan in place.
Heath says advice firm principals have two issues to solve: who will buy their equity; and who will look after their clients.
“If you don’t have equity to sell you have to sell your book, but both of those things become out of reach for junior people,” Heath says.
“This is the problem for the industry. We’ve got a model that brings these people into the compensation pool early and in a structured way that allows them to build up their earnings so they can afford to buy the equity.”
Reeve says because Koda advisers have equity in the firm, they can at some point realise value for that equity.
Additionally, he says their model is built around incentivizing adviser partners to bring their associates into an equity stake so they can directly benefit from the performance of the revenue line.
“In doing so, they can start to sort of tiptoe in the direction of sharing that revenue over a number of years rather than face a cliff at some point when they’re ready to retire,” Reeve says.
“Today we have half a dozen, maybe a bit more, associates who are actually participating, despite the fact they’re not adviser partners within the firm.”
Reeve says they’re still participating in the incentive structure like an adviser would, albeit at a lower level.
“For example, where a typical adviser might own 100 per cent of their team and client book that comes with it, today the associates across our offices would participate somewhere between 2-10 per cent in the early years,” he says.
“Then over about three to five years they’d be approaching that 40/60, 50/50 level.”
The pathway program helps support the business by retaining talent – not just staff who directly generate revenue – which is why the structure seamlessly fits for PY advisers.
“There is an emphasis, inevitably, on a future partner program that focuses on advisers and that’s the right thing to do,” Reeve says.
“But we’ve really broadened that out to make sure that it’s not exclusively about the future advisers because we have a whole cohort of non-adviser future partners as well who are equally important to the future of the firm.”
Koda has more than 125 team members in four Australian offices in Sydney, Melbourne, Brisbane and Perth, along with three offshore teams in Vietnam, Malaysia and the Philippines.
Across the 125 team members, 75 of them are either partners or on the future partner pathway. There are 35 advisers with another 25 “future partners”.
Heath notes the aim is to have a “partner designate” to match the adviser partners, further future-proofing the firm.
“They’re doing their PY, they’re doing all the regulatory things that get them out ahead of the curve even though many of our advisers today had come up in the old-school way,” Heath says.
“For someone like me who’s well and truly in the second half of their career – and possibly the final quarter – just seeing this talent coming through, emerging, it’s awesome.”