June 1, 2022

The 12 Steps of a Managed Accounts Journey #1 – Transcript

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The 12 Steps of a Managed Accounts Journey

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Fraser Jack
Hello, and welcome to this x y topics podcast. My name is Fraser Jack. And we all know change is hard. And in the last few years, there’s been plenty of it. However, if we have a process or structure, and understand the long term reasons why we’re doing it, and we treat it like a project, then change management becomes a lot easier. In this series, we take a deep dive into the 12 steps to implementing managed accounts into an advice business. And we hear from a fantastic panel of speakers Simone McMillon, principal at annex wealth, David Maloney, Director of avant garde Financial Group, Melanie Bennett, Executive Director at CFS, and Tom Schubert Managing Partner of Drummond Capital Partners. Now this is the first episode in a series of form. So if you have already done the math, you may be thinking that we are covering three steps in each of the four episodes. And you will be right. In this first episode, we highlight step one, assessing what you are doing now and what you stand for. In step two, we look at the catalyst for change and understanding the moment when it’s time to make a decision to change. In step three, we look at knowing where you want to end up, you know, from 12 months to now, from now, all the way through to 20 years from now, there are so many great tips here from people who have been through this journey before. So let’s kick this off with the first three steps in the process. Thank you for joining me today Simone McMullin.

Simone McMullin
Hello, Fraser, how are you? Wonderful, thank

Fraser Jack
you for being here. Today we are talking about the journey that you’ve taken it along with your practice, and particularly the decision making that went into the managed accounts. And introducing that into your practice. Before we do that, give us a quick overview of of you and your business.

Simone McMullin
Yeah, sure. Annex wealth, we self licensed business based in Melbourne, we have eight people in our business four and a half of them are advisors. So I happen to be there. Half a person whose half advisor, half responsible manager and looking after the compliance and process side of the business, we came out of the bank network. So in 2015, myself and one other advisor started and as well, then we’ve grown then by bringing on other advisors from that same same network. So grown today, seven years in looking at providing advice, predominantly in the wealth management space, but also across personal insurance, aged care, business insurance, Centrelink strategies, estate planning. So really, you know, the holistic advice piece.

Fraser Jack
Yeah, wonderful. And we’re going to explore a bit of your journey today as we step through this sort of 12 step process on decision making, obviously, a lot of decisions go into making, you know, when you’re starting your own business. And we’ll probably get to step two in a minute where we’re talking about the catalyst for change, which was coming out of the existing structure. But I guess, as you started your business, and we’ll go through that conversation of, you know, looking forward and looking at what sort of value proposition I’m assuming that you and your business partner got together and then worked out what it was, you know that what you wanted to do, who you wanted to serve and how you wanted to serve them?

Simone McMullin
Yes, definitely. For us, it was definitely being able to focus on ongoing advice. We felt that, you know, where we had come from, there was this constant drive for bringing on new clients. And it was really important to us to be able to provide value to our clients for the ongoing service that we provided. And we felt that we weren’t able to focus on that. So that was a big driver. In terms of the investment piece. It was really important to us we’d started the business in 2015 using a managed account Um, as our investment service, and that was really important to us. So when we were previously working, we were advisors were building their own investment portfolios. And we saw that as a quad A floor in terms of advisor efficiencies in the ability to grow a business within a business. So, you know, you sort of heat a number of clients that you can service and that you can’t grow from there. But also, secondly, just in terms of the outcomes that we’re able to deliver to clients, we felt that we couldn’t bring our best to the table so that from the outset, that was quite important to us.

Fraser Jack
This is a really interesting distinction, because sometimes we talk to people thinking, I really want this, I really want this, but, but often, it comes from a place of we now know what we don’t want to do.

Simone McMullin
Definitely, definitely.

Fraser Jack
We’ve seen these things happen. We’ve seen these we know the feeling, what that it’s like when you’re just constantly hunting new business, and you don’t get to have that ongoing relationship and service. And so that’s sort of the you guys are really coming out of that what all the things you didn’t want to take those off to start with, and then start thinking about what you do want.

Simone McMullin
Yes, exactly. And we want it to be, I suppose within our own business, so that we could control the destiny, our own destiny, and also shape the advice experience for our clients, rather than I suppose be. be told how that needed to look, we felt that, you know, there’s, there’s, as I mentioned, there’s four and a half of us involved in the advice side of the business. And, you know, combined this sort of 80 years experience there. And we felt that by that point, we understood what clients were looking for. And we wanted to build that for ourselves. So when we first left the bank environment, we were licensed through a boutique dealer group, so we acted as a corporate authorized rep. And over time, we did know from the start that we wanted to be self licensed, but we just felt that it was important, leaving that big environment, we still wanted that backing of a feeling of a dealer group. But in 2020, we actually obtained our own FSL. And that then that was a further catalyst to to even get even better. And I suppose improve on the Managed Accounts journey as well, again, which was, which was interesting. It’s been an interesting couple of years on that on that path, as well.

Fraser Jack
And interesting is exactly what we’re trying to get to in this podcast. So we’ll be digging that information out of you as we go through these these 12 steps. Just Just one more thing on the you know what you wanted to do, when you worked out what you want how you wanted to serve your clients? Did you then also work out with your partner the size of business, the future, the history of the bid? Like how you want the business to grow over the next year? Did you have a Ford plan?

Simone McMullin
We definitely did. And we do still have one it does change and evolve. And we are constantly updating that we need to but we in fact have a 20 year business plan. So this was really important to us because when things go wrong, which they invariably do, and things that you just don’t expect or anticipate, even though you plan within an inch of your life, then things will happen. So but sitting back and reflecting and saying, Well, how does that then impact on a 20 year plan? That’s been quite helpful. So we did know exactly how we wanted it to look. And that has been of help through the process. Yeah. So

Fraser Jack
if you’re thinking 20 years out all the time, then it really makes the short term decisions quite easy. Yes, I should say easier. Thanks for catching up on this first step. Let’s jump in to the second step. Thank you for joining this conversation, David Moloney.

David Moloney
Thanks for having me.

Fraser Jack
Now, let’s give the listeners a very quick overview of you and your business at the moment.

David Moloney
Yeah, sure. Look, I’m one of four directors at the JPH Group. Were a multidisciplinary practice that specializes in accounting, Wealth Management, obviously, mortgage broking, commercial insurance, and also legal,

Fraser Jack
a law firm wealth. And as they tell us about the size of that, how many like there’s your financial planning practice side? How many people?

David Moloney
Yes, so within our wealth management business, we probably got about seven to eight staff. We’re looking to add a couple more. Melbourne, we’ve got about 30 staff and about 10. Interstate in also overseas as well.

Fraser Jack
Well, fantastic. And when was that started? Again?

David Moloney
It’s been, there’s a bit of background here. So the business is approximately 35 years old. Our portion of the business when we merged, probably started about 15 odd years ago.

Fraser Jack
Yep. Fantastic. So we’ve got a rich history to get through. As we have these conversations. Today, today, we’re really focusing in on sort of a change management process within within a practice. And specifically in that, you know, that I wanted to run through your journey around how you decided to and went through the process of working out, you know, to bring managed accounts into the business, as you would with with many of the projects you’ve probably run with in the business but I guess let’s let’s start with that. Let’s start with sort of the beginning for you. You’re running a practice you’re not used He managed accounts. Let’s start a little bit of the history of your business as you as you went through that process, and then when you started thinking about what what you were going to do,

David Moloney
sure. Talk a little bit of myself, just for a moment, I was 22, looking to start a financial planning practice, very green behind the ears. And our start date was one July 2007. So it was the peak of, I guess, the mining boom at the time. And of course, after that, we, we experienced the global financial crisis. Some of the scar tissue from that was a sense of feeling that, you know, our advice process our investment process, we didn’t have the answers at the time, right. So keeping that context in mind, we wanted to go down a journey of introducing really quality people and best ideas into our investment process. So we’d started looking at managed accounts approximately five years ago, with a view that we could engage an MDA licensee, also a third party provider, as well as an ASIC consultant that could give us really quality advice tailored to our client demographic that also separated us from our peers, ultimately. So that was the kind of the thinking roughly around five years ago, since then, we rolled out our first investment programs in the managed account space, roughly about three years ago. And we’ve had a lot of turmoil since in the last three years. So that’s been a fantastic process. Our communication with our clients are just so much better now. So that’s a bit of history there.

Fraser Jack
Yeah. Yeah. So we’ll we’ll jump into the story without getting too far ahead of ourselves. Just Just quickly on that, on that decision, that that we’re as you’re making it, it was there anything that you had to have in place? You know, you mentioned it sort of took a couple of years before you went before you started the journey, but was before it actually rolled out. took me back to that very beginning. What was some of the, I guess the values that you wanted to align with when it came to the reason why you decided to do that?

David Moloney
Yeah, sure. I mean, there’s a few things to unpack there. But at the time, five years ago, we didn’t know who the players were, we didn’t quite understand how they worked, and who the key or what the key inputs were in that whole process. So there’s a bit of a journey there a bit of understanding a big fact finding mission. We did create some collateral around this, we call it the portfolio project, it was really where we went on this mission to really understand how can we manage money better. So that started approximately five years ago. And you know, even to this day, we’re still learning things. But we feel like we’ve got a really strong grasp of everything. In terms of who we decided to partner with, we were trying to find someone that we’re not to be to include some kind of nepotism. Someone that was similar to us, right, in the sense that they were business owners, they were tied to what they were doing. They were accountable to us. So we really wanted that accountability piece. In the past, we have used things like, you know, Master Trusts and multi managers. And you’re kind of you get given what you’re given. And there’s no real accountability there. So what we wanted to do is flip that responsibility chain, and say, Look, you’re responsible for us and our clients, as custodians of our client’s wealth. And we wanted to ensure that there wasn’t this high turnover of staff with our third party providers.

Fraser Jack
Thank you for joining me, Melanie Bennett.

Melanie Bennett
Thank you for having me.

Fraser Jack
Wonderful to have you along. Now let’s start. Let’s start with a very quick overview of who you are and how you fit into our profession.

Melanie Bennett
Absolutely. So I’ve been lucky enough to work in our profession for about 10 years now started in advice. And then I moved over to the product side about six years ago. So I’ve spent the last six years of my life in platforms BT and now CFS and really specialising in change management, transitioning and implementation for advisors.

Fraser Jack
Fantastic. So you’re the perfect person for us to speak to, because we are talking about change management, talking about a change management process that advisors go through when they’re thinking about making major changes to their businesses. And I’m sure you have plenty of great stories of success stories and horror stories to share. So I’m looking forward to getting stuck into them.

Melanie Bennett
Absolutely. Yep. Got a few on both sides.

Fraser Jack
Fantastic. No names, of course. So let’s, let’s let’s dive straight into this concept of of a change management process. Because at the beginning of any sort of major shift in the business people sort of put projects together they work out what they want to do, but I guess it always it’s starts with that concept of initially just a small seed of an idea of, you know, is this or could this be or something? And what are your thoughts around? How people start a major change processes generally just around somebody said something or an idea or, you know, yeah,

Melanie Bennett
it’s interesting, I found is often a couple of different types of firms. Some firms are consistently looking for or consistently scanning the market for what’s now available to them, you know, as technology and things advance what’s now available to me that you store only been in store level or high net wealth level, what can I tap into? So that’s definitely one cohort of advisors that kind of get to this space, another cohort that I think is, you know, nothing’s kind of broken, everything’s going okay. However, they’re aware of it. They’ve heard good stories, they’ve heard something, there’s some other type of catalysts to change. And while nothing’s specifically broken, or there’s no immediate urgency, they’re starting to look at it, then there is the cohort where there is an immediate urgency. So you’re kind of talking about, you know, that quadrant where we’re talking, important and urgent, important, but not urgent. So people come from these different quadrants, depending on what’s happening in their practice.

Fraser Jack
That’s a really good way of it. That’s a really interesting way of looking at it isn’t important and urgent, and that that’s not just an interesting way of looking at from a practice. That’s an interesting way of looking when advisors think of their clients as well.

Melanie Bennett
Yes, yeah, exactly. And I mean, I think we all know, how busy everyone is the compliance burden, and no one’s got time, right. But if you’re constantly working on the fires, as we know, then we’re never in that quadrant and never moving the dial.

Fraser Jack
Yeah, I was just I was really interested in what you said around the style of an advice, practice and those that are constantly looking for improvement and always looking versus those are like, don’t miss it. It’s not broken. Don’t try and fix it.

Melanie Bennett
Yeah, absolutely. And I think there’s some really innovative advisors, I’ve met some practices, and I’m just completely blown away, you know, and I think it’s from their mindset in some way. And they’re just removing the, you know, bias in their own minds about how hard some things are to do. Just removing it just being curious, a little bit open minded. And then they start tackling and adopting new tech and new ways of doing things. And they end up with really incredibly effective and efficient businesses.

Fraser Jack
Yeah, exactly. Right. Now, I just wanted to dive into this step one, because he talking about sort of the concept of that initial mindset, which exactly what you just brought up, and then thinking about, you know, from, say, from a values point of view, you know, like, what’s, what’s the process going to be? Do I want this? Is it something I want? How long is it gonna take? I mean, I guess there’s a lot of sort of questions that go through somebody’s mind when they’re thinking about making a major change.

Melanie Bennett
Yeah, absolutely. And I think one of the things I’d say in this is just be really truthful with yourself around this, right? Because the change management process is most effective when you’re actually addressing the real obstacles, the real risks. So if you’re not being clear, you know, what am I actually trying to achieve here? Am I doing this from the backfoot, where I’ve got to quickly get to something to uplift revenue to sell whatever it is, just be honest about what it is, think about what you’re trying to achieve here?

Fraser Jack
Yeah. And it could well be possible that the real obstacles, the advisors themselves,

Melanie Bennett
yes. And often, and that’s okay. I mean, I’m, I’m an obstacle in a lot of things in my life, and that’s okay. But we just, you know, once we get there, then we can overcome it. Yeah,

Fraser Jack
exactly. Right. Excellent. Mel, thanks so much for catching up on this first tip. I’m looking forward to diving in the following steps with you when we get to them. Great. Thank you. Thanks for joining us, Tom. We are talking about the 12 step change management process that well, not just for managed accounts, but that all visors go through when they’re looking at making major changes within their businesses. Firstly, thank you. Welcome to the conversation. Would you like to give the listeners a quick overview of yourself?

Tom Schubert
Thanks, Fraser, yes I’m the co founder and Managing Partner of Drummond capital partners. Were a boutique investment management business focused solely on the managed account sector and providing asset allocation and holistic portfolio solutions to advise businesses. Prior to that, I was a partner at a research and advisor within a large private wealth practice. So I’ve got experienced crossing the advice spectrum as well.

Fraser Jack
Fantastic. And of course, the whole profession has been through a lot of change lately. This is a we’re going through change management process. But give us a bit of an overview of some of the changes that you’ve seen going on within the whole the whole profession.

Tom Schubert
Absolutely. I mean, it’s been a period of profound change. Now the banks exiting advice and advisors, advisors are either leaving altogether or moving to sort of smaller licensees or becoming independent. But either way, it’s not enough for advisors now just to provide advice, and they also need to be business owners. And that’s a skill that doesn’t come naturally to oh, you know, there’s many, many decisions to make on that journey. What’s your operating model, staff technology, advice proposition and of course investment solutions if I reflect on our own business journey, when we started in 2017, you know, one of the observations we made was most of the asset consulting services in market were bottom up fund research driven. And, you know, we believe advisors should get away from selling funds and refocus on total portfolio objectives. And that meant focusing on asset allocation. So we built an institutional grade asset allocation service. The second observation for us was that many managed account solutions had been built, but unfortunately, not widely adopted. And again, we wanted to provide significant sort of implementation and practice management support, you know, so our clients do gain efficiency dividend. So we focus our business on these two key pillars and outsource all other functions such as, you know, retail product issuance, or administration, and I guess, we encourage our advisors to do the same, they focus on their core competencies, you know, understand your value proposition, and outsource and partner with those specialists that can help you in other areas.

Fraser Jack
So Tom, obviously, you know, you’ve spent time as an advisor, but you know, starting your business, I see a lot of similarities between a practice owner going through the changes in their business and some of the things that you’ve been through with, with building out your business, do you see the similarities?

Tom Schubert
Absolutely, I mean, we’re working in a sort of reasonably new part of the industry, and we’re trying to solve solutions to help businesses become more efficient. And, and really, in this age of specialization, you know, we’ve focused ourselves on on a competency that we have, that we enjoy doing, and that our clients, you know, seek to, you know, to gain our insights from and so, we’re an investment management business, all of our activities are focused around that, in the same way that our advisor clients are focusing on being the best technical advisors, providing that service and client engagement piece. And so, you know, specialization and partnerships are really important.

Fraser Jack
Now, Tom, you mentioned confusing and confronting, and it absolutely is, I guess, a huge area where advisors could be overwhelmed with with decision making, what are the sort of things that they should be at this first step of the process, focusing on rather than I’m thinking maybe it’s not about just choosing who and partners and what you want to do, but actually what you want to stand for?

Tom Schubert
Absolutely. I think, first and foremost, really breaking it down in its simplest format, what do you think it is that your clients actually look to you for, and recognizing, I think, in the role of advisor that you can’t be an expert in every one of those fields. And, and, and then, essentially, you know, when you break it down, so simply, you know, focusing all your attention and your efforts in the areas that you really do have that sort of core competency and skill and, and then seeking to go out and find, you know, specialist partners for the areas in which you know, you need to get assistance for it and understanding that, it’s okay, your clients are going to understand that you’re not an expert in every facet of the business. And I think that in itself, partly leaving the ego at the door, can be quite a liberating process, because it does allow advisors and again, to build a more efficient business, and to think about, you know, the way in which they deliver the advice with the client at the center.

Fraser Jack
Yep. Now this is, this is this is leaning into this concept can be quite confronting for advisors, because they’ve done this before in the past, and they’ve hang their, their head on their expertise in this space. Sometimes it can be a little bit of, you know, surrendering that and saying, saying to their clients, or their existing clients that they use, they used to do this in the past, they are now you know, maybe not the best person to do that in the future.

Tom Schubert
Yes, in some ways, I think, absolutely. That that’s the case. And again, it’s just, it’s coming back to our ultimately, the advisor client relationship is one of, you know, enormous trust. And, and in the end, the clients just want you to be the source of truth and the source of information. And even if you’re not ultimately responsible for producing that, in our case, you know, all of the investment related, you know, communication, content and ideas, but that ultimately, you’re the responsible party for delivering that information to them and helping them to understand and helping them stay on track. That’s what they’re looking to for. And that’s, you know, that’s where the trust comes from, and continues to build. And so it’s absolutely okay to say, you know, I’m not the expert in this area. And I’ve bought in specialist resources, because I think it’s in your best interests. And I think most in the end that that decision, and that conversation is liberating, and I think it’s enlightening also for the client to understand that as well.

Fraser Jack
It’s probably not, it’s not a new conversation, because obviously a lot of advisors are having a conversation with clients so that you know, anybody that’s thinking about this wouldn’t be the only person that that’s ever happened to. And, and so obviously with some of what you’ve seen is that has been a conversation that’s been, you know, maybe confronting for advisors to habit once they do they, they feel liberated. Yeah, absolutely.

Tom Schubert
You know, I think it enables them to focus on what they want to do. And it comes back to that that whole concept of trying to build you know, the The practice of the future, you know, what does that actually look like? What makes you want to go to work every day? Is it happier clients? Is it happier staff? Is it more referrals? You know? Is it richer, deeper conversations with your clients, on the things that matter on the technical advice on, you know, engaging with the next generation and their children, all those things, that’s, that’s really what the goal, I think, should be for most advisors. And so once you get back to the, to the core of that, you know, removing the things that, you know, potentially were distracting to you achieving those is really, really powerful.

Fraser Jack
In this second step, we talk about the catalyst for change. And in your journey, it’s really was around done that there was two sort of catalyst for change there, there was obviously the change of getting out of the banking system and creating your own business, which was obviously huge set up, and then you had a second catalyst for change, when in 2020, when you got your own license, you want to talk us through those two moments in your journey? Yeah, sure.

Simone McMullin
So when we started annex wealth, we used managed accounts. So as I mentioned, you know, coming out of that bank environment, where advisors were building their own investment portfolios, that was the norm, and we saw, you know, really big flaws in that process. So advisors unable to be efficient, and are able to build their client base, but also, importantly, the outcomes for clients. So what we saw there were delays in implementation. So clients were waiting for their annual reviews with their advisors before investment changes were implemented. So that could mean you know, you could have a client base of 200 clients and 25% of them get changes done in one quarter, and then that just, you know, translates across the year. So that was really a poor client outcome. Unfortunately, for clients, they were unaware that this was happening. So for us, it was really important to be in an environment where we were transparent and authentic with our clients that was really important to us. And, and so moving and setting up our own practice, we felt gave us that element of control to be able to give all clients a similar outcome, which which we thought was, was sort of not not happening from the environment that we came from.

Fraser Jack
in your, in your journey. I feel like there’s a lot of whenever we put we make these decisions, or you know, there’s the tipping point, there tends to be the there was a whole lot of stuff that happens and it gets worse and worse and worse. And we finally pull the trigger on that tipping point. Was that quick for you guys? Or was that something that you had to take a lot into consideration,

Simone McMullin
we took a lot into consideration. So we spent sort of 18 months to two years building the foundations of the business before we actually took that plunge. And in terms of starting with the dealer group that we started with, it was again, another 18 months of pre planning and building towards obtaining our own license, the pitfalls, so what we thought we had in terms of the managed account solution that we move to the, the setup was that the dealer group actually operated the managed account, and they also acted as the portfolio manager. So during our experience with that, and also, at the same time, I think we need to keep in mind that the industry is changing and evolving as we go as well. So a lot has happened since since 2015, it continues to happen. But we just saw on the horizon playing out the fact that clients were looking for separation of products versus dealer group versus investment manager, and that we felt that was important to clients as and was going to become even more important, as well as being of great importance to regulators. So we decided that in stepping away and starting our own AFSL, it was really important to us to then take the learnings from our 1.0 of managed accounts and really improve on that in the second second phase, and say, Okay, we now we’d like to look at separating the managed account operator from the portfolio manager from the advice provider. So, in doing that, Fraser to answer your question, your point was, yes, it did take a long time to uncover that. And to go through that process of discovery around how do we actually make this happen?

Fraser Jack
Yeah, fantastic. And it was some of that conversations around that, you know, obviously, there’s different parts of that conversation. How much of that was around the concept of, you know, this business efficiency around, you know, valuations? You know, those sorts of things and thinking about this from a business point of view, not just from the, you know, how do we look after our clients, the best we can point of view?

Simone McMullin
Look, from an efficiency perspective, we really felt that if we didn’t continue along these managed account paths, there was always going to be a ceiling at which the business could grow. So it was all it was for us. It was about how do we how do we move that? How do we get advisors doing, what they what we believe they’re good at, which is being the strategic adviser and covering the client’s goals, working with the client, keeping the client accountable? How do we get them focused on that, instead of focused on building portfolios, which we don’t believe is their expert expertise. So and in by doing that, you’re then allowing the advisor to grow in terms of how many clients they can service so it was a haircut. Couple of facets to it. The end outcome is that the business we believe that the business has a higher valuation because of that. But that was more so an outcome rather than our main, our main driver.

Fraser Jack
Welcome back, Dave, we are talking about the catalyst for change and a lot of this decision making process. Let’s get back to your story. Tell us what your in your practice what was sort of one of those main reasons for you actually deciding that this is what we’re going to do and pulling the trigger?

David Moloney
Yes. So look, it was probably client driven to be to be frank. So it also, coincidentally, the Royal Commission was going on at the same time. And we did really want to take that opportunity to get something that could set us up for the next, you know, 20 years, really, as a business. Our client demographic, quite loosely, tends to be pharmacy practices, barristers, medical professionals, people that tend to be self employed, and traditionally have been outsources of their finances. So there was a real, I guess, yearning within our demographic and client base to have something of quality, right, and something that we could say, you know, as custodians of, you know, your wealth, we have a real control and oversight of that for them. So that was the main driver of it in terms of some of the key decisions around things, especially an asset consultant, who do you partner with this so many out there, we did land on a particular asset consultant, drum and capital. We really felt that they understood us as a business they and understood the advice process. And in terms of the communication that they can provide our clients, the insights, it really was aligned to our clients. But that that was a long process. We we spoke to many others. But that was the key thing that we were looking at at the time.

Fraser Jack
Yeah. And certainly the Royal Commission had a lot to do. There was all of a sudden there was a lot of spotlight was on the advice firms, and they were, you know, certainly answering a lot of questions to client. Now, just you mentioned the long term plan, I’ll get on to a bit more of that your twin the 20 year plan. That’s a it’s a great thing. And dealing with professionals, of course, just with that, I just gonna ask you, what was your licensing situation at the time? And has it changed? Or was it was a pilot

David Moloney
spot on? So look at it, it’s a quasi model at the moment. But look, we were self licensed at the time. So when we did start this journey, we were self licensed. We have since given that license up a bit more background into our firm, we are partnered with Nga, and a strategic view was that we would partner with an external AFSL. And we currently use that as a for sale today. But a key requirement was to accommodate our investment process and the way we run that, and they’ve been more than fantastic around that. But yeah, you ultimately can set these things up doesn’t matter whether you’re self licensed, or with a dealer group. It’s obviously possible.

Fraser Jack
Mel, thanks for joining me, again, we are talking about the catalyst for change or a decision making process, something that goes on in an advisors mind when they actually make this decision to pull the trigger. What are your thoughts?

Melanie Bennett
Yes, I often do think there is a catalyst for change. As I said, there is a cohort that I think proactively looks for improvements. But often, you know, in a very busy world, you’re very time constrained, you know, everyone’s hunting for your attention. Something happens in your business that makes you look at how you can become more efficient. And you end up doing your own fact finding process your own RFP process looking at it, how can I make my business more efficient? Or how can I bring x y Zed capability from a professional manager into my business because someone’s retiring, or we’ve got too much divergent in our returns, you know, something is happening in your business that makes you look at this. So I think there’s usually a friction point within the business that gets you to the point you’re looking at, you know, a change.

Fraser Jack
Yeah, and a lot of advisors I’ve spoken to that when something happens like this, and they may make a change, it’s because they have hated something or they really want something but there’s like there’s there’s either some sort of, you know, towards or away from motivation that just gets to that tipping point in it. And sure, it could be external there could be a change in licensee or or an external factor that goes right now’s the time to do it, because I’ve been thinking about it for too long. But you know, what, what are some of those things that you see in advisors when they go right to time?

Melanie Bennett
Yeah, absolutely. So definitely changing licensees or are you becoming so have licensed moving dealer groups acquiring selling practices. Often there’s also a point where you’ve had a few key stakeholders in the business that have been involved in the investment decisions going forward. And previously, sorry. So going forward, I mean, to reduce your key person risk here, they’re looking for succession planning, etc. How do we address that? Increasingly, as well, you know, advisors have an incredible amount of tasks that they’ve got to be across. And they’re doing a huge job of governing these portfolios. So I think, with all the education that’s going on in the industry, they do get to a point where they’re like, Well, what would that look like if I brought someone in to help that? Right? How could that enhance my value proposition? And eventually, once they start going down that pathway and start doing their own research, they get to a point where they’re like, Okay, I can see how this works. And once the light bulb clicks, boom, it’s all systems go.

Fraser Jack
That’s pretty much like that, isn’t it turning the light bulb on? And it’s like, bang, why didn’t Why did we do this? Two years ago?

Melanie Bennett
I think there’s a lot of, you know, I said, there’s a lot of research and a lot of education going on in the industry. But I mean, there’s also a lot of confusion. I think there’s a lot of different structures, you know, how do you go about this process? How do you find a manager that you want to work with? How do you pay them? How do you do all this? So there’s an element of confusion, I think, and just oh, I don’t know, therefore, I just won’t start. Yeah, that also stops. So once you get through that you like,

Fraser Jack
Ah, it’s very easy not to make a decision when the all the decisions are overwhelming. So I’m keen to I’m keen to dive into that point a little bit later in the chat. But I just want to say for now, we might, in this point, and we’ll catch you in the next time, step two, in the change management process is really around the the concept of a lot of people decide to change or, you know, make the decision to do something about this. And generally, there’s a catalyst, or sometimes there’s a catalyst for what that moment is in time. And, you know, in all decision making, there is a point or a tipping point. And when we actually make the decision, what have you found to be within, you know, your observations around the advisors that have made this decision? That to be the catalyst for change?

Tom Schubert
Sure. So obviously, we say the statistics on the number of advisors leaving the industry and I think the advice industry at large has had its moment and those that are left, now realize that they need to build a better business build a stronger advice proposition. And, and often that catalyst might be now they’ve moved out of a large institution, by choice or because the institution no longer is in advice. And they’ve either set up under a dealer group, or they’ve set up their own license. And so they now you know, with that business owner hat on, realize that they need to work out a way to efficiently and effectively and equitably deliver, you know, strong advice solutions to their clients. And I think those that are, again, that have stayed, they’ve been put under enormous scrutiny than the new procedure and standards of code of ethics. Really make the advisors rethink the way in which they’re delivering advice. And, you know, product is getting harder investments are getting harder. And and the need to gain that business efficiency in order to give them time essentially, to focus on focus on the clients and giving stronger advice is really important.

Fraser Jack
Yep. That so there’s obviously been a lot of external triggers, I guess, or external catalysts for this change, where it’s been people are moving and therefore have to make a decision have to change the way they’re doing things have to change their documentation, whatever it might be. But, but for some advisors that are remaining, or haven’t changed, that sort of stuff, you know, should they be also looking at this and thinking, Well, do I actually need a catalyst to change? Or am I ready to just make a decision?

Tom Schubert
I think if you’ve made the decision to stay now, if you’re thinking still, with having gone through five years of pain and change, I think all the advisors that certainly we’re working with today, have got a mindset as a business owner, you know, 10 or 15 year horizon of how to build that the best business they can, and how to maximize the value of their business. And you know, if they’re going to do that, then adopting best practice across all areas of their businesses is really important. And so, at the start more profitable, stronger, businesses are ultimately going to deliver better advice solutions as well because they’re going to be better resourced, and I think that’s, that’s really critical. It’s not a cottage industry anymore. Scale is, you know, was was too much in the institutions, but it’s not, you know, you also need to generate some scaling within a business in order to deliver you know, best practices as well.

Fraser Jack
Yep. Bernie mentioned maximizing evaluations there. Of course, in the future if you if you’ve got some profitable practice, then obviously they’re worth more so I guess if people are you’ve probably seen this where people are preparing to leave the profession, then they could also be doing this to to maximize the value of their business.

Tom Schubert
Absolutely. Yeah, I think In the end, a more efficient business should should have high margin, but also having centralized and efficient business model, whether that’s through managed accounts. We’ve seen evidence in other markets. So Australia is really reasonably early in its adoption profile for managed accounts. And we’ve seen the UK had their royal commission about five years prior to us, the US has been on a similar trajectory really, since 2004. And so they’re more mature stage of this process. And we’re seeing valuations on businesses that have gone down the efficiency path or gone down a similar path around managed accounts, being valued at a much higher multiples than the traditional wealth businesses that they’ve left behind. And so I think in the end back to that sort of those that have realized they’re staying for now and are committed to the industry, either to maximize the value of the sale of their business or to grow their business into the future. Know that they need to adopt best practice now or be left behind as the rest of the industry does.

Fraser Jack
So thanks, Simone. So step three of the process, we’re looking at really the conversation around understanding what you want this business to look like in the long term. Now, you mentioned you have a 20 year plan talks about talk us through that and how, you know, what your long term prospects of the businesses in your 20 year plan?

Simone McMullin
Yes, sure. So we have four equity owners in our business. And two of them, we have a 10 year age gap. So So two of us are in our late 40s, early tickets pushing 50 and the other two are 10 years behind. So our business plan looks at having a retirement or an exit runway foot for everybody in that business. So we’ve built in providing older partners a pathway to exit as the business grows and evolves and younger partners, and new people coming into the business the ability to take on equity. So that was quite quite important to us from the start in terms of having an ability to realize some of your equity along the way, as well as attracting and enticing new new advisors and new people into the business. So

Fraser Jack
just just on it that says this sounds really interesting. It’s just like the the legal or accounting model where you have equity in the business, but you can other partners can come in and sell your equity on the way and there’s a consistent valuation methodology.

Simone McMullin
Yes, definitely. Yes, that’s exactly exactly what we’ve done.

Fraser Jack
I guess it’s clear and transparent, then to every single person in the business as to what the value of the businesses

Simone McMullin
interesting point, wouldn’t say, every single person in the business, we do want to get there. But because we have a combination of advisors and support staff, we haven’t yet shared that level of information. But our intention is that for we believe that everyone in the business is a critical person in the business. For example, our youngest person in the business has been with us for five years, so have been with us along most of the journey. And when we have commenced his professional year and looking for him to understand what the long term ability is for him to have equity in the business as well. So it’s a bit of a project. But so we sort of started with the founding partners, so to speak, and then we’ve, we’ve sort of spread that out across the business.

Fraser Jack
It seems to me that I could say it’s a great way to entice people that are looking for that long term career, though, isn’t it? It’s if they want to come in you like you’re finding the right partners, not just employing advisors, and and they may move on in a couple of years. You’re you’re looking for people that for that really that long term, 20 year plan?

Simone McMullin
Definitely, yes, definitely. I think clients are looking for that as well. You know, the environment that we came from, we had feedback often from clients that every year they turn up, and they’ve got a new advisor in front of them. We’ve never wanted to give our clients that experience, it was really important to us when starting the business that if a client comes on board, and they’re a client of Simone Macmillan, that that’s the advisor they remain with, we then want to build support teams around those advisors, to help them deliver that advice to clients. So, you know, ultimately, you know, we used to think we could only have 100 clients per advisor. With the managed account solution, we feel we can get that to about 150. And from there even further to the 200 mark, we’ll be building associate advisors and support teams to help that advise that deliver the advice to the client. So but just making sure that that is consistent, that that’s our aim based on the feedback that we’ve had from clients over the years.

Fraser Jack
Thanks for joining me again, David Maloney. Now it last time we were chatting about the previous topic. You mentioned the concept of long term plan and over that 20 years. Tell me about how important that is for you and your business and how it’s part of this decision making process.

David Moloney
Yeah, I mean, if you look at our management, we’re relatively young probably when you compare us to typical firms. So we’re all in our late 30s or early 40s. And if we want to do something for the rest of our careers, we need to have a 20 year plan I guess. But to break it down, we do have a Short, medium and long term goals. The long term goal, obviously, is that we want to be a fantastic practice that our clients are advocates for how that looks exactly, we’re still unsure. It’s a bit like the early explorers, you know, something’s out there. But you’re not until you do it the kind of get a better, clearer idea of what you’re trying to achieve. In terms of the short to medium term goals, we are looking to acquire quality businesses that we can integrate into our practice. We’re fortunate that we’re talking to several at the moment. And we hope that we can successfully execute those not only to initially merge them, but integrate them as seamlessly as possible. That’s where managed accounts are really important to us. Because it really does provide that back end support, and we can better integrate practices into our business. Yep.

Fraser Jack
And I want to just quickly go through again, that the decision making process we talked about, there was catalysts around there. But I want to talk about the longevity or the having that 20 year plan and how that can provide clarity around the decisions that are made today. Obviously, if you’re just thinking short term, there’s lots of you get into the weeds. And when you start going that 20 years ago, okay, well, that’s the direction we want to heaven.

David Moloney
Yeah, exactly. So some decision making we’re making is not for short term profit, we’re making some long term investments. And that’s centered around technology, efficiencies, better client experience, as well as partnering with the right third parties, sometimes you only get one crack, at least, because unwinding them can be extremely costly and distracting. So if we do a lot of that groundwork upfront, spend the right level of capital, we believe it will save us a lot of money down the track. And that also includes partnering with good quality people, if we’ve got the right infrastructure, and we get good quality people into our business, they’re more likely to hang around as well.

Fraser Jack
Yeah. And you and I have previously spoken around the concept of each part of your business, having a something you know, like a something that sits itself out from the crowd, or stands out from the crowd,

David Moloney
spot on. So we look to have an edge in every business line, and something that kind of distinguishes us, from our peers and competitors. So as a clear example, in a mortgage space or lending space, we do have favorable policy that we can obtain with some lenders. And that’s something that we can articulate quite clearly to our client demographic. And it’s something that they really appreciate. We often get clients off the back of that, and then into other areas of service. We also wanted something and the key to that success was actually clients became advocates for our business. We wanted something like that within our wealth management business, where clients could really see the benefit without us really having to prompt them. And they become advocates of that service.

Fraser Jack
Fantastic. Thanks, Dave. I look, I’m really going to ask you a few more questions about articulating that clearly, which is really important. But I’ll do that in the next section where we jump in and start talking about the investment philosophy. Yeah, great. Well, thank you so much for joining us, again, we are talking about step three in the change management process where we start to think about, you know, a bit of planning and where we want to be in the long term to help us make some decisions around the process.

Melanie Bennett
Yeah, I mean, this is a really good step. This is a fun step. I think if you sit down and really do it, I mean, what do you want your business to look like? And you’ve got to be really unconstrained in your thinking, like, really, what do you want your business to look at, there’s nothing stopping you getting it. But this is a really good step as well. Because as you’re going through the process, there are quite a few steps involved in this. And you know, change is difficult. So having a clearly defined vision of where you want to get where you want to end up what you want your business to look like. What you want your clients to be getting is really powerful for when you’re in the midst of it. Yeah.

Fraser Jack
And when you’re working with businesses in this space, what am I sitting there with a blank look going? I don’t know, what should it look like?

Melanie Bennett
Usually, when you ask this question, though, they’re trying to fix something. So instead of it instead of looking at where they want to end up, they’re just going where do I not want to be now, but where do you want to end up but it’s almost like they’re scared to look that far. Like it’s unachievable, but it’s just not.

Fraser Jack
Yeah, yeah, I guess some, I guess, there’s certain if you can look far enough out that makes the decisions now pretty simple.

Melanie Bennett
Yeah. And I mean, there’s a lot of there’s a lot of efficiency and a lot of change that your business can get through this process. So putting yourself in that mindset of like, okay, if I have that, what does my client relationship start to look like? What does my pro that line starting to look at, you know, how am I staff interacting?

Fraser Jack
Yeah. The funny thing about this is it’s difficult to do, but then it’s the same position that many advisors put their clients in. And when they start talking about what are they, what they what do they want their retirement to look like?

Melanie Bennett
That’s a really good point. I hadn’t thought of that. Yes, really good point.

Fraser Jack
It’s always easy to be on the other side of the table, I think. Yes, very true. Good point, was, it’s always easy to be the one asking the questions and the one coming up with the answers to, but you are right, that I think people want to start it starting with that, where Don’t you want to be as not a bad spot?

Melanie Bennett
Yeah, yeah. And I mean, process of elimination, right? It’s not Yeah. And then sometimes you work through it, and you get to the blue sky thinking, but my encouragement is just to really think about how you do want to run your business and what you do want it to look like and might not be as out of reach, as you think.

Fraser Jack
Yeah. And when and when you do that, then I guess the next part of this process is to really think about the numbers and work out what the profitability margins are. And the you know, the valuations might be you know, for the long term, you know, exit strategy for the business. And you

Melanie Bennett
need to have KPIs that you’re tracking yourself to on this, because you need to see the wins, it’s important, you need to see how your business is actually tangibly changing, if they’re not measurable. How do you know you’re hitting the mark here? Yep.

Fraser Jack
Yep. Fantastic. Excellent. So any, any massive tips in this space for advisors sitting down and thinking about their, you know, what are they what they want to be when they grow up?

Melanie Bennett
I’d say it’s a great activity to do with your staff as well bring them along the journey, ask them what their pain points are, you know, what do they want their day to look like? And then you’ve got some KPIs that your whole firm is tracking into. And then you’ve got everybody bought into this change process. So I think it can be really fun, make sure they’re measurable. And I bring as many people in through the process as you can make sure you just documented well, because it’s a very good tool to refer back to

Fraser Jack
Yeah, I think that’s a really good tip to you know, reach out to people around in around the community, like yourself, or even your peers and just say, you know, what are the ideas or thoughts or what, what could the future business look like? Absolutely. Now, Tom, in step three, we, we have the change management process, we’re really looking at, you know, where do businesses want to end up and, you know, this is this, I love this part, it’s sort of like starting with the end in mind, a great little principle of working out, you know, what could be the end game for a lot of these businesses, you know, when you making this decision, or going through this change process, talk to us a little bit about what you’ve seen in advisors, what goes through advisors minds, when they’re thinking about what their their endgame might be, and why this is such an important part. Yeah, absolutely.

Tom Schubert
Back to the consideration, I think you’re no longer an advisor, but also a business owner. And when you put your hat on, you realize, well, okay, how am I building the value of the asset, which you’re investing so heavily in, and it has mean to having a really close understanding of what it costs to serve your clients and what revenue you can generate. And if you’re not doing that efficiently, we say across the industry, some pretty interesting or, unfortunately, sad statistics in the estimates from, you know, from Treasury, I think KPMG has done a report that the cost of advice per client is is ahead of actually the average revenue per client. And so we really need to look at, you know, better ways and more efficient ways to deliver that advice. And if you come back to, again, your core competency and value propositions, your clients and clients are coming to advisors for superannuation advice for that technical insurance advice for tax structures for the wealth planning. And anything that’s not a core competency within that which you are not essentially charging advice fees for in a way, that’s where you should be focused on outsourcing. And if that’s Investment Management, which again, we believe is a, you know, a specialized profession in its own right, if you’re able to outsource some of that capability, and ultimately, then focus on providing better advice in the areas you can actually charge your clients for, then hopefully, that means that you want to delivering a better outcome for your clients and to it are actually generating a positive margin on the on the advice process, which unfortunately, at the moment, the industry on average is not, and it’s a problem that we all need to solve for.

Fraser Jack
Yes, exactly. Right. Yeah. Sustainability is obviously the first step and then profitability comes after that. You’ve obviously seen a lot of businesses go through this process. Is there anything that you’ve seen coming out of the other side as to how much more profitable or sustainable they can become? versus, you know, say, you know, by the time you add these efficiencies and to the business?

Tom Schubert
Yeah, absolutely. I think when we started the business, one of the observations of the industry was that managed accounts. Were getting designed at a practice level and sort of left within the business like another product. And, and our view was essentially that it needed to be a more holistic investment service that really we didn’t believe the efficiency dividend for the business would be Lawson to north of 80% of the practice was using and the clients were using the service. And the reason is that if you’re gonna take it away and say managed account is not a product, it is a service, then actually, what you need to do is rethink the whole way in which you deliver investments to your client base. And so it’s not just one thing to say, well, here is a solution for a segment of the client base. But the whole process needs to involve assessing, how am I actually going to deliver investment service to those clients where the managed account is not suitable. And so having seen all of that, we spend a lot of time you know, with our clients upfront trying to understand the different segments of their client base and, and how they’re actually going to cater to the whole client base, noting that we will not manage the investments of the whole client base, but we need to help the practice solve the solution. And so what we’ve, what we’ve developed over time is support for them to get to that point where we’ve seen our clients crossed that sort of 80% threshold. And they’ve finally reached that efficiency dividend piece where, you know, the reviews are all done on a quarterly basis regularly consistently for their clients, their staff satisfaction is greater because they’re more focused again, on value adding advice processes, rather than investment related administration. And they’ve got capacity, you know, anecdotal numbers are like 30% capacity now within their business to go out and grow. And, you know, and that’s ultimately what they’re trying to do.

Fraser Jack
How are practices solving for that? 80? You know, that those clients that don’t there? Or the maybe the the solution is not ideal for? How are they solving for them at the moment? Are they sort of reducing the size of their client base? Or are they still working outside of their managed accounts?

Tom Schubert
Yeah, I think it’s really interesting. So I think starts from the premise of how are you actually going to present the new service, if you will, the managed account service to your clients, and it’s not a yes or no, it’s actually taking stepping the client through the decision for that you’ve made as a business to adopt the service in markets are obviously moving a lot faster than they used to cost of delay, having the discretion within that structure is really important. And then the features that come along with, you know, the scale advantage and the delivery of that efficient advice for the end client, understanding that they will have best ideas implemented equitably, when the market dictates not when the advisor meets at review. And once you explain the process to them, then the client can say, well, but they still want to retain control through the traditional advice, process and consent, essentially, to all the changes, then then arming the advisors with one a solution for that. So maybe a more static, long term, you know, lower frequency of rebalance style arrangement, and actually encouraging them to price that accordingly. So it comes back to understanding your cost to serve, if the only way in which those clients can have their portfolios, you know, changed and rebalanced is by other traditional ROA or SOA process, understanding what that looks like explaining it to the clients and then having them decide that that is actually the path that they want. And I’m paying for that advice accordingly. And so it’s actually making sure the clients are clear on how you need how you as a business, deliver investment solutions and not hiding behind that, I think that’s absolutely okay. Because in the end, the client will ultimately choose, do I prefer to be an efficient path that you think is best practice that you think is best for me? If you’re not and you want to retain that control, then what are the implications of that both from the advisors perspective, but also from the clients perspective, and then ultimately letting them make the decision. And in the end, that’s how, you know it’s taken on the right journey. The clients have said, Actually, we want to adopt your best ideas, focus and really got to that north of 80%. Level.

Fraser Jack
Yeah, there’s some really interesting points you’ve just brought up there, which will probably dip into a little bit later around control. You know, the clients having control or trust, I guess, is the is the thing. But not only that, the adviser also has to think about control versus trust in a relationship as we get on so we’ll get we’ll get to that and one of the other steps but for now, Tom, thanks for being part of this particular step.

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