October 18, 2022

#352 James Baird – Transcript

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Ben Nash
Hey guys, Ben Nash from the XY advisor team. And today I’m here with James Baird. James is a director and Principal Advisor at just invest based out in Dunsborough. In WA. James, thanks for joining us, me.

James Baird
Thanks for having me, Ben.

Ben Nash
Mate, you’ve been at it for a while. So I’m keen to pick up some of those the things that you’ve learned along the way I thought maybe a good place to start would be if you can talk us through your journey and advice and how you’ve ended up where you are today.

James Baird
Yeah, I started as a BDM. In the year 2000, seems like a long time ago now. And went overseas for a couple of years to the UK, and came back and worked as a BDM for Asgard for another few years before I joined our family business, which myself and my wife bought off her father, which actually been going for a very long time had been operating since 1967, started as a risk insurance business and then developed into superannuation investment over over time. So myself, my wife effectively stepped into a, a business that was well established, quite mature, had a bit of everything really had had everything, corporate super self managed, super insurance, investment, and so on. And it was a really good training ground to come into the industry.

Ben Nash
He had no doubt. And I think that, you know, ultimately relationship game VDM stuff all down the same path. But obviously a pretty different game, running your own business, essentially, like, how was that transition for you?

Unknown Speaker
Think as a BDM, I was always really interested in best practice, and trying to help advise advisors with with that, and so you’d be on the road, you see what practices are implementing things successfully. And I guess he’s sharing some of those ideas. And so I’ve always had that sort of, I guess, consultant sort of mindset. And, and I think with our business, you could see it wasn’t perfect, but you’re not going to change it overnight. So it was all about incremental improvements. And I think we still see ourselves as being on that journey.

Ben Nash
Right? It never stops, it never stops. That’s for sure. And that’s one of the things that I loved about advice. When I first started as a, as a bright eyed, bushy tailed graduate that there’s legislation is changing all the time clients changing all the time, markets changing all the time. And then you overlay that business, business conditions, technology, and all those sorts of things. That means that there’s always something to keep us occupied. I imagine that coming into a business that had been going for such a long time meant that there was probably a whole bunch of things that or ideas that you had, or things that you wanted to sort of tweak or, or refine, how did you tackle things in the early days in making that transition and figuring out what you would focus on? And what would move the dial most?

Unknown Speaker
I think there’s a couple of things. One of the things was that we implemented, started implementing fee for service, you know, flat fee arrangements for clients must have been about 15 years ago, I’m not sure the exact date. Because we could sort of see that these these trial commissions, and all these volume bonuses, I guess there was a range of things in the industry that I was sitting back saying, I don’t think these things are going to be in place forever. I don’t think it’s equitable and transparent. And sure enough, I mean, it took a Royal Commission, and a whole lot of regulation changes. But you know, so many of those things that were intrinsic in every advice business that had been around for for decades, you know, it was all it was all cracked open and ripped apart and had to be rebuilt. So yeah, we were fortunate enough to put some of those things in place where we were, we were flat fee and very transparent with with with that. But still, we were we were on that journey. And, you know, I think all of us got affected by by those Royal Commission changes and had to had to reassess your your Commission’s front. And, you know, even if a client was was happily paying 1% You know, our business tried to move away from that, but if you’re doing super 1% for a client could be they could have a 50 grand portfolio or a 500 grand portfolio. So it’s very, very hard to crack open that pricing and reset it all. So that was a real, real long term working progress. And the other thing was I guess myself and my wife had bought the business with a real keen interest on ethical investment. And, and the some of the legacy clients were, were very much mainstream and hadn’t hadn’t come on board with that overlay. So we were busy, I guess, being ourselves in ethical investment practice and working pretty heavily in that area. And then, almost retrospectively, going back to some of those longer term clients and saying, Hey, let’s go back and reassess your ethical criteria and, you know, to invest in some funds where we can get some positive positive impact for you. And one of the clients came along for the journey on that on that front. And some of them Yeah, didn’t didn’t change from that mainstream approach, and probably never will.

Ben Nash
Yes. I think for us, I’d noticed the same thing with particularly when all of the faux fur reforms were happening that you that was when I got into a position where I first had a bit more control over service structuring and fees, and how to charge and transparency and all those sorts of things. So you could see from my end, that when they started introducing, you know, the fee disclosure statements and talking about the Commission’s and grandfathering, and those sorts of things that we were headed in that direction, but I think it’s powerful to be ahead of the curve when it comes to those things. Because then when when the legislation does eventually change, it means that you can focus on what’s next instead of just keeping up so it sounds like you’re at it way, way ahead of us. But I think that that is powerful. And I think that like we were just chatting a little bit offline about some of the recent changes and the flow and impact that they’re having, it seems like things are in a good place. Now. Never say never. And I’m sure that a bunch more things will change. But I feel like the transparency levels are super high now. And basically advisors push that ensure clients are engaged, which is really what we want, I think, as a profession. So hopefully on the on the up from here. I’m keen, though, to chat about the ethical investing spaces, you mentioned that you sort of ended up with some legacy clients in that space. But I know that today, that’s a really big focus for you. Can you talk us through how that journey came about? And, you know, I suppose how it progressed over time.

Unknown Speaker
You know, I think I mean, we’ve we’ve got an ad that, that my wife put in a local newspaper in, I think it was the year 2000. Just talking about how you can you can actually invest ethically, and talk to us to find out more, and it was it was literally, those sorts of little things, you know, being a member of Responsible Investment Association, over the years, and people are just searches out people that just look us up and say, Yes, I don’t know much about this area. But But tell me about it, you know, so you get this sort of, I guess, steady flow of clients that, that want to learn more, then what’s happened over the years is that more and more super funds have introduced ethical options. And, and more and more advisors are familiar with it with it. And there’s more funds to more and more literally more investments to choose from including ETFs that just weren’t there 1520 years ago. So that’s great. There’s a lot more options to choose from. But I guess the transition in those sort of clients for us is that a lot of them now come to us and say, Look, my Superfund has, I tick the box, I’ve got the ethical option, but I was a bit surprised to find, you know, these mining companies or PepsiCo or McDonald’s or, you know, whatever it is that they’re not particularly happy about within that ethical option. And the same, sometimes they’ll come to us look, I sought advice from my advisor, but I feel like, you know, what he or she is recommended, isn’t quite in mythical criteria. So, you know, can you have a look at it, can we have a conversation about it? So, we’re finding, we’re getting people who are maybe a bit further along that that journey, that they’ve, they’ve had a crack at it, and they probably haven’t got the ethical overlay or the positive impact that they were looking for. And that’s where they search out specialists like ourselves and like other XY advisors, where we’re part of the ethical advisors cooperative group, and, and we certainly, as I’m certified by the Responsible Investment Association, and, you know, so it’s part of that, that, that overlay that discussion, and, you know, every conversation with a prospective client these days includes A discussion about their ethical criteria, and I enjoy doing it, because it adds to the conversation.

Ben Nash
Yeah, I think it’s definitely more in sort of the mainstream view these days. Clearly, there’s a lot of variation on what ethical is, but I think people are broadly aware of it. And I think talking to clients about ethical investing, or socially responsible investing does allow you to build a deeper connection with them because it necessitates getting more into their values and what is actually important to them beyond just the dollars in the sense. How did that come about? For you guys, though, in the early days, and like, how did you get into the space? And what did you actually do to build out your offer there?

Unknown Speaker
Yeah, it’s a good, it’s a good question. I just remember doing some assignments. At uni, and I’m gonna do my MBA I did one on on, on modern, modern slavery, or effectively Child child labor. And it was literally, you know, kids making soccer balls that that you buy, you know, these kids are just working, you know, probably six, seven years old stitching soccer balls in Pakistan or something like that. It was just, just just amazing. I think myself and wife had both come in with similar stories of saying, Yeah, I want to be in the industry. But I really, if I’m going to be recommending investments for people, I really want them to be to be ethical, you know, up to my standards, and, and have some positive impact and use it as a force for good. And let’s see if we can change some things. And it’s probably 20 years after that assignment and modern slavery, there’s more people in modern slavery now than any time in history. So there’s actually a lot more work to be done. And I think that’s where the positive impact comes in. Whether it’s modern slavery, or climate change, or other issues, you know, business as usual, isn’t going to get us there. And so we really believe in investment as having the ability to make a difference and make a positive impact. And, and so literally, when I’m having client conversations in reviews, or prospective clients, or, you know, even even the longest term clients that we’ve got, the markets might have been having a terrible time. But you can still have a positive conversation about the sort of impact that that is being made in those portfolios, different companies, in the green bond market is just doubling in size each year globally. And you can talk about the impact of all these projects that have been undertaken in these bond funds that are literally got got got things going on all around the world.

Ben Nash
How do you practically weave it into your advice process? Like what does it look like from a client perspective for you guys?

Unknown Speaker
I think with every client who would do that normal discovery sort of fact find process, including risk profile questions, we just include a bit of a basic ethical questionnaire in that as well, with the ES and G, the environmental, social, and governance questions and, you know, find out the areas of interest for those clients, the areas that they’d like to avoid. And the areas that really like to support. I mean, a common one we see, I don’t know if it’s because we’re in Western Australia, and maybe it’s more prevalent over here. But, you know, a lot of lot of people coming to us really want to avoid fossil fuels, but they’re generally okay with other mining, subject to the ethics of maybe the of that mining company and how it’s done. And, you know, so it’s not saying, right, we’re not doing anything extractive. I mean, a lot of people are comfortable with areas like lithium mining at the moment for positive impact, and the fact that we’re going to need that, that lithium for for this massive demand that’s going to be required for battery components. So, you know, but in those conversations, people will point out different things. I mean, a lot of people are environmentally focused, but occasionally you get someone that says, Look, I’m more concerned about the social side of things, and we deal with organizations as well. So some organizations, there’ll be looking for social positive impact and, and other ones will be environmental positive impact. So you can sort of design those portfolios around those around those criterias. And, yeah, it’s a really good way of getting to know a client is to ask what are the things that they that they really care about? Someone might say, I don’t mind investing alcohol, you know, I’m a drinker myself, but tobacco is not a no go for me. I really don’t like the way they advertise and, you know, and someone in my family passed away from smoking or you know, You just have you get into those sort of conversations that are a bit more interesting than, hey, this is what markets have been doing. And this is the market outlook. And these are the different asset classes. So yeah,

Ben Nash
yeah. And how is it? How is your approach to ethical investing advice? How is that and you’re offering for your clients? Like, how has that shifted over time? Or what’s changed in the years that you’ve been doing it?

Unknown Speaker
Yeah, it’s a good question that that really has been changed from a limited range of fund managers to really quite a wide range of fund managers. Obviously, the platforms that we use play a big part in that, like, we really over the years, we really had to work with platforms that have got the extended menu options, not just limited menu options. But these days, some of these providers just have a really, really open architecture. And you can use managed funds, ETFs and direct shares. And so what we’ve done now is set up model portfolio SMHS. And we’ve, we’ve got that in house for ethical investment advisors, group or licensee, but under the ethical advisors, funds management, we actually offer that to external advisors as well, just because advisors were coming to us and saying, Hey, you guys specialize in this area. I’ve got a few clients or or maybe maybe a growing set of clients that are interested in this area, but it’s, it’s not what I do. So they outsource that, that portfolio construction bit to us. And it doesn’t even have to be the whole portfolio, it might be a core satellite approach or something like that. But what we’re doing is we’ve got an investment committee where we’re, we’re managing those funds. So yeah, really, really wide array, what we’re actually spoilt for choice, we’re actually turning away a lot of ethical investment options these days. You know, on the international shares front and the Aussie shares front, most commonly, and that’s, that’s good, that’s good position to be in and because then we can build out the portfolio thematically. But also, if there’s literally to fund managers side by side, that are constructed pretty similar portfolios within ethical screen point of view. So let’s have a negative screenings. Okay. We can actually search out the ones that got that’s creating the most positive impact and go for them.

Ben Nash
And how do you how do you go about doing that? For you? Is it just a matter of doing the research on the funds or through the the actual like BDMS? Or managers? Like how do you actually practically tackle it when you’re trying to choose what goes into a portfolio that you look after for clients?

Unknown Speaker
Yeah, I think it’s, I think it’s a real, it’s a really comprehensive blend of qualitative and quantitative because you can get that quantity info. And I guess I’d say on that quantity info, like we, we asked for the complete stock listing of any fund, the complete listing of fund holdings. And there are still a few fund managers out there that aren’t releasing those, we just say, Well, we, we couldn’t use your your fund if we can’t see exactly what’s in there. And it doesn’t have to be today’s it can be it can be last month or whatever. But they’ve got to have that transparency, then we’ve got to get to know the fund manager, because it’s about what they’re going to put into that fund next week that we want to we want to get a feel for otherwise, there’s going to be a stock that might pop and pop up in there that we don’t like and we’ll get egg on our face. Because we’ve we’ve invested for a client with certain criteria we might be we might be going against that. So through our cooperative group, we do some pretty detailed product analysis we’ve got we all share these, these questionnaires. So we can we can access that we get a range of research from ethos and ISS and Sustainalytics and other groups. And then we overlay that with I guess, the standard, you know, mainstream research that’s out there. And the input from from from from the BDMS and fund managers. Certainly a lot of the conversations we have with those fund managers might be things like, you know, this, this fund is holding Unilever, can you can you explain that? Because we’re just not sure or even look, this one’s holding Tesla at the moment. Can you explain that because they’ve had some social and governance issues. What’s the rationale? And if the fund manager can’t clearly explain, I guess their knowledge of those social and governance issues and why they think the company is moving past that and then that’s a bit of a red flag for us. So and, you know, as I said, this is why we’re, we’re part of the cooperative group and also part of ethical investment advisors, because ethical investment advisors, we’ve got a dozen advisors to, I guess, share this work, and engage with fund managers as necessary. And it’s probably a bit too much for our small practice to take on all of that and deliver what we want to clients.

Ben Nash
Yeah, and

Unknown Speaker
so it’s gonna sound a bit like XY advisor, it’s a bit of a collaborating and sharing and outsourcing for that some of that info.

Ben Nash
Totally, yeah, it’s hard to do it all yourself, especially, you know, for for any sort of, if you’re not a big massive institution, it’s does take a considerable amount of time. And I think the ethical piece necessitates you being more involved from an investment selection perspective. But obviously, there’s a lot of different aspects of your business that also require that attention. James, what some? What’s coming up for you? What are you guys focused on now? And what’s next?

Unknown Speaker
What we seem to be having a lot of conversations about is the impact investment space. And I guess, you know, we’re talking about this, this term positive impact, and we try and create that with, with listed share portfolios, and bond portfolios, and so on. But, but also, there’s this whole area of wholesale investment that really has been available for institutional clients and sophisticated investors. And I guess we’re finding that was that starting to be available for retail investors. And so some of these wholesale investments, positive impact, you know, traditionally might have been solar farms or, you know, affordable housing, disability, housing, you know, all these different areas that, that have been hard to access and might have timeframes of up to 10 years before we get liquidity. So what we’re finding now is if we can get those into the retail world, we find there is a huge demand for that sort of stuff, people really want to invest in these areas and support these areas. And so it’s a funny time in the industry, where you’ve got, you’ve got a demand that is very clear, clear. Excuse me, but the the products and I guess the vehicles to deliver that to, to your average client aren’t quite there yet. But we’re getting there.

Ben Nash
It’s an interesting space, I think broadly, across all investment markets, as we get more scale and more access for for investors, the number of choices is increasing it. Obviously a good thing overall, we think for investors, but it also means that there’s, there’s more things for us to keep our focus on to make sure that we’re across all of the things that could be, could be helpful or could add value to those client relationships as well. James, my, my last question for you, if you could go back and do one thing differently, what would it be?

Unknown Speaker
I think we probably would have gone a bit harder on on specializing ethical investment, you know, in the early days. And, you know, as I saw, I think I think looking back on what we’re delivering on things like corporate super or smaller clients, what we weren’t, we weren’t, we were doing a lot for some pretty, pretty low fee revenue, but we’re doing it for the greater good. And for for, I guess, the larger corporate group, you’d see that you’d see the corporate as the as the client rather than the individual. And you’d see up to 10 or 15 clients in a day just sitting out there at a company and review this super. So those days that are long gone. regulation compliance, the whole thing has been reworked. But he has a say if I just love those ethical investment conversations, so probably would have started having them a bit start specializing a bit a bit sooner, if I could have

Ben Nash
it’s an interesting one, we were just chatting and be offline about the the average cost for advice and how consumers are seeming. Now they seem to understand better than it is gonna cost you a few grand to get a financial plan when you get there and I can’t help but think it was like some of those, like you say those corporate super funds where there there’s some sort of expectation of advice at low or no cost as well as like with some businesses where there was a focus on models where they’re getting payments from sources other than what they’re charging that puts people under the impression that they could you know, pay less or pay nothing even and and still get something. But overall, I think it’s definitely a good thing that people know that there’s a cost that’s attached to it. And the cost is not insignificant. But that allows us to focus more on more value more outcomes for clients, more results, and then that sort of self that self-fulfilling That then leads more people into getting advice. So yeah, I think it’s it’s all heading things in the right direction. And I think over the years, coming up there with the adviser numbers going down and consumer demand going up, it’s plenty of things to keep us occupied. That’s for sure.

Unknown Speaker
Yeah, I think I think it’s a really weird time in the industry where you were client might come to you and say, Look, I’d like to invest and ethically and credits and positive impact and, and you’re turning away that client because they don’t, you know, just don’t, it’s just not affordable for them. So I’m positive as well, I’m positive that the industry will work through this. And we’ll have some sort of solutions about about low cost and advice, again, for clients. And maybe maybe Robo advice is part of that. But it’s certainly not there yet. But eventually there’ll be some sort of solution that that’s deliverable. And yet, it’ll only be a good thing because it’d be more people investing ethically, and younger clients as well. So getting younger clients in at a low fee base, but they’re just going to build their wealth over time. This is how it all works.

Ben Nash
Out. I think technology is a big part of that, as you say not quite there yet, but getting closer day by day so fully make our lives a little bit easier, sometimes in the not too distant future. That’s it. That’s it. James, thank you so much for sharing your story. It’s great to see kicking those goals made so I look forward to the next conversation.

James Baird
Always been thanks a lot for the time.

Ben Nash
Cheers team we’ll catch you next time.

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