April 13, 2022

Delivering Cost-Effective Advice with an Entrepreneurial Mindset #3 – Transcript

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Delivering Cost-Effective Advice with an Entrepreneurial Mindset

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Fraser Jack
Thank you for joining us again. Fraser Jack, here we are in episode three of our five part series thinking about advice in the landscape from it with an entrepreneurial mindset, I’m joined by Vince Scully, and we’re about to dive deep into what he’s set up in his business. Vince, thank you so much for joining us.

Vince Scully
G’day, Fraser, it’s great to be here.

Fraser Jack
Fantastic to have you along. Now, I’ve always been intrigued in your business and watching it grow from the sidelines and just being in awe of what you’ve been able to achieve from, you know, both an entrepreneurial mindset, but also with your background as an engineer, the

Vince Scully
construction, as you know, they’re the worst type of clients.

Fraser Jack
Whereas other clients, but, you know, that just means that we can no doubt about the intricacies and in the advice process and the legislation. And we and I know that that you know these details, and that’s why you’ve been able to set up the business you have. Let’s start with just a quick introduction to the business that you’ve set up.

Vince Scully
So life Sherpa is a online financial advice service focused on the needs of younger people. And by younger people, generally late 20s to early 40s. The significance of that age group is really that they’re going through life’s three big changes, which I call coupling, nesting, and parenting. So they’re starting to deal with money as a couple dealing with money on your own is hard dealing with this, with it as a couples are much more difficult exercise their nesting, so they’re buying your first home, they have more debt than they’ll ever have in the rest of their life. They have young kids, they’re a long way from retirement. And they’ve got very few assets. So they have the biggest need for protection insurance. And those two things, Home Loans and insurance make up about two thirds of all fees paid for financial advice in country. Yet, as an industry, we are efficient, we’ve largely focused on the investment side of that equation. And many advisors have given up the insurance paid to focus on the investment side, non super investment advice is about 14% of fees paid. So you’re looking to have a scale business, you’ve got to be in the home loan and risk business. Home Loans are regulated under an entirely different regime. So we have both a financial services license and a credit losses. On the other end of that age group. The reason I say early 40s is we didn’t build a tech to deal with pre retirees and retirees. That’s obviously on our product roadmap. But it does add a whole bunch of complexity. And in order to service this group of people, we need to do it more cost effective. So if you say that the average fee paid in the industry is $3,000, up front and three or $4,000 a year. That’s not something that makes sense to a 28 year old young couple who think we got good jobs heckum We’re not getting ahead and why can’t we afford a house. So we set out to solve that problem at a price that they would be prepared to pay. And going back to the original acid affordability or accessibility with us research, which I think knows.

By he hasn’t said like it’s a long time ago. The conclusion was the consumer was prepared to pay three to $500. And the Reese’s advisor ratings research doesn’t throw up any material, if different answers to that. So we set out to several how do we service this group of people at that sort of price, we concluded that there were three things, three problems we have to solve. And only one of those problems had been really addressed before. So the first one was to be able to find consumers when they rent actually in the market for a product. So you want someone who wants a home loan today or an insurance policy today. They are two of the most expensive clicks you can buy from Google. And so we needed to build something that would engage with this cohort outside of that cycle and be able to create a journey from the I’ve got a vague problem with my money. Why am I getting ahead? And will I be okay to leading that person through a journey. And the journey concept is what will lead to the Sherpa analogy lead her on a journey from struggling to thriving by sorting a budget and getting a debts repaid. buying a first home sorting is super preparing for the unexpected, and setting yourself up to head over four years to retirement. So that was the first problem to solve. And that was really built around content and education. So our website is causing heavy client acquisition costs is spent mostly on gauging content and dispersing that the second thing we need to solve, which is where a lot of the effort in industry is spent is reducing the cost of service. In our case that was really about, rather than trying to build tech that solve every problem, we said, let’s focus first of all on a relatively homogenous group of people. So you’ve got a self managed super, you’re not a luxury, Family Trust, you’re not a luxury, you’re retired, you’re not a luxury. If you run an incorporated business, you’re not a luxury customer. And so by focusing on module, AIG, average or average incomes, few assets, you actually create technology that solves most of that problem. So what you do is you do all the research upfront and says, You’re in this box? This is the answer. And so that the vise process then becomes a question of working out which box this person fits in. And that could be 1000s of these boxes. But the answer is you solve that you solve for the answer first. And now you have to work out which box and more importantly, lead them through the journey. And that’s the period theme that we saw was making sure that the advisor client meet. Because you can’t deliver holistic advice without a real human, you can solve portfolio allocation and management, which is what’s traditionally referred to as Robo advice. But you can’t solve that human problem with us. So what we need to do is to make sure that we kept the expensive bit the real human advisor for the bits where they were adding real value, and let the machine prepare the advisor and the client for that meeting. So that client or member in our case comes to that meeting, problem aware and solution. So they know they’re trying to, for example, prepare for unexpected illness or accident. They know the answer to that is some form of risk product. They understand broadly what protection is poorly got to PDF all your life is and the advisors job is to guide them through the process of confirming how much they need, who they should buy from and why it matters, and why that’s the right answer for them. And the same goes with investment advice or superclass that one of our measures of success. Is that client understanding why it’s the right answer. They don’t have to know that intricate detail. But they do have to understand why they’re doing what they do. I liken it’s back to your car analogy. So if you’re going to go camping on the weekend, you probably need all of it, you probably need a diesel, you don’t have to understand how a diesel engine works to know that it’s the right answer. But you have to know what it does for you. That makes it the right yes. So if any of our clients have to resort to the my advisor put me into this explanation, we failed in their job. So we need to give the lender the ammunition to deal with Uncle Bob at the barbecue says, Well, why are you in that? I mean, some particular big Superfund and it’s cheap. And so that our member has the psychological backing knowledge to know that what they got is actually the right answer for them. Even though it may or may not be the cheapest. Now, they may or may not have the argument that Uncle Bob, but mentally prepared. And that gets rid of that buyer’s remorse problem, which is the biggest cause of compliances.

Fraser Jack
Now, I want to there’s so much to unpack in that. And I love the way that you engineered it through the through the three phases. And I really love the journey conversation when you were talking and saying that really reminded me that the, you know, the hero’s journey around every story that’s ever been told, who’s the hero in the story. And it’s pretty clear to me as you even the name and the and the guide. You know, as a Sherpa as a guide, you’re not the hero of the story, the client is the hero of their own story. And you’re the and you’re just the guide, helping them make a whole lot of small decisions, but helping them make the decision not you making the decision and telling them what they should be doing. You just sort of guiding them through this process and saying, there are a whole lot of micro decisions that need to make. We’re not going to make every single one of them today. But you know, here are some information here are some here’s a guide, here are some thoughts and ideas. You know, there are some decisions to be made. What do you want to do? Is that how it works?

Vince Scully
You probably I mean obviously your Sherpa is is a guide who knows that? The territory, they’ve done it before they carry your pack and share their knowledge of the map. is with you. But ultimately, is your summit nearly to guide you to your Summit? Sometimes they carry the pack sometimes. But ultimately, it’s your summit to help you recover, what can you want to do, and to get you there and back safely?

Fraser Jack
They’re now I wanted to touch in a little bit on to the tech side of it, because obviously, where you mentioned, you know, reducing cost to serve involves a little bit of technology. And a lot of, you know, obviously, with you mentioned a lot about content and education prior to that, and, and distributing that information and getting it to your members. And I want to talk to members as well, at some point, the word member versus client distinction. Yeah, there’s I’ll dive into that in a minute. But I want to go through the tech build and the conversation around, you know, reducing cost to serve. And obviously, there’s a lot of options with take it, but then there needs to be a decision making process behind how and what you use and when you use it.

Vince Scully
Yeah, that’s a, that’s a really good question. In this pick, people are spending a lot of money and bandwidth in trying to solve some tech problems, you might make the right decision today. And something new or in China is going to come along tomorrow. So sometimes you do have to bite the bullet. But I think the starting point is what problem am I trying to solve? And what is the best way to solve that problem. So we spend a lot of time now on the minutiae of having seconds or minutes of call. So if we can better prepare a member for that call with you guys. And you takes 30 seconds on average call, will that’s, that’s dollar 50 of the cost of delivering a piece of advice. And that adds up over 1000s of minutes. So tech is important. But unless you know the problem you’re trying to solve, you’re never going to get the right answer. And you have to be prepared to accept that today’s right answer might or might not be tomorrow’s right. So sometimes you just have to pick and stick. So in our case, we have a member facing public facing website, which is about engagement and education, and allowing the lender to diagnose their problem and prioritize the bits of it they want to solve. And we’ll learn about that putting potential solutions as well as into their information, so that when they do engage with an advisor, prepared for that session. So they know they’re trying to solve a, what happens if I can’t work to Faxon through this problem. And the solution are easy to prediction charts. So the discussion with the advisor now is guiding through and through the process. Technically, we can do that untouched by human hands. But customers won’t actually buy, particularly when you get to a exclusion or a LOD. That’s a huge turnoff from a consumer experience. So the human advisor really is explain why that does or doesn’t matter whether they should or should not by not retaining. So from a tech perspective, that website is fully custom built. It’s built in Ruby, for anyone who’s interested in the technical details. And that’s a decision that you wouldn’t make to that Ruby was the hottest thing in web development when we started in 2015 2014. And he didn’t really catch on outside of Eastern Europe. So if you want review resources in Australia, that’s our read have asked. So we will go through a rebuild of that over the next year or so. But that was a very low priority to change that decision. Our tech team in the in Ukraine, so the recent events in Ukraine, made that a particularly challenging exercise for release of version 4.0. So yeah, so what you want to do, so that’s a front end, client facing product in our back end is built entirely on Salesforce. And that’s a whole bunch of apps that already created so we use the Salesforce for CRM, we use marketing cloud for our marketing automation, emails and text messages. We use Recurly for subscription management, we use stripe for payment payment collection, we use a system called Vonage phone system so that when you dial one 300 My Sherpa because that’s phrases self praises advisor is Steve, where Steve logged in today. And in the meantime, it’s our recording the call. And that recording is attached to your record in Salesforce. So for us, Salesforce was largely around, making sure that all the information about the client was collected so that anyone who would deal with the clients details and all of the information was there. So that just that information didn’t disappear as soon as the advisor moved on to another practice.

Fraser Jack
Yeah, now I want to, I want to ask you some information around the gathering or the collecting of structured data that you didn’t have, obviously, when you started, but now that you’re, you know, several years, seven or eight years, seven or eight years now, in 2014,

Vince Scully
we got lost. And so we’re coming up on the page.

Fraser Jack
Yep. That you will now have all the structured data that can help you grow your biz, I’m gonna get to that in a second. Now, you mentioned phone calls. And obviously, that’s been a big part of the business over the last few years, or since the beginning, really. But how has online meetings come into that? as well? Now, obviously, there’s been a means and how and how have you seen that shift from? Is it still most mostly a phone call? Or are you getting a lot of online meeting?

Vince Scully
Yeah, that’s it? That’s a really good question. And that’s one thing that surprised me, that’s probably the biggest surprise in all the eight year journey that we started by building the tech to have video meetings, we started with sweet box, which you may be familiar with, which was advisor century video conference. And in 2014 1516, nobody wants to do video calls. So we actually did, 90 plus percent of our client meetings were held high fat with Calvin. And so in the end, we actually ditched sweet got replaced Google mates. But through COVID, people are now actively requesting videos. So when you give someone a choice, how will be more than half the occasions they will choose video, we have COVID.

Fraser Jack
I see that as the pendulum, right, you set it up one way you’re expecting it, it swung back the other way to 95% phone calls. And now it’s sort of coming back towards the middle or just over. I mean, we’re agnostic,

Vince Scully
really, it’s obviously easier to sense whether your message is getting home, you could see the person and they can see you, you do lose a lot of those feedback signals, nonverbal signals on the phone. So your communication skills have to be so much higher, to conduct a meeting purely on the phone. And we’ve obviously spent a lot of time on training and processes to make that when you can actually see a quizzical look on on the client, on the video conference, you get a lot more feedback as to how they’re feeling and how they’re receiving the message. So I’m a big fan of video calls. But it’s taken a pandemic. convince people.

Fraser Jack
Yeah, it’s because that’s what it’s all about. It’s about what consumers a rafter. Tell me a little bit more about with video calls. You mentioned you use a Google meeting now and with with hearing impaired people or people that wouldn’t be very good on the phone.

Vince Scully
Yeah, we’ve got a number of members who are hearing impaired, and they are quite happy to have a two way dialogue using the vehicles. So Google may produces real time, subtitles or captions, which are really accurate. And you can see it going back and re creating hurry parts of your sentence when it breaks out what you’ve said in the rest of the sessions. And then they can some can verbalize others can’t really. And they’re happy to type backwards, but they’re very good at and Google meets just changed the game. You could not do what we do with these. These parts. you’d add that sort of technology.

Fraser Jack
Yet it is certainly there’s been and and and a lot of that scenarios. It’s not like you created Google meat. It’s a product that’s already existing that all you’re doing is utilizing it in the in the business.

Vince Scully
Yeah. And it’s a couple of dollars per user per month. That’s such a change, selling BDMS and refund BDMS of coffee tech firms. We’re talking about technical changes in my career. In 1983, a one megabit per second dedicated line in the UK costs 100,000 pounds a year. We were just sending high definition video for free.

Fraser Jack
And that’s incredible.

Vince Scully
It’d be 40 years next year. A megabyte of IBM RAM for the 360 was $100,000

Fraser Jack
Yet man It doesn’t it doesn’t appear to be slowing up too much too. It’s still the way to go. Now one of the things I wanted to throw into the mix here, which is the conversation we mentioned earlier around mint Bishop and members. Because a lot of the time we struggle with, you know, the process, the judicial process was a fee for service either link to link to an investment amount or the time and within an office because obviously, that’s how accountants used to charge per office, they used to work out what the cost would be. So to flip it on its head and turn around and go, well, the business costs us X Y, Zed, and we need to x members to pay money and become members. How did that come into your head? Because because you were one of the first to start doing that.

Vince Scully
Yeah, I mean, the the original thinking around that was more about the relationship between the advisor and the client. So traditionally, in most practices, most clients would consider themselves to be grazers. Fraser is my advisor, it’s not valet financial advisors, this isn’t the door, it’s, I’m going to see Fraser hazard. And the consequence of that, from a practice was that the individual advisors started to capture more and more revenue. And the practice, therefore really became this loose cooperative of individual advisors sharing it. And that led to a whole bunch of behaviors, which were not consistent with sharing Heiser and others. And it also meant that thing that drove her advisors ability to capture that revenue was that if they threatened to walk across the road, and most clients will follow them. So the initial thinking around this was that we want people to form a relationship with brands that luxury brand, rather than their individual advisor. And the use of limbo rather than client is part of making sure that they feel part of the community, rather than a part of a book of feeds that can be sold and transferred. So but in order to do that, you got to have a whole bunch of systems that and behaviors in the team that makes that reality training your your $4,000 ongoing advice feed into a membership, on its own does not, what you got to do is have the benefits of membership and clear. And then to make the member feeling that they are actually. So when you join Lightship as a member, you get assigned a sugar, who may be one of a number of people, that could be a licensed financial advisor on the registry, it could be a mortgage broker, it could be someone who isn’t on the register, but he’s otherwise licensed. But their job is to ensure your successes. So they will do a lot of coaching, onboarding, to make sure that you’re getting the most from the membership, and to guide you to the relevant expert at the time. So if they were a advisor going through that py, for example, they will have been trained in the leadership coaching methodology and all of our philosophy so they can do a lot of the non personal advice stuff, when it comes to doing a piece of super advisable risk insurance, they would then introduce the relevant expert, but they still fundamentally responsible for making sure that that happens, and making sure that you’re you’re progressing as a mineral. And that division of labor is particularly important in terms of the cost structure, and it but it does rely on scale. So the membership is, is largely around divorcing that relationship between an individual and art and turn it into a member of the community, who will be served as by whoever the relevant expertise from time to time. So when your advisor leaves, Salesforce will just ensure that all your information is still there. Like because you still call one 300 My Sherpa, you still email my Sherpa, Marcia, you don’t want to know really nearly so

Fraser Jack
yeah, that’s a really interesting distinction, isn’t it, to be able to have the systems in the background that can can help but then also having a project manager, there doesn’t need to be an advisor that can project manage the client through all the different steps and guide them along. You

Vince Scully
need your systems you write and processes rights and make sure that that can be done in compliance. So everybody’s got to understand their role in that machine. Know what they can and can’t say, which comes down to moving compliance from that’s what compliance say and that’s what you do to understand the why that’s all So whenever we have a discussion about, can I do this? With me, these will always go back to what is the law? So why are you doing? What’s the section that tells you that that’s what we have to do? And understand and grasp the reasons why. And once you do that, passing the Fazzy exam becomes a breeze because you actually know why you’re doing it. So you can apply the same techniques to anything. So we bring up Hosley quite regularly. And

Fraser Jack
yes, you know, yes, and this is where this is where we started nerding out about the legislation,

Vince Scully
I think it’s definitely nerding that that’s what guides us as we, as an industry have obligations, if you don’t know why you’re doing it, it’s pretty hard to be sure you’re compliant. Yep.

Fraser Jack
Now, when I want to go back to that moment, in 2014, when you started the business, and everybody was compliance based and best interest duty was, was pretty. The word on the street at the time, everybody was talking about best interest duty and how it was going to happen in Section G, etc, etc. And then, and then you come out with a muddle around telephone and online advice, and in scaled, very well scaled, and to a demographic that nobody was looking at. I guess this comes back down to a lot of devices, when they listen to this will go Yeah, but how are you doing your SOA is you know, you have to do this long, lengthy document in how you doing this over the phone. I mean, that’s,

Vince Scully
that’s the big, that’s the biggest myth in this industry. And prepare that you have to write 100 Page SOA, nothing could be further from the truth. In fact, the number one overriding requirement is that you be clear, concise and effective. And if it’s 100 pages, you’ve almost by definition can’t meet that test. So and when you look at the requirements, it has to be in an SLA. And we would never call it an SLA in front of a member. It’s just a document, documenting it regards, legally has to have the word statement of advice on the front cover. So when you see the FSC, putting out the same, the reason that advice costs, success at all costs is because we have 200 pages always. And by cutting out stuff from the SOA, we could miraculously cut the cost of the cost. If it’s costing you $3,000 To roadside advice, as opposed to deliver the advice I can accept that cost $6,000 to deliver the advice if you’re doing it one on one personally. But if it’s cost me $3,000, to write a report, you’ve got a serious system problem. And it doesn’t need to be 100 pages, one of the ways that we address that was by doing everything as single topics. So if someone gets a piece of super insurance of super advice, and also does a risk piece of advice at the same time, they will actually get two statements. And that’s because that’s a much more straightforward way of documenting and automating the documentation that if you try to automate a complete, holistic piece of advice that deals with every possible combination, you’re creating a monster will never work. And I think that’s probably the biggest techniques that we’ve made as an industry is trying to solve for everything at once. There’s an old saying in the law that says hard cases make bad law. So if you’re trying to solve all those edge cases, you end up with a monster. And that’s why we focused on this cohort of graphics. If you have a broadly homogenous group, I mean, they’re all different in their own way. No two members are identical. But they are generally suffering from the same problems. The solutions, or it’s at the ages that the differential, sir, the myth of the 100 page. Soa, is that simply not what the law says. There is a list of things that have to be in an SOA. And there are some peculiar mechanical things. So there’s a requirement that the word SOA appear in other words, statement of advice appear on the front cover, which potentially preclude you doing video. Soa, given that a video doesn’t have a front page, once you get over those mechanical ones, which are largely set yet. So when you set up your document template, it’s got the root statement of advice in the front cover where you’ve ticked that box for the next 1000 advices. You’re writing? Yes,

Fraser Jack
I love this subject. Vince on the video. Soa, I think we have sold for that. I’ll have to talk to you about it offline. But it’s there’s definitely an idea that the words SOA must appear on or near the beginning.

Vince Scully
It actually uses the word front page. Which is interesting because I’m sure that a In the law is not supposed to be is supposed to be tech agnostic. But these are the sorts of issues that when we’re looking at the registration, we should be getting our legislations to

Fraser Jack
fit. Yes, we’ve done some work on it. But you can certainly share a page that says SOA, at the front of the video, and it does does cover so we won’t get too much into that because of off topic. But I really love the concept. You mentioned before around solving for problem. And as you just mentioned, it works really well if you’ve got understanding what demographic you’re looking at Unity you mentioned coupling and nesting and, and parenting, and they all have separate individual issues, which are then easy to solve, and then easy to then fix those individual pieces on a longer term journey. Through life, rather than just trying to say here is the all the advice you need right now for you to fix everything today, we’re going to do the whole lot, it’s gonna take days and weeks and months, people just get hundreds of pages,

Vince Scully
get decision fatigue. And you can see that in homeless with the number of people who go figures in fitness, which is invariable, because it’s the last decision they make. And a lot of bank tellers, bank, on people, even brokers, it appears that this is the line of least resistance, Hey, have a bet each way. It’s a non decision. So it takes away that one decision. Sit on the most cases, it will be the worst of both worlds, the best of both worlds. It’s an easy decision to make. So if you chop up the advice into digestible chunks, but deliver them within a holistic framework, you really do get the best. And the client doesn’t have decision fatigue.

Fraser Jack
So one of the things I’ve always loved following the journey that you’ve you’ve been on, and it’s it’s obviously has been a journey for the business as well tell us about where the business has got to now and where one of the plans are for the future. So

Vince Scully
So today, we we will do about 12 million in revenue this year. Double five. So we clearly demonstrated that there is a product market fit. We are progressing that we could keep doing that the big chain, the two big changes coming in the next few months is all right. So first one is we’ve launched our corporate offering. So for $399, and employer activity theory, please all you can finish with us. That’s $390 per employee per year, which is 15 to a 20th of the cost average customer industry. So that’s a bit of a game changer for us. And I hope that’s true personal advice across home loans, insurance, super investment, there’s no normal pay from the individual employee. And then the other change which is coming next few months is that we are moving more to an all you can eat style offerings. So as you may or may not know, our traditional model has been we’ve charged $250 a year, you could buy a course you can sign up for a webinar, and you could buy some supervised investment of us your hammer, so we had a menu of services that you could choose from, we are now rolling. And the theory behind that was that it was clear, transparent. People could buy what they want when they want it. As it’s turned out. That’s adds a bit of complexity both from a back office perspective and from a client decision perspective. So we’re turning that into a single price by 49. Year, which would include your ongoing portfolio and everything else. Thought from upfront advice and super. So that’s a bit of a game changer. Again, reinforces our position as Australia’s most affordable financial advice destination.

Fraser Jack
Yeah, well certainly does. And it’s certainly still a fraction of the cost of have a lot of advice practices. Now they price at the moment. So Vince, thank you so much for coming and chatting us today about about the business and the model and the the technology behind it really appreciate your input in in being involved in this series. Always a pleasure. Now, if someone were to continue the conversation with you, what’s the best way for them to find you or reach out to you?

Vince Scully
We’re at like sherpa.com today. I’m on LinkedIn scholar, and we are Facebook, my life Sherpa as we are on Instagram, my Sherpa underscore au Twitter.

Fraser Jack
Wonderful. Thanks very much, Vince. Appreciate it.

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