Transcript

Matt Heine (MH):

Welcome to this episode of Between Meetings. I'm really pleased to have Andrew Inwood joining us for Episode 98. Andrew, I was just looking back through the files. It's been 70 or more episodes since you were last on, Episode 29. So great to have you back on the show.

Andrew Inwood (AI):

It's really good to be back. I love a lot of what you guys are doing on Netwealth and the way you continue to push the industry. I remember when you first started this, and I thought, "I wonder if this is going to work." So congratulations, it has. That's a big deal, mate.

MH:

I think we were all wondering the same thing, Andrew, so all very pleased it worked out. I think without going too far maybe into your background, given that we did cover a lot of that last time, what's keeping you interested at the moment? What are the things that you're thinking about and passionate about?

AI:

For those of you who don't know CoreData, I'm actually passionate about financial services. That sounds a little bit boring and in some ways embarrassing, to be perfectly frank. But the bit that I'm really interested about is how this affects humans. For year after year after year, we do a lot of research on how the financial services world interacts with the human parts of it because, while it is mundane and boring and trivial and important at the same time, there's so much data that we have and that so many people around the world have, which shows that paying attention to this part of your life, the financial services part of your life, adds a lot to your happiness and your outcome. In fact, we've got a couple of guys working within CoreData at the moment who almost finished a really exciting piece of research which shows how important that effect is.

For a long time, since the 1970s, the Economist magazine, better than others, produced a piece of research that financial planners are important, but they do work that they think they do, which is do record keeping and management and planning and allowing people to map forward, so we've kind of modeled that time after time. But the data is coming out that it is now as important if not more important than actually owning a home in terms of how people see their future and in terms of actually making people wealthy, just concentrating on that.

The research has worked that out and said, "Well, it turns out it's a bit like seeing a GP. Turns out if you pay attention to your health, if you don't eat too much, you exercise regularly, and eat the right foods, you stay healthy. The same is true about financial services. The bit that everyone forgets is is that there's two elements to this. There's the cognitive part, which the financial planners do for most people which helps them deal with the load of thinking about the future because that's really challenging to most humans. Then there's the organizational operational part, which is what Netwealth does, which takes that work and allows you to do it at scale without turning your whole life into a giant spreadsheet. So adding those two things together is really important. Now, why is that important at the moment? One is the biggest wealth transfer we've ever seen, $4.9 billion moving through the pipe. That's easy to see. It's probably as much as $10 billion more because the government doesn't count housing in that, and, of course, that's got to change state and form. 

The next part of that is that the people moving into the savings program now haven't got the same benefits as the Baby Boomers. Property has become very expensive. You can trace that all the way back to the Howard and Kirby reforms when they floated the dollar, and it meant that assets become incredibly valuable. You can have as much history as that as you like, but that dream hasn't moved off in Australia. So people do want to save, they do want to get wealthier, and they do want to move ahead. There's a really big inheritance bias in Australia, which is unusual in most countries. People do want to leave money to their children and their grandchildren. There's also a really big bias towards home ownership and a bias to a comfortable lifestyle. So understanding that means that financial planning and financial advice and the subsidiary services, like the things that Netwealth provide, become really important.

Here's the challenge, though. It's really, really poorly done in Australia, and we're seeing lots of examples of that at the moment. I'm not going to go into them because it feels pretty tough to say, "Let's call out these people for the mistakes that they're making," though Matt and I just had a long conversation about it before. But we can see that happening, and we think, "How is this possible that we've got to this point? How are we surprised by the intergenerational wealth transfer? How are we surprised by the fact that people can't get a step? How are we surprised by the fact that people are going to need to concentrate on?" Yeah, that's what's happening. So that's got me very excited. It's got me very excited globally.

MH:

One of the things that we're obviously very passionate about and trying to change where we can is financial literacy. We also talk very much around financial capabilities, so the difference between actually understanding money and reacting in a particular way when circumstances actually transpire. Having tracked this for some time, how are you seeing financial literacy and potentially financial capability evolve in the Australian market? Are you seeing it improving, not changing at all? Where do you see the opportunity?

AI:

The interesting part about this is it's not changing particularly, and it's not changing particularly well. The complicated part about my life is that I'm a complete mutt ethnically and geologically, and there's a lot of those people in my world. I have these three parts to my family. We've got a very Catholic part of the family. The Catholics are really interesting because they think that life is a transitional place to heaven, so they're trying to do everything they can now and look after the Church and doing all those other things. On the other side, I've got this Jewish part of my family. They don't really think about heaven that much and they don't really think about hell that much. They think about the now. There's this bit in Hebrew, so I think it's 1322, my cousin put on Facebook over the weekend, which is basically that you've got to leave money to someone else. It's part of your job as a good person is to construct wealth, pass it on, and to educate the people in those services. She's a teacher, but she's concentrating so hard on teaching her children about financial literacy and all those kinds of things. The Catholics aren't, mate. They're concentrating so hard on being saved and being interesting. It's like, well, this is really interesting. But at a general level, this hasn't transpired or changed. We've been tracking this for two decades now.

No significant change in terms of coming... It's coming in lumps, and those lumps are often ethnically focused or educationally focused, but it's not transcending across the group at all no matter how much effort we put into it. There's so much research on that map. It goes back to the 1950s where most people can't do intertemporal decision-making. They can't think about the future, and it actually causes them pain. I forgot the name of the guy who did the research in the '50s. His first piece of research at Yale was, "Would you like $5 now or $15 in three weeks?" Everyone said, "Give the $5 now." Very, very few people were able to say, "Give me the $15 in three weeks." He did the same research where he looked at people making plans for their lives. The people who did make those plans and executed that retired early, they retired richer, and they had more satisfying careers. So that's three things. But is it actually working at scale? The answer appears to be not, and there are some places where some people are getting involved in that. I know that you've got a lean into that couple places. The New Zealand government's trying to lean into that in a few places. But the reality is that it doesn't appear to be making a significant difference.

MH:

So with such a huge part of the Australian population actually looking to retire in the next, call it, five to 10 years or 10 years, there's a big gap or a big issue there, and we need to somehow increasingly raise the profile of financial advisers, more importantly, get more financial advisers into the market. How does that play out in your mind?

AI:

The really interesting part about this, we've made it really hard for people to be financial planners in Australia. Because on the path to profession, there's that pain that we have to go in that space. It's also in some ways not an attractive one. I don't think people are waking up and deciding that, "I want to be a financial planner." So I think that's badly executed at a number of levels. We also have... One of the reasons that financial planners are very important in Australia is that our system's complex. It's really complex to navigate and to navigate well. I've got a financial planner. I'm on my third financial planner. It's not that I keep falling out of love with them. They just keep retiring, and that's slightly annoying. Nonetheless, the new one's very good. But the point around this is that we do need to supply systems for people to understand their opportunities, their risks, and their outcomes. The data's very clear on this. The earlier you can start, the much more positive the outcome is.

But even if you can start at 50, it still makes a really significant difference in terms of how you retire and the way in which you retire, making that important, it becomes really clear. The great engines of financial planners which were the banks, which gave people pathways to do that, have been pushed out of the industry by regulation because of some of the risks that they exposed the country to. That hasn't yet been replaced. So we're starting to see the very early signs of some growth in that industry, but it is still some way away of being where it needs to be. The shortfalls, and we've done some modeling on this, is outrageous in terms of the number of people who need it. Some signs that the superannuation funds are entering into that space, but that's tricky because they can't provide all the services that they might need to. Some are well ahead and actually building those systems and those relationships, but there is some ideological challenges in that network which are real. Some people just don't believe in financial planning despite the evidence to the contrary.

MH:

We often talk about the supply and demand dynamics of the industry which are incredibly attractive. When you say people don't wake up in the morning and want to join the industry, I think they should be. I'm clearly biased, but what an incredible opportunity for someone looking to get into a new industry where literally there is far too much demand and no supply.

AI:

The tricky thing here, though, because in areas like you've got, which are very attractive, I don't know this, but I'm sure you get a lot of people saying, "How much for the business?" and turning up and saying, "We want to supply in this space," but it's only just become the target of capital. So I think that's going to be coming for a little while. As that happens more and more, then more people will say, "Well, there's a path to a real difference here."

MH:

You mentioned modelling before. Was that on the number of financial planners that would be required to service the number of Australians retiring in the next 10 years, or what was that in relation to?

AI:

What we did is we took a relatively simple piece of modelling and we said, "How many customers can a financial planner service?" You come up with this thing which it's about 150 with the current modelling and the current requirement for the government, the amount of retention they need is about 150. Then if you've got 150 customers, how many hours a week do you need to work to supply those? Then you map that against the population. Then you took it as the population who had more than, we call it a relatively simple number, $350,000 in savings. There's 2.67 million Australians and divide that by 150, you get a shortfall of about 10,000 financial planners in the marketplace that we need. Here's the really interesting thing. As soon as you get a shortfall, then you create economic scarcity and prices start to rise. There is no financial planner that I'm speaking to now who says, "I don't have enough clients."

MH:

Absolutely.

AI:

There is a challenge, though, in that financial planners across the board are starting to put up their fees and moving up and up and up. The very simple modelling says they can't sell their time more than once at this stage, so they need to do it, and that's working out into those systems. Then they're also building better systems. So we're seeing good businesses now managing 250, 260 clients. It's because they've got the systems and processes working correctly.

That means working with you really well as well to allow them to do that. That's actually a good outcome. They can split them between the high-need clients to low-need clients and just manage them through that process and still charge a reasonable service. Because what everyone wants at the end of the day is when something happens in their life, they need the transformation of the financial advice. That's heavy lifting. That's hours of work. Because for a lot of people, they don't have the documents together. They find it ridden with conflict. But after that, it becomes maintenance and being able to do that maintenance well. Then being able to ring up, and when they pick up the phone, say, "Hello, Andrew," know your files, know your situations, and help this through your crisis, that's where it needs to get to. So that's a big deal.

MH:

You mentioned high touch/low touch. I'd be interested just in observations around the difference in approach for the generations. So we're seeing very different approaches for firms servicing even down to Gen Z or Millennial versus the Baby Boomers and then ultimately the technology or the scale that sits with those different generations.

AI:

This is really interesting in research, and we've done it very recently most on the advice inside superannuation funds. Some ideas that we had have proved not to be true. Baby Boomers prefer the phone. I'm a Baby Boomer. I'm the youngest of the Baby Boomers at 60 this year. We like to ring people up and talk to them and have that outcome. I thought that that was true of everyone. Turns out I'm wrong. Turns out that as you become more digitally literate, you want to first spend your time on the platform and understand the systems and what's going on. Then you want to answer it as much as you can yourselves through systems and tools. Then only then do you actually turn to humans. So there is a really interesting curve on that, Matt. You're absolutely right. The challenging part of this is I'm a big fan of digital financial advice, and I think you can do a lot of the heavy lifting. We're in market right now doing some research on that, on the providers in the space and going through with live people and going through the services and it ain't working.

MH:

No.

AI:

I'd like to hear you on that row. You're probably much closer to that than me because people are very frustrated by the processes that exist now.

MH:

Absolutely. I think there's probably a couple of providers out there would suggest that they've solved it, particularly over the last month or two. But I think robo-digital advice will be really important for lower-balanced clients with very simple needs, so risk profiling, super rollovers, maybe TTR strategies. But the minute it gets more complex than that, we're just not seeing any evidence of systems that can support it, but more importantly, the inclination of clients to actually use those tools and have the confidence to move forward on the plan that's provided.

AI:

There's a bit of interesting data on that. At the accumulation stage where people are relatively young, they want to do it themselves and don't go through that process. Let's take it for a journey of an engineer. When an engineer is young, they don't earn very much, so they don't have very high balances, and so they want to do it all themselves. They tend to be wired to doing it themselves anyway and think that they know better than everyone else. So they're very good for those systems early on. But as soon as it gets over a balance, let's call it 150 grand because that number has been coming down, they actually start wanting to lean into people, lean into advice, and lean into services and find those, and doing that at scale is complex. Now, the challenging bit with that is that the older people tend to have higher balances, so they're the ones that we need to talk to and needs to do it. So at this stage, the data tends to be indicating that those tools are very good for people who are accumulating with lower balances and leaning into that space.

The challenge for this is, and this is hard to talk about without sounding pejorative, if you don't have a higher balance and you're older, that's very closely linked to either a tragedy in your life or lower academics, and those people with lower academics don't want to do it themselves. They want to pass the trust to somebody else. So this passing of trust piece is really interesting. I'm not going to lean into it too much on this because we don't have all the data yet, but trust inside superannuation, which used to be incredibly high, is really starting to wobble as there are issues and outcomes as people start to understand that, particularly, if you think about the trust being constructed before powerful integers, which is authenticity, "Are you who you say you are? Do you do what you're saying?" benevolence, "Do we have aligned goals? Are you really working for me?" compliance, "Are you compliance?" and predictability, which is, "Do I know what you're going to do under pressure?" Two of those are really wobbling. Benevolence, people are starting to understand the fees and go, "Well, that's not what you said. Now I can see all these hidden fees, and you don't actually answer the phone when I'm calling you." Then predictability is that, "You're starting to move around under pressure, and that's starting to worry me." So trust is starting to wobble.

MH:

I think without going into an us versus them discussion, we're certainly seeing that with different sectors of the super industry at the moment where, coming out of the Royal Commissions, you saw outsized flows going into the industry funds, and for the first time in the last quarter, we've actually seen that invert as people now understand the value of advice and are happy to pay for advice.

AI:

That's exactly right. You've seen two integers at work there. One is trust in those funds is falling. We've gotten linear data on that, and it's quite interesting. The other thing is that, as people get higher balances, they are seeking advice. Advisors are really good at explicating value, and the net winners are the people who are explicating value is not just the lowest fee but the most efficient system. Because the fee tolerances, the fee range is pretty small, so within 50 basis points, but the service range is extraordinary. It's like 600 basis points. Those who can be reasonable on costs but good on service are going to be the winners in the future. For some businesses, that's a long bow because they haven't invested in service for some time. They will and it'll come back, but it's just going to take time.

MH:

I think the retail sector has certainly recognized that they can offer very efficient solutions at very low costs for those lower-balance industry funds, and we're seeing really good flows from that particular segment, but equally as they do near retirement, larger balances moving across as real advice is put in place and requires better access and efficiency.

AI:

One of the interesting outcomes of that, and we're just working on this as we speak, is that for the first time we're seeing growth in SMSFs from younger people and so lower balances.

MH:

Is that driven, do you think, by some of these very low-cost brokers offering superannuation or SMSF solutions, or is it that they are looking for more control on their super and pricing coming down?

AI:

So two things. One is that pricing has really come down. Well, three things really. It's much easier to do. There's a very good quote from a focus group we did recently where one of the young women said, "This is the only super fund which does actually return all profits to members."

MH:

It's a great comment, yeah.

AI:

She's right. So everything, she cakes on this. She's a young doctor who's just taking control of it herself. She's in Adelaide. I think she's a gastric surgeon. She's based in Adelaide. She was saying, "Every time I contacted my super fund to move things around or do things, it was taking six, seven, 10 days to do it and opportunities that I'd seen had gone. So I just took control of it myself."

MH:

The other interesting stat that I've seen a few times actually regarding self-managed super fund trustees is that they're all incredibly happy with their investment performance.

AI:

Yes. It's always amused us. We were thinking the long goal, the long risky property, the long cash, and they look like absolute geniuses at the moment. Yeah, they are all very happy with their performance. It's very interesting, Matt. There's a well-known anecdote inside CoreData. We once met a man who'd just left his business. Well, he was its chairman of a business. He had one of those houses in Canberra which overlooks the water. His office was downstairs, and he had nine screens. He was spending an hour a day running his money. We said to him, "How did you go last year?" He said, "I made about 9% return." His wife was sitting with him. One of the young researchers who was on a learning mission said, "Really? The market did 13% last year." His wife just kind of looked away, but he was very happy. I thought, "He's just happy down here playing with his money." He's got enough money, it doesn't really matter. So that hedonistic bias is a real thing.

But the interesting part about it is the fastest growing segment aren't seeking hedonistic biases. They're seeking control and independence. So it's a change.

MH:

The industry, a lot of the statistics that we see still seem to very much focus on the individual, but the reality is that advice is often for a married couple or a family and that seems to get lost in a lot of the discussion around risk profiling, efficiency, and everything that goes with it. What are you seeing as far as changes with how the industry are thinking about the household wealth?

AI:

The fastest growing segment that we're seeing in really good advice businesses is that they are having those household and multi-generational conversations. The reasons for this are really clear. We started doing this work almost a decade ago in Europe because they're a little bit ahead of us on the HBF because they didn't have the importing of people that we did after the Second World War. But really good businesses having that intergenerational conversation are starting to grow their portfolios really significantly. There's two reasons for that.

Going back to one of the points I made earlier, Australians do have the big inheritance bias. A lot of Australians are really worried about mistakes being made after the passing of the people who'd built the wealth and that it's going to go somewhere, and they're going to trust those good decisions to the advisers. But there's a generation coming through who are set to inherit pretty large amounts of money which there's, let's call it, a million Australians with more than 2.6 million, so they're going to inherit a couple of million dollars each. If their family's been well-run and they die at the age they're expected to, which is in their middle 80s, then the children are going to be in their 60s. They're not going to be requiring the assets that they need to. So the idea of the warm handover is something which is really growing fast.

Now good businesses are all over this, and they're doing a very good job at having that conversation. Why that's interesting for us, two reasons. One is that the families who go through that process are so much better off. My father passed four years ago, and our advisor got a lot of work and we had to pay him a lot of money, but I was really happy to say, "I'm not in charge. Call Matt." I know I was the executor, but I didn't want to be in the minutiae of it. So Matt got to write a big bill, and we were very happy to pay for it because he had to manage annoying family members. Then the second part about that is that if you've got an advice business and you're having the conversation with the second generation, not only do you help them a lot, but you tend to be able to add a real longitudinal value to your business. You keep about 70% of the asset in that. People go and buy a car or they go and buy a holiday or they pay off their house or they pay the school fees or lessons, but the bulk of it stays with you if you're doing a good job of that. If you don't do that, then you keep about 15% of it. So you can understand the value of your business really well if you say, "Yeah, I've got a good multi-generational conversation going on this with my top twenty."

MH:

Well, I think it's actually worse than that. We've recently acquired Flux to try and help with that intergenerational relationship piece. But the statistics are quite frightening in that only 30% of the next generation stay with their parents' advisor. So if you think about the damage that could be done to a practice that's not thinking about it, it's very significant.

AI:

A few years ago I was at a principals conference up in the Sunshine Coast, and I was talking to an advisor I know very well from the South Coast. I said to him, "What's the average age of your client?" He think he said 78. I said, "Okay, so how are you going with the intergenerational business because the business closes in 10 years because everyone dies between 85 and 90?" His eyes went wide, and the young woman who was with him said, "I've been trying to tell him that for five years." I did what every coward did when I obviously caused tension is I disappeared to get another drink. The next morning we sat down and chatted about it. Then he said, "I just thought about that last night. We need some help on that. Can you help?" I said, "Yeah, let me give you some letters that we've written. Let me give you some proposals on how to have that conversation." It's not going to be true of everyone. It certainly helped his business. He's since sold the business, which is probably a pretty wise move. That's a pretty interesting conversation. Just from the administration point of view, Matt, just if you pass along, keep it in the same system on the same platform, then the admin is just so much simpler. I'm happy to say it, you may or may not know this, but we're on the network platform and we're very happy to be able to say, "Yeah, it's pretty easy, right? Just change its name, move it around. Thanks very much. You keep the spin. You keep that bit. Off we go."

MH:

I didn't know that, but very pleased to hear, so thank you. Earlier on you talked about the best firms or some advice firms being able to manage up to 350 clients, which would be at least double if not more of the average current advisor base. What are some of the really big ticket items that you're seeing the best firms put in place to drive that efficiency and deliver high levels of service at scale?

AI:

The first thing that good firms do in that space, and we first noticed this that more than a decade ago in the UK, is they split their customers really well. They segment their customers out to A, B, C, and D. Some of them have really catered them out, have thrown away their Cs and Ds or separated them in entirely separate business and said that we need to go through this process differently. The majority of them have also then repriced their books and basically gone to the A clients and said, "Look, this is how much you cost. The B clients, this is you cost. The C clients and the D clients." They've been a bit thoughtful moving that and decided to do it. Then within every one of those segments, apart from the very high-networked segments, they've had a very programmatic approach to how they manage their businesses. The growth and managed accounts has really enabled that to happen, and there's some really attractive things about managed accounts. There are some complex things about them, but no one wants the negative review on any of these things. So the positive things is that it does allow people to scale their businesses really simply, and it allows people to use punctuated advice really well.

If you're on a managed account, let's say it's a graph account, if you're in that, you get your report and your reporting's automated and it's on platform, it allows you to scale that up really significantly and to be able to charge reasonable fees to do that. One of the trends that we've observed, particularly in the UK, the USA is a bit more of an open system, but the UK and mainland Europe is they have a managed account service. When you come for advice, they charge you a time-based fee for that. If you're an A-class-V and you get a certain number of hours, but if you go beyond that, they simply charge you directly and say, "Okay, well, this is now advised on £215 an hour and the minimum scale, a piece is half an hour, so let's go through the process and talk through that." There's much more focus on... I hesitate to say this, but if you thought about this in a clothing brand, they have a brand which is just jeans. We're just producing jeans. We're producing 501s. If you want them tailored, then it's an extra cost. You come in and we'll spend some time with you. But they are much more focused on the process of running their business. So they're less likely to be an artisan financial planner, and they're much more likely to be a person who's running a financial planning business and they want the business to focus on it. Their investments and systems and processes is starting to be really significant. They're leaning into those systems and processes and allowing that to do the heavy lifting, and they're providing the high-end services to the high-end services.

As you know, Matt, I do a couple of speeches a year. I was mentioning some guys in the UK who were doing that and done that really well. They've just sold their business, and they went through it 10 times earnings, which I thought was a lot. But they have been investing in the systems and processes for years, more than a decade. They started 2005, 2006 really investing in their systems and processes and doing it. So when it came to being sold, they almost had the portfolio businesses that were manning for about three and a half thousand clients. They had about 700 high-net worth clients who they were just doing high-net worth which was much more service fees. So they had five financial planners and then just a room full of people who essentially managed the accounts for a large number of it. It was about £3 billion on that platform after they got it. So it was significant, and they worked really hard on it. They started in regional specialization. They grew it out and they grew it out and they grew it out. What happened was, I mentioned that in a few speeches, and some of the more ambitious Australian financial planners simply contacted them on LinkedIn, jumped on a jet and went over. But those businesses are just going from strength to strength because they've built out the platforms, they've built out the processes, and they're just leaning into that. You can see puddles of that in Australia.

MH:

Do you remember the margins that they were able to generate?

AI:

No, I don't know that honestly off the top of my head, but it's-

MH:

It's going to be significant.

AI:

It was pretty reasonable. There wasn't a lot, I thought, on the managed account businesses. I didn't think they were making this huge amount of money out of that. I thought they were doing okay. But they were working very hard on transitioning clients from the middle clients to being high-cost clients. But on the high-net worth businesses, it was very interesting. They were pretty cunning. They started adding debt to their portfolios. They started adding accountancy services. So they were not cunning but thoughtful business people, the trust in their client's needs because they started off with Norfolk farmers. One of the things that happened with Norfolk farmers is that the farm eventually gets sold and broken up and they're helping run those processes. That was a very lucrative part of the business. Unfortunately, it wasn't on a Netwealth platform. I do know the platform they were using, but it was one of your competitors.

MH:

I can tell you some interesting stats having just lived through Trump's tariffs and the volatility that created through the managed account alone, and these are approximate numbers, but over the course of the Monday, Tuesday, Wednesday, so the three days of extreme volatility, the team was processing in excess of 50,000 transactions each day as advisors and their asset consultants basically sold down de-risk portfolios and were able to reposition and take advantage of sectors or the market as it happened almost in real time. I'm expecting to see a spike in inquiries because it's periods like that that you remember how difficult it is to actually run very bespoke portfolios unless it's in a very high-net worth space.

AI:

That's really challenging and something that we're seeing out of it. Unfortunately, I was working somewhere this weekend. I'm not a big celebratory releaser as anyone who knows me particularly well would know. The guy who runs my San Francisco business is not a particularly celebratory releaser either for the reasons that you can imagine. We were going through the mathematics of that, but I guess we were a little bit forward, so we were talking about the next iteration of CoreData platform. But the reality is if you got that wrong, that was a significant, significant outcome. Deciding that alpha and leaning into alpha, that's a big bet on those big portfolios. There's a number of people in Australia, we're not going to go through it, Matt, because you and I are old stages, who have really bet their farm on American imperialism and the remaining of the American world order, opened big offices in New York and etc., etc., etc. This is a Black Swan event. I can't see in the next three years of this return to what I was. They're very good at putting tariffs on and very poor at taking tariffs off. My favorite anecdote of that is the stamp duty, which is a tariff was-

MH:

Or a tax.

AI:

... or a tax, yeah, it was introduced as fund the war on Ireland by Elizabeth I, and yet we're still paying for the cost of stamping things. So there's some bananas tariffs out there, and 10% of Australia. I don't understand it. It doesn't really matter. This doesn't seem like a logical thing.

MH:

No. I think we could probably do another whole podcast on that. We'll stick to the script.

AI:

With people smarter than me, Matt. There's plenty who know more than me about that.

MH:

Well, I think everyone's scratching their heads a little bit at the moment. So managed accounts, I think it's a clear and obvious way to really scale a business. What are some of the more fringe cases that you've seen or technologies that are coming in? AI clearly is starting to have a big impact.

AI:

AI servicing is a big deal. AI calls are going to be a big deal, the best in the world, particularly in the US. I know that you guys did a tour. I saw recently they're doing an incredibly good job of that. CoreData has built an Andrew bot, much to the amusement of everybody, to the point where we need to be talking pretty quickly in our family about having particular words that we use because it's pretty easy to mimic me for all the obvious reasons. So that's going to make a big difference, particularly for the low-end service calls. We have to think that we're right at the start of that curve, so building the responses, building the communications and building those things are very good. That's been coming for a while. The good firms are already over the top of that. That firm that I was talking about in the UK has been using that kind of outcome for about four years, and firms in Australia are really impressing it as well. The challenge with that, and this is the bit which is going to be tricky, is that that does lead to homogenization. It leads very quickly to homogenization. So for the mass, that's going to be fine, but for the top of the market, that's going to be really, really different. So we are going to see this tailoring skill really start to rise as people do need to make the most of that. But I don't know that we need to solve for the wealthy. I do think we need to solve for the mass-

MH:

The mass.

AI:

... and who's responsible for that becomes really interesting and really important. This piece of work that we do at CoreData, which I'm enormously proud of, it's not profitable, but I'm enormously proud of it, which is the best possible retirement suite. Because here's one of the things that I think that potentially superannuation funds, they won't have forgotten, I wouldn't be so arrogant to say that, they have focused on cost and focused on efficiency over service. The only thing that they really should exist for is to allow Australians to have their best possible retirement. It doesn't mean to be rich because you can't make people rich because that means they either work hard early or work hard late, but it does mean have a responsible and reliable outcome in retirement. For many of them, they just haven't provided on that. They've been distracted by other things. So that can really be solved at scale in AI platforms and simple systems to allow people to go through that. Because we do have a team of people working, two, I suppose that's a double standard, so two people working at the moment on the gap between the promises and actions of this aggrandizing funds, and it's really confronting... Some are free. There's really great ones out there. UniSuper is a standard example, but there's others where it's really bad.

MH:

Are you suggesting that the answer is an automated or dynamic investment program as opposed to some of the other tools and, I guess, approaches that are being used currently?

AI:

There's two things there. One is a dynamic and investment program has got to be part of that, but there's also got to be a dynamic and investment communication, which has also got to be part of it to do this thing called cognitive anchoring in terms of what's going on. Already, the best investment companies in the world are communicating all the time. So for the UK company that I invest with, every time they make a change in my portfolio, I got a text saying, "We think NVIDIA's added value, so we've increased our load in NVIDIA. That's what we've decided to do as a fund." To a certain extent they ignore their failures, but every time they've made a good decision, they remind me. "That decision has worked out really well, yada, yada, yada. It's been an uplift of this much in the portfolio," so you're constantly reminded. So it's building up this offer of good outcomes in terms of what's going on. No one's really doing that in Australia. That kind of presence in the pocket hasn't really happened yet.

MH:

That's a direct offering presumably, though, in a non-advised environment?

AI:

It's a direct offering. It is not in an advised environment, but it becomes with a layer of advice if I should choose to have it. It's just a way of... Because I'm old, I've been up to store up money in different countries. It's just a way of having money in the UK and investing it on a platform there. It's an individually managed portfolio. It's a low-risk portfolio because 60, and all my risk is in Australia. They just remind me of what's going on.

MH:

Presumably, you've still got control over communication settings because that's always that balance between interrupting people or bombarding them with too much information and not giving them enough.

AI:

Yeah, I'm a bit of a weirdo, Matt. I get reminders from them every day and reminders from Duolingo every day, and that's about it.

MH:

Fantastic. What language are you learning?

AI:

I'm practicing my German. I lived in Germany when I was a kid, so I wanted to keep that fresh. I do it half an hour every day to keep it going because I also think it's really good for your old brain. You may or may not know, it's also really close to the Yiddish. It means I can crack jokes with a particular part of my family, and I understand it well enough.

MH:

Andrew, we could probably do a part two to this podcast. Unfortunately, we have run out of time. Thanks as always for joining us. The research that you've recently done with us on advice tech is excellent as always. If there's other research that we've touched on or you've talked about today, is some of that available on your website? Where can they find that?

AI:

We have a service for Australian financial advisors. We have a community, and it's called the CoreData Panel. If you're a member of that, you get research every quarter. The two things that are up now is, because we think it's really important that people start to read price, we've put a price model up so that people can understand what they should be charging for those services. You can download that if you want to. The other one is we've had a look at managed accounts, so people can have a look at the managed accounts. What we were worried about in that case... I think there's a huge part for managed accounts to play in the future of wealth in Australia. I think it's really important. There is a challenge, though, that for some providers, they aren't all the same, so it's a little bit opaque as a service. What we put up is we got access to what the government did in 2019 when they were looking at managed accounts because we think that's potentially going to come back. I think that people should be aware of what the government's thinking about. So we've done a summary of that. The next one that's going to come out is about the future of advice. That'll come out in June. It'll be a paper for people to access, to look at a little bit about what we're talking about, what the great firms are doing because I think both the tech stack and the model can be really well understood. If you have the examples of what's great, then you can simply choose, "Well, I'm going to model that or I'm not going to model it." I do that all the time in my business. I look at the great research firms around the world and then curse myself for not having thought of that and then copy it as quickly as I can.

MH:

No doubt we will be continuing to, I guess, work together and hopefully get you at our summit in September. In the meantime, thanks again and look forward to continuing the conversation.

AI:

Always a pleasure, Matt. Thank you so much.