Transcript

Matt Heine (MH):

Welcome to the show, Sue.

Sue Viskovic (SV):

Thanks, Matt. Great to be here.

MH:

We were just chatting about it. I was convinced you've actually been on this podcast before, way back in the very early days, but if not, great to have you back.

SV:

Thank you. Yeah, not sure. I know we've done webinars, not sure about the podcast,

MH:

Made them with one of your business partners, but anyway, great to have you on as always. There's plenty happened since we've last caught up and really looking forward to this chat. But for those very few people that probably don't know you, I'd love just to get your background and hear how it all started.

SV:

Yeah, well, I founded Elixir Consulting about 17 years ago, give or take a couple of months. So prior to that I had been in all different camps, really in financial services. I started out in sales with Challenger, went through and did the studies to be a PS 1 46 at the time and went, wow, I love this financial advice caper. So I put myself all the way through CFP. So after doing the sales element, I was drawn to the business aspect of things. So I was practise manager or PDM for Bridges, and I ended up running the Sydney office of an advice firm for a number of years. And then when we started breeding, we came back to Perth, so that I was living in Sydney at the time and then came back to Perth, worked as a state manager, PDM for a while, and then started up Elix because I wanted to be able to give that independent business coaching support to advice firms. So then fast forward 17 odd years and well, that actually was 16 years I've merged my business or sold my business into vital business partners, not as an immediate exit strategy. I'm going to be, I still love what I do, so I'll be doing it for at least another couple of years yet. But now we are part of a global business with a lot more resources behind us and continuing to do really fun things with advice.

MH:

We'll come back to vital Business partners in a moment because I think they've actually rebranded recently as well. They have,

SV:

Yeah, were virtual. They're still VBP, but they went from virtual to vital.

MH:

We'll come back to that in a moment. If you think about your career, you've fitted a lot in and definitely a lot's changed in that time. What were some of your fondest memories of the industry and what do you sort of remember even from a leadership perspective, some of those so great moments in your career? I

SV:

Think one of the biggest things that impacted me and a lot of the firms that I worked with when I first started Elixir, a large motivator, was because at the time the commissions were legal, no one had even mentioned that actually we think we might start poking around here. I had just been working with so many firms that the commission system really didn't work for them from a business perspective. So I had helped a number of them figure out how to charge fees, and then when I started Elixir, it was because I wanted to do a research report. Nobody really knew much about how it all worked, and I found it really hard to get inside the tent with people when I was working under a licensee. So I put out that independent banner and then I had a lot more doors open up to me.

But what real turning point, I think was a year or so after that when the FPA started exploring this and they had a committee looking at advice fees, and I was fortunate enough to be part of that, and I remember at the time there was so much fear and so much almost anger coming from some advisors saying, look, it's not broken. Why should we be fixing it? But there was evidence that it didn't work brilliantly for businesses, and it certainly didn't work brilliantly for every client and not that every business intended to do it, but sometimes commissions definitely impacted behaviours. So I think I look back at that time and I see it as a real turning point, and I guess for me in my career, it was the first time that I had started to have conversations with people that didn't land well and I was really pushed outside my comfort zone and people were resisting the conversations and disagreeing with me, which was really healthy.

But as a, gosh, how old was I at the time? 30 something relative, newbie in the profession, I absolutely knew the impact that this was having on firms. But when you're pushing back against people that have been in their businesses for 20 years respectfully and graciously, but you absolutely do second guess yourself, which is probably why I did the research. I was like, oh, I want to make sure I'm really, really right here. I don't want to be suggesting people do anything that's going to be detrimental to their business. So that I think for the business of advice was a significant turning point and for me personally as well. It's

MH:

Interesting you say that because now I think if you're coming into the industry that history or the fee construct would seem very foreign, whereas it was a huge transition. And we've spoken to Steve Tucker on the show before just about what it was like for him as a leader of one of these last institutions coming out and changing the revenue model. What was it at the time that you saw that sort of led to you being so passionate about it? And you're saying that it wasn't working for practises, but that would've been a very unique view at the time?

SV:

Yeah, it was. Well, I came in and I could see under the hood, whenever I'm working with a firm, we go in and analyse them and say, well, what's working? What's not? Or where are the trouble points? And when you're going through market downturns, if people are on 1%, if it's it's commission or a 1% fee, you are really at the mercy of the markets for something that's outside of your control. So that made it particularly difficult, particularly for firms that didn't yet have scale. But from a timing perspective as well, firms were doing an awful lot of work to bring the client on, and if they didn't get the client over the line, they didn't get paid for any of that work, which some would say, well, the client didn't get any value anyway, but it was generally probably two to three months down the track.

So again, if you're a cash is king in a business, if they're not at scale yet, that's really difficult to grow and at sometimes rewarded the wrong behaviours. When you've got a firm that's got a number of different staff members and they're working with clients, the right thing for the client is to implement as it's the right timing for the client not to implement when the business needs the money. So when you're in a fee model, and again, most people nowadays, if they're new, they'd be going, that's not an issue. People pay a fee. They pay a fee when it's due and at the right part in the advice process, and that can keep the wheels turning for the firms. What we also saw, or what I also saw is it did keep people really connected to this identity of being an investment manager. And the reality was I'd go into firms and go, you guys are brilliant at strategy and you're so good with your clients and you are so caring and you really help them through difficult times, and you help 'em articulate what they want out of life and what money's going to enable for them.

But really you're seeing this many clients, you are not on top of the market all day every day for many people of their own vocalisation saying, oh, I don't really love the markets, but it's a necessary evil. Well, why hitch? Your entire value proposition on percentage-based fee or a commission off a product for you to then manage that product when actually the value that you're bringing to the table sits well outside that product and of all those other decisions and support that you're providing to the client, that the two really aren't aligned.

MH:

So you were basically telling advisors at the time to move away from commissions and to give up their value proposition. How did those first couple of years look when you set up your own business?

SV:

Yeah, pretty tough. Pretty tough. Oh, look, I was actually really fortunate because I had been coaching a number of firms working as A PDM and for various reasons at the time, there was no way I was going to keep working for that firm. So I managed to do a deal with him and I said, look, if you let me go, if you let me take the IP that I've developed, I don't want to take anything from anybody else, but the things that I've developed while I was working here, I'll continue to work with those clients at a discounted fee. So it was a win-win for everybody, so at least was able to support myself from the get go. But also, gosh, we talk about it now. It sounds like I was this real controversy. Yeah, I worked with people to help them achieve the right outcomes for their business, and if that meant that moving on from commissions was the right thing for them and they chose to do it, I supported them to do it. So I still had some clients at the time going, no, that's a bridge too far. We're not going to change that model. But there were other things that we could work on in the business to help improve as far as they could until they kind of got dragged along by the industry or, well, it wasn't industry at the time, lesser profession kicking and grieving. So yeah.

MH:

So the message was obviously landing and you were successful in those very early days. When you decide to move from just having you as a consultant and start to add more people into the business, was that challenging given what you were trying to build and the personal nature of the business?

SV:

Yeah, it was. I'd always started with the view of saying it wasn't Sue Kovich consulting. It was always, and it was always we, even when we was just me at the time. So I had already built it with the view that I didn't want to buy myself a job, but it always is challenging, and anybody that's grown a business that's listening to this will probably be nodding when you are successful and you are really, really busy to then bring team members on and then impart your knowledge and build out your processes and get some rigour around how you deliver those services. So you've got consistency. Yeah, that's pretty challenging. And at the time, trying to find people, in fact, it hasn't really changed, trying to find people that have got really, really deep expertise that have had the privilege to be able to spend as much time and effort on providing independent consulting support.

Because a lot of PDMs, they do help advisors to run a better business, but they also have compliance obligations, and they also have relationship management and supervision and monitoring and so forth. So to actually really get deep into the different strategies and the execution of those, it's rare for people. So yeah, part of it was a struggle to find people that could do the work and then also try to, I didn't want to replicate myself, gosh, I hope my ego wasn't that big at the time, but I did want to be able to get this collective wisdom and build out processes and ways of helping people that would be consistent and at the same time, not be prescriptive because I'd been around long enough to know you can come up with the same problem in three different businesses, but the way they want to tackle it and the best solution for them is going to be different. So there's no real cookie cutter blueprint. You must do X, Y, and Z. There's ways to get to the outcome that are consistent, but the outcomes themselves and how advisors tackle them, they're going to change every time. So that involved quite a lot of trust and yeah, some process.

 

Listen to more Between Meetings podcasts

In this podcast series Matt Heine, Joint Managing Director of Netwealth, chats to industry professionals and thought leaders on what opportunities and challenges they see for financial advisers and the wealth industry as a whole.

Listen to the episodes

 

MH:

So with the benefit of your experience and also with your consulting hat on, what advice would you give to someone that is thinking about taking the leap and setting up their own business

SV:

Plan plan? Well be well capitalised, make sure you know what it is to run a business, because being a good advisor doesn't necessarily mean that you're a good business owner. There are two different things. The beauty of that is there's so much information available at the moment. Well, there has been for quite some time, but there's no shortage of people happy to support you and give you ideas and give you their background and their experience. But that in and of itself can actually be a hindrance as well, because too much information can then make you stall because you go into analysis paralysis. So I think just be really, really clear on what it is that you're trying to achieve. Understand all of the machinations of a business as in your pricing, your business strategy, your operations, what kind of resource network you're going to put around yourself and plan out how you are going to get to scale as quickly as possible. Because without that planning, you will end up just getting to be a really, really busy advisor who's got a massive risk in your business. If something happens to you and you are the only advisor and you can't see clients for a little while, you're going to be in trouble. So do it. I'm not telling people to shy away, but do it with a business head, not an advisor head.

MH:

You just mentioned scale and scale's a wonderful thing when it's managed properly. Why is scale so important in this industry at the moment? Oh,

SV:

Well, I think the combination of factors of the legislative regime that we're working within and the increase in costs of doing business, I mean, it's very difficult. A lot of the work that we do is with firms that have got three or more advisors, so they're getting to that point of having a good decent sized team around them. So we're talking about having doing the right roles, but when you're an advisor, if it's only you or you and one other person, you are doing $50 an hour things when you should be earning the $400 an hour, and it's very difficult to get out of that rut. So when you're talking about fixed costs in a business, you've got your licencing fees, you've got your pi, they do vary based on the number of advices that you have in the firm, but it is very difficult to cover those costs and then be hitting a 30, 40% margin.

We often see that there's a real curve. So initially, single advisor business, I've seen some that are really profitable because they don't have a lot of overhead, but nowadays you can utilise technology. Well, I mean VVP is a perfect example. You could get a really great admin team member that can do your back office support for you for a third of the price that it cost you for an onshore team member. But then often as firms start to scale and when they're younger, they're smaller and they're putting on their first, second, third advisor, that's a big cost relative to the turnover that they've got. And too many firms I see do that without really good structure around client acquisition and deployment of services. So they have a big dip in their margins before they can get to a size and scale of growth. But there's a massive tipping point we see for firms when they can afford to have a manager call it practise manager, a general manager, somebody who is off the tools.

They're not the one giving the advice to clients, but they are ensuring that all of the operations are running really smoothly. They manage the staff, they manage the systems. That is when you can really start to get traction in a business and you do need scale to be able to do that. You're going to be talking 120, 150 k salary for a non-revenue generating team member. We call them a revenue enabling team member, but they're not generating revenue. So you have to have enough clients and advisors to support those to build that. And then that, as I say, that seems to be a real tipping point because then you can get some real traction on business initiatives.

Speaker 8:

Wealth is about more than just money. It's about opportunity and progress. Netwealth is supporting financial literacy and education in primary schools through Banker, a fun interactive platform for children to learn about money. So far we've sponsored and given over 120,000 children in Australia free access and want to reach even more, discover a world of community and refer a teacher to banker at banker.co/primary.

MH:

So I keen to explore how VBP can support that structure, but if you are thinking about an aspirational firm or a really well run firm, what do the metrics look like?

SV:

It's interesting. I'm always asked, and in fact I had an article that had a lot of traction on LinkedIn recently about how many clients each advisor can handle. So that's always a metric that people are really interested in. So clients per advisor, that really does vary depending on the type of clients. But article I wrote was around the fact that too many people I think are benchmarked to this 150 number, and I think it comes from Dunbar's number. So there's this theory that humans can only have updates. It's like 152 social relationships, personal relationships, and then they just don't have enough brain capacity to be able to handle more than that. And so advisors have kind of stuck to that as being, well, that's as many as anybody can handle. But I say, well, Dunbar didn't have a CRM or file notes or a team to support those relationships.

They didn't have a great platform Netwealth where they can gather all their client data and get to know 'em. So right now what we are seeing is firms, and when I say what we're seeing, we've done research, our advice operations research, which we released in the last couple of months, really looked under the hood at the engine rooms of 170 odd firms. And so we did find on average people are benchmarking to say, look, we can probably handle about 148 clients on the current operating structure, but when we look at high performing firms, and we classify that through ebit, so 30% EBIT or more, and also business satisfaction. So we ask, how satisfied are you with the growth and what you're achieving in your business? So those firms metrics seem to be looking more like they look or we look more for a revenue per advisor perspective.

So you'd want to be having your advisors managing 800 to a mil worth of revenue, and to do that, you would be looking, again, I hate averages though, Matt, so it does vary with how the business is structured, but you'd be looking at two roundabout, two support staff per advisor, and then ideally you would have a practise manager, you would have good technology, you would have a robust and efficient pricing methodology that is effective through all businesses. One example that I do use here just because it's so damn impressive, is one of BP's biggest clients is Invest Blue. I dunno if you guys work with Invest Blue, they have now, I think it's about 350 odd staff around Australia and David Steven and they're actually investor in VVP as well, and he was sharing with me, they can attribute 8% of their profit to the fact that they have a global team and they outsource.

And the metrics they use is they have one third of their team members are based in the Philippines. So for every two onshore staff, they have one offshore team member and they find that roughly four offshore team members can handle the workload of about three onshore because you do lose a little bit in that distance and that language barrier and training and development. But that he said that has consistently put 8% on their bottom line when they were 10 mil turnover, and now when they're over 110 odd mil turnover, it has been really consistent. And that's I think an example of what I was talking before about you think about it like a business owner, understand your metrics, look at what metrics you need to be able to achieve the growth that you want to without necessarily impacting on your margins and delivering an outstanding service to your clients. You want to get down that advice turnaround time, keep it as low as possible, service your clients really well, have your advisors doing the things that only an advisor should be doing and what they love doing, being with clients and helping clients and then build your infrastructure around that I think is pretty important.

MH:

Some of those metrics that you mentioned are pretty impressive, particularly when you're looking at the EBITDA margin and efficiency is clearly a big part of that. As you've touched on technology and outsourcing are two areas where you can have a big impact in the business as you've just gone through thinking about technology first, really keen to hear what you are saying in the market that's exciting you. And then if we come back to outsourcing, what are some of the objections that you are still getting to outsourcing and is there a critical number of outsourced staff that a firm would need to make it viable?

SV:

Look, I think we are finally seeing firms starting to explore ai, and I know this has been a buzzword for a long time and it's not the silver chalice that people were hoping it might be, but the biggest shortcut that we see for people using it and perhaps the first step is really that file promoting functionality. There are some apps that are specifically designed for that, and I've seen firms utilise copilot to be able to create good outcomes for them. So I think we've only hit the tip of the iceberg with that as large language models get better as people learn how to write prompts better, I think that's going to get significant efficiencies back.

Maybe this is going to be controversial, but it still astounds me that there's so many different financial planning softwares on the market and there's still not a standout that says this one will be fantastic. So I think people, they all have their strengths in different areas as in the software systems. I think what we're starting to see more and more, which is I'm really grateful for, is that firms are getting really clear on what are they trying to achieve with the technology decisions and selecting tools that are going to be fit for purpose and understanding. It's unlikely you're going to be able to have one tool to rule them all be clear on what you want to achieve and then select the modules from the different systems that are going to achieve that outcome. I mean, in terms of data, that's probably the most exciting piece at the moment. Being able to utilise ai, and again, I know Netwealth is really good at this through the data that you have on your platform, but being able to inform firms about what's happening in their client base and trigger notifications and things or actions that advisors could be taking to reach out to their clients at the right kind of times. I mean, that's really exciting. It's not that one client at a time attention anymore, which is great.

 

The Netwealth Portfolio Construction Podcast

In this podcast series, our investment research team pick the brains of key wealth management professionals to uncover unique insights on the investment areas they are most passionate about.

Listen to the pocasts

 

MH:

One of the things that we're certainly seeing in the market is a separation of the planning tools and the CRM and obviously the two dominant ones being Microsoft Dynamics and Salesforce. Have you seen good implementations of either,

SV:

I have Microsoft Dynamics, so we see because it comes with 3 6 5, and I think most firms are using 3 6 5, that's probably a cheaper option than, well, it is. It's not. Probably it is a cheaper option than Salesforce for a lot of firms. So it comes down to the ability for the firm to customise it and make sure they utilise it in a way that's going to be suitable for their client base. The firms that I've seen really tame a system like Salesforce have got the scale to be able to afford to invest in it. It is a phenomenal system and there's another system that I think advice firms are used to using that can be phenomenal if they build it and structure it really, really well. Salesforce works very well with other systems, so firms deciding on which elements of that advice creation is required and which modules they can utilise from different systems on the market to make that happen and then plugging it in to their CRM because they're two different functions. That's really helpful. I mean, I dunno how much you want me to talk about different brands. Obviously those two are big global brands, but I've also seen people have great success with the likes of work sorted utilising that as a CRM and operations management workflow system. Certainly even, oh gosh, I'm going to have a mine meltdown here. The gentleman that's set up Microsoft Dynamics specifically for advice businesses,

MH:

Finn 3 6 5, Steven Hanley.

SV:

Yes, thank you. Thank you. Yeah, and that's an example of just how much a system has to be customised to be able to be fit for purpose for financial planning businesses because they are quite unique businesses. So having a great tool in the first place is great, but also then fashioning it in a way that can deliver the services that you need is really important. And those business are huge. They are huge, and I see firms get crippled by the fear of, well, actually for us to shift completely from one system to another, it will be a significant disruption to the business. So it has to be a great decision, it has to be a considered decision, but I'm also seeing more and more firms just swap modules at a time, so it's an iterative piece from whatever system they've been using. They just find, hone in on one thing at a time, one feature, and then find the best of breed to that and then start utilising that. That can be a more gentler way to make the transition.

MH:

Just before we move on to outsourcing, and we'll just finish up on this one for a moment, our research would suggest that a lot of what we call advice tech stars have got an in-house resource managing all of their technology. Now clearly that's a benefit of scale. How have you seen firms,

SV:

They were coming back to scale,

MH:

How would you see firms that don't necessarily have that scale yet best manage the tech in their business? Well,

SV:

There's scale and then there's scale. So if a firm is of at least of a size where they can have a practise manager, even if that practise manager is not a CTO or really a technological whiz, they can at least project manage the tech implementation. If it is a system where they need to do their own customization, then yeah, absolutely having those skills in-house can make a big difference. But we've got groups like ra, I love the guys over there. They do really great work with firms coming in from an external perspective, but again, they're not cheap either, so they're sort of suitable for firms that are of a certain size. Something that we see more and more, Matt is firms that are subscale. So they've got one or two advisors, and quite often they'll be coming to us wanting help because they're just at their wits end and they don't have time to down tools and fix their business.

And more often than not, when they really get down to why they're in business and why they do what they want to do, a lot of them are actually, they're doing it because they love client work and they don't have the energy or the head space to be able to completely refashion their business to be scalable. And so their best solution is actually finding a partner, finding another business that's wanting to merge firms in that already has that infrastructure and that scale to be able to build out best of breed technology and so forth. And then they merge in and then they often find that they're doing the things that they love and somebody else is running the operations. I think it is difficult for a smaller firm if they're not tech savvy to try to figure out how to get those benefits of technology.

MH:

I'm conscious that we only have a little bit of time left, but just to look back to the outsourcing discussion, when does outsourcing make sense for firm and what are some of the objections that you are still seeing in the marketplace? I

SV:

Think well, look, there's lots of different types of outsourcing too. So most advisors are quite familiar with outsourcing SOAs with power planning. They might do them and pay per SOA, and people have their views around whether they prefer on or offshore to do that. The one I love is I've tried outsourcing before and it took me just as much time to actually get the instructions ready. I might as well have done it myself. That is a really good example of a failed execution of an outsourcing strategy, and it doesn't have to be that way. Certainly the way that VVP provides staff is that they provide full-time team members and they really become part of the businesses DNA, they work closely with their onshore team. They learn your systems and processes and so forth. So I guess that one element of, oh, it's just as quick for me to do it myself.

I don't have time to train somebody. VVP is great in getting around that because every group of new team members that come on board are put through a training course and in fact, paraplanners get the Australian accreditation. We train them up there, we've got a brilliant training team, admin support people. They go through a course to understand what is super, and I'm actually still working on bringing that out to Australia because that course is fantastic and onshore Aussie staff admin staff benefit greatly from it, but they also structure in a way that they've got a team manager over there or a CSM that works with 1520 team members. So even if a firm here has only got one or two team members, they work closely, they train them up in how they want things done, but they've also got somebody on the ground up there to take care of them, and I think that makes a huge difference.

I think the language barrier with the country that you're working in is a difference as well. I've had a lot of people say, oh, we've had to do a lot of rework because English is a second language and that's difficult. I think we're quite fortunate that with the Philippines, most people learn English at school. They do their schooling in English, so some of their diction and elocution is better than a lot of Australians, and they are really willing and able to learn. So all of our people, I think they're university educated, so we're not necessarily talking about cheap labour that is not very educated, that's not just the lowest common denominator tasks that they need to do. I think quite often people are surprised by the level of skill that their people can develop, but I think also the security thing and rightly so, is a big challenge for people around, obviously advisors manage really sensitive data.

They're a high risk firm, so whatever outsourcing you have, it's really imperative that you're comfortable that the security measures are going to be adhered to. And there's ways around that as in, not to avoid it, but ways to be secure and working with a reputable provider that's got all of that infrastructure in place. I think the biggest, we talk about ethical outsourcing. One of the biggest challenges to that is where people hire direct in any offshore country, they just don't know what is happening over there. They don't know the security protocols that their team members having, so it's really important to protect that data very fiercely. And I think too, managing team members the same way that you would manage your onshore team member, we train our firms, they have daily huddles. They follow the Rockefeller habits with their team members, so they've got daily huddles where they know what they're working on, they're in contact with 'em all the time.

It's just like team members working from home here in Australia. They're really part of the DNA and the culture of the firm. And if you do it that way, then it's not really outsourcing. That's why I like the language of you're building a global team, you're not outsourcing anything. You've got a team member that just happens to be based in another country and happens to cost about a third of what it's going to cost you here in Australia, and it enables you to reach more people because here, I mean, the number of times I have people talking to me saying, I need this person, I just can't find them. We've been advertising for this long in Australia. I'm still really concerned, Matt, I don't know where all of the trained admin people for all the advisors that we've lost over the last few years, what happened to all their trained admin people, they don't seem to be on the market.

MH:

That's a good point. So that's absolutely flown by as it always does. And we could chat probably for another hour. Just before we go though, you publish a lot of research, you've covered a lot of topics today. Where's the best place for people to find out more about what you do and VBP?

SV:

Well, our VBP website is, oh my gosh, that is terrible. I should know that just because we have recently rebranded, and it's one of the shortest domain names. I love it. It is VBP au, so Vital Business Partners is what it stands for, but you just put in VBP au. I'm happy to connect with people on LinkedIn, reach out to me on LinkedIn and any one of our team. Happy to have a chat if we can assist people with their needs, whether it be helping them build their global team or consulting, providing coaching services, helping them fix up their back office. We've got an engine room intensive happening shortly, which will help people completely rebuild and restructure the way that they're managing their back office, all sorts of fun stuff.

MH:

Wonderful. Well, thanks Sue. Always good chatting and hopefully we'll see you over in Melbourne soon.

SV:

Yeah, I'd love to look forward to it, Matt.