#417 Rich Abbey – Transcript

James Wrigley
Hello, welcome back to another episode of the podcast I’ve got the pleasure of speaking with rich Abbey today from peloton partners. And we’re gonna get into the interesting topic of financial advice, pricing of pricing financial advice services, it always gets a lot of interest through the ensemble platform and wherever else it’s it’s spoken about conferences and so forth. So I’m excited for this one today. Rich, thank you for joining me.

Richard Abbey
Thanks, James. I’m excited to be really excited.

James Wrigley
We were we were talking briefly just about a there’s a paper of sorts that that you shared into the ensemble community and that and that’s kind of somewhat prompted. This this this podcast recording that we’re doing this afternoon. But maybe, maybe let’s start with with pal who is peloton partners, maybe let’s start there. I think different people have probably come across peloton over the years different presentations at conferences. I know I’ve seen a couple over the years. But guess who’s peloton and what do you guys do?

Richard Abbey
That’s good question we get is not surprising if you don’t know too much about us. We’ve been around for 11 years and worked in financial advice all that time, but flown under the radar. And my business partner and I Dave Whelan have joined over the last year and part of our role is to build the industry awareness of what we do and what we offer. And part of us today, but they’ve been going for 11 years, founded by Michael Harrison and Rob Jones out of the shadforth group. They roll their businesses into that conglomerate and price a lot of others to join before that was accident selves who IWF and then they pivoted into pricing for the industry. And they’ve been busy keeping up with demand. But as I said, flying below the radar. And what we do is we offer an ongoing solution to implement a pricing framework. And rather than providers the calculator for provider service over a number of years to transition existing clients on to a more structured way of operating and giving you the confidence to continue in perpetuity, particularly using our technology to retain the discipline of pricing in a way that we see as best in class.

James Wrigley
Okay, so what are the maybe let’s start with what are the what are the pricing models that are out there that you see? I’m James, I start James Wrigley financial planning tomorrow morning, and I’ve got a decision to make around how I’m going to charge by my clients, what are the different models that are out there that are people that are operating under right now.

Richard Abbey
There’s sort of three core ones as well as a mixture of three blend of three. There’s the fun percentage base, which we’re talking about earlier, as a flat feet, there’s a hybrid of the of the two. And then there’s also a bit of a nuance, I suppose, where some people have been offering a flat fee for a one off piece of advice rather than a flat fee for an ongoing period of time. So those are the standard permutations. Ours is quite different. And has been developed and curated over that last 10 years. And we can talk a little bit about that if you like and it really stands alone stands apart from from those traditional methodologies.

James Wrigley
In so in the industry, surely financial advice landscape as it stands at the moment, do you have some type of sense as to what percentage of businesses fall into one of those three different existing icing arrangements? Now? Did you have any any input on that?

Richard Abbey
From our clients? The hybrid structure is quite rare a bit of an outlier. But before we get involved, it’s skewed towards from based still, but the flat fee is growing. Okay, so it’s, it’s getting up towards half and a half. Yeah.

James Wrigley
And how so the fan base is some are fairly self explanatory that percentage of a particular assets, whether it’s 1%, or half a percent, or one and a half, you know, different businesses have a different different scale and what that looks like, what about the fixed that fixed fee model? Are you finding that there’s different tiers of that fixed fee? Model? Or is it if you want our servers as it costs x regardless of what you might look like as a client?

Richard Abbey
Well, the good question there are variations and no two businesses are the same. Some people put a lot of time and effort into deriving their cost to serve the average cost to serve and are very disciplined around having a min In a fixed fee, or the segment that business into gold, silver, bronze, or a number of meetings per year, and price a flat fee that way. And some people, they’re quite honest about it. So it’s somewhat arbitrary. It can be a case by case a little bit of finger in the air. So it does vary.

James Wrigley
Gotcha. And so what is your model, then look, like you said, it’s different and kind of standard line to it to all of all of those existing three or signs that we’ve been discussing what is what’s peloton look like,

Richard Abbey
there’s sort of four elements to it. And the first being is structured so that if you implement the framework, it has an end in mind of delivering a certain profit outcome for the business. And the algorithms allow for us to predict what the outcome is going to be, whether it be in a percentage of profit, or $1. Target. And we’re quite prescriptive about us and one gets later on, when talking to the clients, we’re quite overt and saying that’s part of the rationale. And that’s fair, and some people shy away from that. But that’s the best way we think we can support businesses in this industry by having that components in there. And that’s more important to have a targeted business level than just a client. But then another element on the client side, is it’s really important that each client is priced individually. And we advocate, it shouldn’t be based on the size of their asset pool. But it should be based on the complexity of their contexts, the number of services we are delivering to them that particular time period, the time and effort involved and cost when we look at the p&l and delivering those individual services, and also how much value they see us. And and some of that’s intangible, and some of that is tangible. And we break that down at the client level. So that the client is paying for exactly what they’re getting and what they’re valuing. And there’s nobody on the higher end of the firm scale subsidizing those on the on the lower end. And that’s very important from the clients perspective. Thirdly, then we look at the value, and the conviction of the advisor. And it’s really important that the framework isn’t just a standalone calculator, but it is something that is able to be articulated by the adviser at least take pride in and demonstrate their own range of services that they deliver, and can present that to the client in a way it’s really robust and transparent and clear, and professional, and have a direct conversation in a respectful but professional way, rather than just deliver a number without an explanation. And that then gives the client transparency and the respect that they deserve to understand the very professional rigorous processes to arrive that number and where that number comes from. And then finally, to make sure that framework isn’t point in time, it needs to have a mechanism to last in perpetuity. And we structure it so that each review, we do this important called a mapping exercise, which involves a lot of IP over the years, but it’s relatively efficient from a viruses perspective, to calculate the fee at that point in time and embed that into the process and the culture of the organization and also the expectations of the client.

James Wrigley
That sounds like a lot of work goes into pricing each individual client, what is what’s the, what’s the, what’s the process or the involvement and so forth is like I’m I’m 100% farm business right now. And as and I’ve known for some reason, I’ve come to the conclusion that that’s not the way forward anymore. How do I move to move to this and then and then what’s involved in the trying to reprice, the 100 clients that I look after on a on a percentage of assets basis?

Richard Abbey
It’s a good question. And it does involve a lot of work. But a lot of the work has been done, even before you engage with us. Yep. So I saw an old post on LinkedIn during the week, which I’m going to I’m not going to do justice to but it was about a chap and had gone to into an industrial warehouse to fix a boiler or an engine. And he’d quoted to $20,000 to do that. And he went up to this particular piece of machinery, tapped up with a hammer and fixed it. And the owner of the machinery said why did that cost $20,000? Can you break down the inputs? And he said it was $2 for the hammer. It’s $19,998 for 25 years of experience that I’m bringing to bear on that particular day to know what To hit, right, so all that complexity I talked about, that has been built up over and we’ve made failures. And we’ve tweaked our own systems and approach. And that, but we don’t ask you to reinvent that, we just do that for you. And we take your inputs, and create the outcomes. And we test them with you make sure that we’re not going off and not validating what we’re designing for you. So maybe just step through it. Bit more methodically, the first phase is to get hold of your p&l, having your client list and your client list needs to involve their the fund balance, the ongoing revenue, upfront revenue, but also the review date, and the p&l and is assessed by Ben Soto’s a superstar within our business, longtime business analyst, more recently certified as a business, as data scientist, I should say. And he normalizes that p&l, so that everybody’s salary is comparable with the benchmark, particularly directors. And we’re comparing apples and apples. And that’s very important when we’re looking at multidisciplinary firms and has allocated costs that are a bit ambiguous to make sure that’s done in the same way. We then take that information, and cross reference it against our benchmark of data. So we’ve got 320,000 data points in our data warehouse. And we create a calculator that says to take this business from here called profit margin of 30%. And understanding the services that you provide, and understanding the cost to serve because we survey all participants within the wealth business, including the CSOs, we then create a calculator. And we actually then spent a lot of time involve participants to understand the rigor in that calculator to the point that they’d glaze over at some points. But it’s really intentional, because it helps with your conviction. And when you talk to a client, you understand the rigor, and you convey the professionalism that we brought into this process. And we’re gonna, then I said, we’ll sit down with your advisor, and we’ll test some of those cases. And that’s quite frightening for initially, because some of the changes and fees and material, particularly the low value fees have got a lot of labor intensity about them. And we’ve been calculated on a fun basis. But we check in principle, go back to square one, this is why we’ve built it this way. This is, and we’ve had success with this over 100 times 100 different firms. Is this still what we’re trying to aim for, and profit, still reasonable. And we still want to be fair to the client. And we’ve made we’ve made tweaks in some areas to make sure we’ve got all the nuances correct. We then spend a lot of time training advisors and training the support staff on understanding all the services that they’ve provide. It’s not just about the quarterly review, or biannual review. And we talked through the intangible values. And then we get them to look at each of the clients and go through a checkpoint, a number of checkpoint questions, some obvious ones such as, how many reviews do you do per year? Do you manage their Centrelink, but also, for what degree we available on the phone to make sure this person’s comfortable at all times with the situation with their portfolio, if they’re very invested in the performance of their portfolio, we also extrapolate the fees of the FSL across the entire client base, which is appropriate for cost to serve. And then, once I’m confident in explaining what the services are, we do some role playing with objections and concerns that advisors raised made that maybe conference ID if they present some of this information to the client, and we also help produce a lot of material that demonstrates the methodology for that particular client the questions that were answered, the outcomes that came the costs of derived for each of those individual services. And this is done on the advisors behalf and they can take the client through that phase six phase. And what that does is quite a lengthy process enables the adviser to walk into the client meeting, not prepared for objections, but actually so confident in the rigor and what they’ve done in their own value that they’ve delivered, that the objections never arise. And the clients. They don’t necessarily in JAMA advocate, they enjoy their fees change. But they see that, you know, the professionalism and the rigor and the confidence, and there’s a certain amount of relief that this has been done in a transparent way. And you know, it’s I’m still still beggars my belief that this is the case but we have have a retention rate of 98%. And I’m surprised by that. But that’s what I’m seeing that evidence in the year that I’ve been involved in the same. But I am surprised. And I think that’s partly because we build that confidence. And it’s so transparent, that the client understands there was not a finger in there, there’s no ambiguity there certain of their value, this must be appropriate, might necessarily enjoy it. So on that point, info should say not everybody’s fee increases, because of this historic dependence on a phone based calculation. There are some clients who come down. And that’s fit and proper. They may have been more complex earlier in their career, but at that point in time, they were relatively low touch. And it’s not fair for them to subsidize the rest of the business. It’s,

James Wrigley
it’s interesting. You mentioned in the sorry, it’s interesting. You mentioned in there about, about objections, you know, you I as I have still haven’t been through this process that you’re articulating here, and and the it’s kind of been a hesitation that comes into all the clients are not going to be terribly happy with this. If I’m changing the fees, certainly, if I’m increasing their fees, decreasing it, there may be a little bit more happier. Interesting. You mentioned through there about little to no objections if it’s done, if it’s done appropriately. And that’s probably then evidenced by the client retention rate of 98% that that you also suggested there that the clients weren’t terribly happy with it, and they were objecting to it, you’d probably have a higher drop off rate than 98% would be my Yes. Yes. In all of that. It’s interesting that yeah, you mentioned little little objections through that whole process if it’s done appropriately.

Richard Abbey
Correct. I mean, there are there are some clients want to understand more. And we have a lot of information to share with them that’s on hand in that meeting, if they have questions. But some don’t even want to go through the pack in its entirety. So and I understand, understand the value, and show me the figure. And it varies, it does vary from person to person. There’s no doubt there’s a lot of trepidation from advisors to start this ball rolling. But it is transfer more transformative for many individuals and their self esteem, putting aside that this revenue increase has no associated cost with it. So it’s profit. Unlike any other business opportunity, whether it be m&a, or recruiting another adviser, or referral is a cost to serve that, that results in a in a percentage of that revenue going to profit. And sometimes that’s not a very big percentage. But the last last piece of the process is then to have a framework to make sure we execute on this rather than put the calculator in the drawer. And we work firms as a minimum for two years. It takes three months to prep this work, doesn’t take three months of effort on the advisors part, but it takes takes work on our time, and to train the advisors. And then we’re the lady called Elva pika, who’s another superstar. And she specializes in hand holding the businesses and the advisors through that 12 to 18 months of execution. And we have the review dates in the system, you have regular calls, make sure the prices have been met, see if there’s any anxiety coming up role playing again with specific clients. But also sometimes identifying particular advisors who are more nervous than others. We do occasionally build in discounts capability into the framework. And some people are very eager to make use of those compared to others. And we have to see if that’s appropriate or not. But she’s fantastic. She’s encouraging. She also holds people to account in a very collaborative way. And that’s important. I think having somebody walk alongside you on this journey, which is initially intimidating is a big part of this. Otherwise, the rubber doesn’t hit the road.

James Wrigley
It’s a how long said is a piece of work on the peloton side. Prior to any clients really being spoken to. How long on average, do you think it’s taking for advisors to work through their client base to transition them to to a new pricing framework? 12 To 18 months, you kind of mentioned 12 months?

Richard Abbey
Yeah, 12 months is the average there is then sometimes there are clients within that review cycle and we’ve only just joined the business. And so we’d prefer those conversations. Until after the But the anniversary, naturally, but we still, we still have that conversation. And it’s still transparent and it’s still well evidenced, we just make sure it doesn’t have to happen within the initial 12 months.

James Wrigley
So what about some some numbers around profitability levels within as a percentage or something like that? Like, what are the best practices out there? Those that have trend, you know, transformed their their pricing model? What level of profitability? Are they operating?

Richard Abbey
So it’s a really good question. Because not only does it vary business to business, it varies within those businesses over time. So at a high level, the average for the industry is 27%. On average, our process we go through, we reduce the fees for 8% of clients by 8% stay the same and the remainder the about the fees go up. And on average, that results in a 22% increase in your overall revenue. For the clients that are in scope, we do discover some some outliers on occasion. And what that can take somebody’s profit margin from, in one case 5%, to 25%. And that’s not always appropriate, because sometimes there’s an inefficiency in our organization, it’s not fair that the client should underwrite a 30% profit margin. But certainly, we’ve taken some firms from very perilous positions to ons where they’re comfortable, the tail is not wagging the dog, because they’ve got money to invest. But we also see is, some people go through a one soft transition of their clients onto our model. And then we, we part company, and when we revisit them in four or five years time, or they come back to us, their profit margin has eroded and they’ve spent that that capital, whether it be in IoT, or new projects, new resources, your premises, and they’ve grown to a scale where they’ve lost some efficiency, despite that investment. And it isn’t set in stone. So we’ve built some software called a lead out, that enables businesses to keep tracking how they’re pricing according to their p&l. Yep. And we’re excited to bring that to market. That’s partly why Dave and I have joined the business.

James Wrigley
Okay. So you mentioned like, just in general inefficiencies that you’ve got some businesses that are operating at 5% profit margin for could be a range of different reasons. We’re talking for the most part about pricing of advice, but but does your process also uncover? Just general inefficiencies where you’re saying, why you’re doing it that way? Why don’t you do it that way? Like, does that help in the process at all? Can you? Can you talk to that? Yes,

Richard Abbey
yes. Because we take the p&l of every organization we work with, we benchmark, their marketing spend example, we benchmark, the staff ratios, were quite unique in that. We believe we’re the only business in Australia that has that level of data. But we are careful not to cloud the conversation, if we start looking at some of those changes that could be made, it slows down the pricing project, and we can get distracted. And we believe that’s where a business leader can make the biggest difference in the shortest amount of time. And that then gives them some breathing space with which to address issues within the firm.

James Wrigley
Yep, yep. Now is said kind of towards the start of the podcast, there’s a is a paper of sorts that you’ve that you’ve put up on the on the ensemble platform. And so anyone listening through to through the podcast, I encourage you to, to go and have a look at it. Maybe Maybe we can somewhat kind of work through that, that document appreciate that podcast is everyone’s listening. Not they’re not they’re not watching it, but we can, you know, somehow try and try and talk through that. Maybe if I bring it up on the screen. We’re recording on tmca fi, bring it up on the screen. And you can maybe try and talk me through it and then anyone else can anyone listening won’t be able to kind of follow along. So it’s an 11 page document that talks about pricing, understanding the facts and relevant benchmarks. So yeah, do you want do you want to try and talk through this? Give it a crack?

Richard Abbey
Yes. First of all, the introduction is just stating that this isn’t opinion And this is derived from the information that the businesses have given us, and contains 18,000 clients. So when we look at what the markets how the market is pricing, it’s, it’s what the data warehouse is telling us. On the first page, you’ll see a chart that shows the bell curve of prices within the industry. And it’s worth noting that this is a log scale, just in case it might not resonate initially, what it’s telling us is the average fee, which we don’t put too much weight on this and don’t take this as an action item. But the average fee is 5000. To one for the, for the for the industry, the median is much smaller, is more like 3200, but that large clients are skewing it. You can see there’s still a significant number of clients below $500. And I understand having spent a lot of time coaching businesses, a lot of rationale gone into that. But we generally contest that that’s, that’s fit and proper. When we get into those individual businesses, the next slide is more of the same.

James Wrigley
Just on that that bell curve and the you know, that kind of average fee median fee numbers, is that there? Is that the average ongoing financial advice fee, if that’s not including upfront, or is that the the total revenue that a firm might collect from that one client in Maryland? Good question.

Richard Abbey
That’s ongoing. Ongoing. Yep. Okay.

James Wrigley
And then, yeah, you said the second ones and others another series of bell curves, by the looks of things.

Richard Abbey
It’s the same same data for split into different font sizes, because that is how we’re used to thinking of and those clients were fund balance under 250,000, their average fee in the industries sporting 100, and so on, and so forth, the top above a million dollars, and that involves those up to

James Wrigley
200 $300 million within Sunday group, the average is 15,000. And again, shows the median there, so people can get access to that. And so the average is then skewed. The average given the average is higher than the median, the average is then skewed, because of those $200 million. There might be a percentage of assets under management on 200 Rodian, skewing the average the average fee for those, what your label is established affluent assets in excess of a million dollars to the average fee being about $15,000 a year.

Richard Abbey
Then the next slide is a scatter diagram that shows all the clients within our database, and shows naturally strong correlation between the fee and the fun. Okay. And that’s still prevalent trends of saying earlier. But then the next slide is interesting. If you scroll on to that this is looking at when we interview each business, we ask the number of services they’re delivering to their clients, whether that be estate planning, whether that be portfolio management, CFO Centrelink, what have you. The correlation of the fee, compared to the number and complexity of the services delivered isn’t less clear. Okay. And what you’re seeing here with these two arrows, is that generally the average fee is increasing to a point as the services are broadening. But as that complexity increases, and more values deliver to the client, for some reason, maybe the businesses are getting more consumed with delivering their services, especially pricing goes backwards. And so our role is to change the direction of that arrow and make sure that firms are paid for that expansion in service. That makes sense. So then the clients who, who are all over this chart are paying for the services they are receiving. Yeah, I’d encourage

James Wrigley
anyone listening to go and have a have a look at the chart but it’s it’s quite an interesting one, it goes you know, the number of services 1234567 along the along the horizontal axis. And as you as you pointed out, you kind of from four services to five services, six services, seven services, their clients fees increase, which is what you would expect your there’s more things that you’re doing for them. And so as a consequence, that client should pay but it it, it dips down when you go from six to seven to eight to nine. The the average fees start to dip although the number of services you’re providing are increasing and then it starts to take off again, post post post 10. The interesting thing to look at the way to slice and dice that it’s from, from a colors perspective, you’ve got there’s a huge concentration of while I suppose now it’s to actually the way that the data is represented. You’ve got all these dark dots at the bottom then the green ones and then the light ones. That’s really just that For the fees that they’re paying, I know that’s different farm isn’t exactly that’s

Richard Abbey
the farm. So again, that shows that shows that the fun Haiphong clients are paying high fees. Yep, saying the same thing again, even though they’re not necessarily getting any more service or else Yes. Similarly, though there are low fun fees with a lot of service. And they may be cash rich and just haven’t built an asset base to deal with a lot of businesses will look after medical clients. And they can rapidly build their earning potential earning capability, but have it in their complexity without having an asset base? Yes. Yeah. And yet we’re not charging for those.

James Wrigley
Yep. Yep. And how I just just just on the discharging LM look, Wait, where did you find that the fees are being charged to. So if you’ve got that, you know, that that medical client, for example, that doesn’t have a whole of assets. So to charge that 1% on their superannuation fund, there’s not much in their superannuation fund? Do you find it’s being charged? Through through the products through the client’s credit card? Like? Is there any insight into where the fees are being charged? So

Richard Abbey
it can be through the platform? Commonly? It’s just explained that it’s not that there are some potential restrictions within the platform, some platforms prevent you charging a fee over a certain percentage. Yeah, yep. And that’s, you know, we’ve got intentions now that, that we’re, again, very transparent with the client, why are we charging this fee, and it sometimes they pay that direct from the cash account, and they have every chance to not pay if they don’t continue to see the value. So it’s penultimate slide, I believe, is showing where the value or the charges, the fees change, according to the bell curve of the client, as we go through our process. So some of the low value clients, sorry, but high complexity you see in the blue area, they move into the yellow towards the right. Isn’t it hard to explain this on a podcast, but it’s not just about it’s not just low value clients, low phone value clients, I should say. There’s also there’s a mixture when it’s a high phone value, that the complexity of their circumstances, their family group, their accounts that trusts, how labor intensive they are, means they’ve been charged even on a full model. Yep.

James Wrigley
There’s like a product snapshot, which is this you were talking about before about the kind of athletes so it’s interesting that you start out is that the whole process? kind of backwards, which is almost like not backwards so much. It’s the financial planning process, isn’t it? It’s kind of where is it that you want to end up? And then what are the changes that you need to make to your situation to get to where you want to end up? And yes, in the business, it’s, what level of profit are you trying to generate, and then work backwards to to get this.

Richard Abbey
This is slightly different this final page, all the data originally is around when clients come to us what the book looks like on the client, this looks like only a subset of that those businesses go through the peloton process. But this looks at a benchmark of similar sized businesses that have been through this framework, or implemented this framework, and calculates what the range of impacts was for those particular businesses. And therefore what we predicted would be for your business. Does that make sense? Yep.

James Wrigley
Yep. And so there’s increase in recurring revenue, per staff metrics? Yep. Yeah, no one’s gonna have to dig out the slide and, and spend some time going through it. Fantastic. We’ll start talking about the the stop trying to do a presentation via via podcast. So anyone that’s kind of interested in finding out some more like, literally added question before we get to that, start some stuff. Is it starting at a business tomorrow morning, brand new business tomorrow morning, and a lot of what we’ve been talking about near is pricing and this idea of changing the way that you’re pricing for your existing clients? How can I use this, this methodology for the brand new business that I’m starting tomorrow morning, where it’s just me, I don’t have any support staff just yet, nor do I have any clients? How to how do I use that in that brand new business?

Richard Abbey
Well, it’s, it’s, you know, it’s a challenging phase to start your business and build your client base, but there is a silver lining in that your clients. You have not set any expectations with them as to how that’s going to work. And we advocate we have a congress sation straightaway and you get it right from day one. And you could again, your clients will be impressed with the professionalism you will display. And it’s not. So yep. The the simple answer is let’s have a conversation we can guide you.

James Wrigley
Yep. And so on on that. We can I can any, how can people find you if they’re interested in what we’ve been talking about and finding out a little bit more about you, peloton and all the rest of it? Where can they find you and get a bit more info?

Richard Abbey
Well, presumably, we’ll attach some information to the show notes already. But LinkedIn is an obvious one. We also if you go on our website, you can put in your the info, some basic information in there and we will send a snapshot to you and compat in a comparison to your peer group. And we can have a chat after that if you prefer but the easiest thing is just to start just to have a coffee and see where you’re at.

James Wrigley
Yep. So there’s that’s interesting that it said is there’s a means to put some basic business data in through some portal that you haven’t get back a report obviously you then have a conversation with them around that report too. But so it’s an interesting starting point. All right, thank you. Will as you mentioned, we’ll put some kind of links to where to find you and peloton partners and all the rest of it into the show notes wherever anyone might be listening to this from. Thanks, Rich. Appreciate speaking with you today.

Richard Abbey
Thanks James. Enjoyed it.