Engine Room Unpacked #1 – Transcript

Andrew Rocks
So what is unpacking the engine room all about? Today, we’re going to go through the five first five episodes of the engineering podcast. And we’re going to pull out those nuggets of gold that are definitely in there and make it really easy to provide you the listener with some great value. Now, just for those people who have a short memory, who aren’t addicted to this podcast, the first five people on our podcast engine room, we’re coastal advice with Mitch boutique advisors over there in WA with the lovely Belinda sufficient funds with the Mad cap James first wealth with the incomparable Corey, and EJ M with Peter. Now I’m joined here today by my partner in unpacking Dean Holmes welcome, Dean.

Dean Holmes
Thanks, Andrew. It’s great to Great to be here. Really excited to continue this discussion around the business of financial advice. I think we’re both passionate in being former financial advisors, both of us in passionate in the business around delivering great financial advice to clients and, and unpacking these five today is a great way to take all of the learnings that have come through these, these podcasts and try to turn them into some actions that that the listeners can take to roll into their businesses. So we’ve got five themes. Andrew, do you want to talk us through the themes?

Andrew Rocks
Yeah, so we thought we’d make it pretty easy and dumb. We we’ve got just by pulling out and asking questions. The big, big themes are, what is the vision of the practice manager, ah, the businesses, the values, which leads into the biggie, the people, what processes are into the practices, and then what the ownership is and how that relates. So vision values, people process and ownership. So with that in mind, Dean, and you’ve you’ve, you’ve spent time studying all of these, what jumps out at you, where would you like to start?

Dean Holmes
So let’s start with vision. Because I think that that’s a key part of any growing practice to be really clear on where that where the company is going. And so one of the one of the ones that we really enjoy listening to Andrew in terms of vision was paid down at JM, because that was all about him understanding but really well articulating what the vision was. And so they’ve today got about 1400 clients, as he said, and the vision is to take that to 15,000 clients.

Andrew Rocks
Yeah, 15,000. It was quite a big statement when he said it.

Dean Holmes
So that’s a that is the definition of a big, hairy, audacious goal for those that follow Jim Collins. And so that’s a great business plan to take it take the business up to 15,000 people, and what we 15,000 advised clients and what we loved about that as well was actually that it flowed through the entire business. So everything from the first day that they’re actually hiring staff, that vision was communicated to that they want to hire 15 Look after 15,000 people, and it’s constantly within their business at all times. And so we really, really picked up the how important vision is in all of the five people that you’ve interviewed to date, to make sure that not only that you have it but you’re actually articulating it to staff, clients and anyone within the industry as well because you can’t do that alone.

Andrew Rocks
And when we talk about the AGM Business One of the interesting parts of vision is actually the founder many having the foresight as that many founders are, have actually are allowing Peter to grow into that role. Okay. And moving from a very traditional one would say almost an old fashioned like a lot of other businesses to into a very corporatized and a business that’s going to, you know, grow and grow and grow. So, so vision sometimes is knowing what your strengths are, and bringing the people in as well, which I picked up on that one considering.

Dean Holmes
Absolutely. And that was a that became a theme because that’s the same with if you think of look at Belinda and look at Mitch in their roles within the businesses, both of them are operation at their, at their core. So both Belinda and Mitch are not funded financial advisors that have just gravitated to the top of the top of their company. They’re both coming in with specific operational backgrounds. And I think that that’s really key because they see problems differently. Advisors getting to the top are always and this is still a great thing, but always have client at their mind. Whereas once you come through it from an operational perspective, whilst you still understand that you’re serving clients, at the end, you’re really focused on the the factory, or the operation of how everything’s happening within the advice process.

Andrew Rocks
And in relation to Peter’s big, big, hairy, audacious goal, I think we’ve got a bit of a soundbite from his one, which we’ll play for you now. And afterwards, we’ll come back and just reflect on what he said, and how he’s been able to have that as the founding sort of guidance of where they’re growing their business. So let’s have a quick listen.

Pete Monahan
So as the business, we set our big, big, hairy, audacious goal back in their V hag back in 2018. And we gave ourselves 15 years to achieve the 15,000 happy clients. We talked about that in the first interview, and people know that we’re a business that’s focused around growth.

Dean Holmes
So that was set back in 2018. So the idea of setting your big, hairy, audacious goal is one thing and acknowledging that he has given other businesses given the right timeframe to achieve that. So you’re not sitting there saying that I want to move from 1400 to 15,000. In a matter of years, that’s a 10 year vision of where that where the firm wants to go. And that’s really valuable that that Rome wasn’t built in a day that you actually need to work at these things over over time.

Andrew Rocks
Absolutely. And I think the other the other component of that vision is that it’s, it appears to be driven both in organically and organically, which, when you talk about sort of the the mega themes in in financial advice, at the moment is, is really the scarcity of competition has meant that almost all firms have got more demand, then then they can they can supply. And it’s only those firms that actually sought their engine room out, that will be able to benefit from this, you know, once in a generation mismatch of people wanting advice versus people who can supply credibly?

Dean Holmes
Absolutely, absolutely. So that’s a key part of the theme of everything that we’re going through today is that that the the job of actually making sure that we’re building the business that delivers financial advice is key. So articulating the vision for the client is one element of that or for your staff as well. The second element, the second thing that we’re talking through Andrew is is values, and they do go hand in hand in terms of building an appropriate practice is that not only have you set the vision for the company and where you’re going, but making sure you’re getting the right people on the bus. As you know, I’ve read Jim Collins a couple of times now. So being being clear in the company values, I think is the second important thing and lots of our, the first five actually have can talk to their values. And they actually talk to their values at the start of the process. So even if you go all the way to Corey. Corey has built a PowerPoint presentation why now

Andrew Rocks
He sent it to me a few days earlier, which I needed all those days to go through it. It was very strong.

Dean Holmes
Yeah, absolutely. So that’s, it’s an amazing thing for for an SME, first and foremost, like we it’s not Commonwealth Bank, in terms of the size and scale that Corey has. So an SME is that that’s taking the time to actually document what the company values are, and turn that into a hiring process at the at the outset. So we think that the second, the second valuable theme across all these practices was actually being clear on their values, being able to articulate the values first and foremost, but then also live and breathe the values. I know Peter is the example. He’s a he lives in Melbourne. So he’s a bit bit of a fan of the MCG. And so they had the brown Lowe’s theme in terms of their values, and I thought that was really interesting because they hire they reward their staff based on leaving the values more than anything else more than generating revenue and things like that. It’s key to focus on company values.

Andrew Rocks
And I think All the five businesses? Well, my first observation is that they’re all a significant headcount. And they’ve grown significantly. And I have a feeling that over last me in particular, five years, these people got to work on their client value proposition from the get go. And once they iron that out, they realize that it doesn’t do much unless you’ve got your people value proposition. And by having clear, by linking those two together and figuring out what’s the best client to work with the best people, then the art is how do you find these people? So what jumped out at you as far as sort of the finding of talent, because and what what inspired you? Why upon listening?

Dean Holmes
Well, the first thing that in the people context for me was actually the science of personality profiling to put it into a category. So Corey now we’re all doing something along those lines, correct? Absolutely. So Corey shared an experience in terms of his use of people logica.

Corey Wastle
So there’s about another three important steps and it takes about five hours. So we’d book it like we will book the day out with a majority of the day. So what we’ll do is we’ll get them to do high performance benchmarking. So hiring is both an art and a science, the culture stuff is more the art. The science is more around trying to identify does the person have the capabilities to do this role incredibly well.

Dean Holmes
And so Corey’s use of people logica was the same as James and it’s actually something that we’ve used in our practices for almost the last 12 years. And so the science and the my personal evidence is every time I overruled the personality profiling, I got burned.

Andrew Rocks
Beautiful. Go science.

Dean Holmes
Yes, exactly. Exactly. Right. So the shout out in terms of using people logic error, as an example, we have no my my fabric for that 12 years, the science is really strong that this is a leading indicator of choosing the right people. And so we can’t use our guts anymore, we probably should, should have never used in our using our guts. But the science for these types of tools is really important. So James and Cory both use people logic, I know Mitch does a disc profiling. And so the combination of those things, make sure you’re getting the right people in your people in your business. And even when you go down to using Remote Staff, which we’ll get to in a little bit, in terms of teams, lots of there’s a theme of having remote teams in the Philippines as well. There’s no reason why you can’t test them in a similar way

Andrew Rocks
people have people correct. And I think that another journey that almost everyone went on is and we’re all guilty of it. You know, we’ve been employers for many years you and I Dean is that initially, you would go with your gut. And I think that things whether it was desk or Clifton’s, or hpdi, or people logica, you would just have that as I’ve ticked that box, but I you know, I’m omnipotent. I know what I’m doing, and you don’t. Okay. And the, the interesting thing is that some of the big changes that these people have identified is when they went to hiring slow, okay, we get excited, because we’re quite optimistic, excitable industry, about someone a piece of, you know, someone who’s talented coming on, but it’s the companies that really, really slow down their process, and hired slow. And I think we may even have, I think, you know, what, what Cory referenced, is probably the slowest hiring, but the most deliberate hiring and, and when you against the backdrop of almost no unemployment in this country, you just can’t afford to make a talent mistake. Because it takes a long time to bring someone on. And if they’re a bad egg, not a bad thing. But if they’re just not compatible, and you haven’t done the work or use the profile, then it’s on you. And there were some really unique methods of like interviewing what was what jumped out at you?

Dean Holmes
The two are both Corey and Peter. Both had the last say with their team. So the last part of the interview ended up being with Peter as the example and Cory is that two or three of the the team within verse NEJM, actually interviewed the new potential candidate. And the question is, quite frankly, could you see yourself working with that person for the next 10 or 15 years? And if that answer was no, then it’s a no. And so I thought that that was really powerful. Just in terms of a small business hiring people are you going to add in small business when you add one person, it’s significant compared to if you’ve got 6000 employees you can have, you can make mistakes, but if you think about a business, we’re 20 and you’re adding two people that’s 10% of your workforce. You have to get it right and You have to have that culture on team alignment. So the guys that were that were doing that as part of their process, I thought that that was really amazing. Corey gets a shout out because he has a six hour interview process. So if you, if you actually make it through that you’re you can work for the whole day. But everyone had a theme in terms of how they brought people within the business,

Andrew Rocks
And also a bit of honesty around the mistakes they made previously. You know, as far as rushing into decisions and whatnot. When you referenced that, of the first five that Mitch in coastal and Belinda and boutique had come through the operation or more of a pure play practice management style. Even though practice management didn’t exist, when both of these people entered the industry, it’s now becoming more of a designation, which we’re hoping at the engine room were helping promote, it was clear that they were serious about process. And the I feel that they that the rigors around process that they they lead with, has enabled them to gain the confidence and faith of their respective founders and CEOs. Okay, so So and I think that it’s only once the founder sees that, you know, I’ve got this, or you’ve got this, that they feel confident in being able to start taking recommendations. So what jumped out at you, in relation to both of those practices in relation to the process that they’re doing. And as an aside, they’re both growing tremendously.

Dean Holmes
So, Mitch, at Coastal advice group, what I found really interesting about the the process there in terms of him taking on the management role, or the business management role was essentially that he realized, as do we all at some point in time that advisors are best, the best use of advisor time, is sitting in front of clients. And so we’ve got a quote to share with you from Mitch about the time that he thinks ideally, you should sit in front of clients.

Mitchell Ramsbotham
in our big, hairy, audacious goal of 70 to 80%, client facing time, our expectation is that we book a specific amount of time for an advisor meeting, which should encompass an X enough time for them simply to do the file note, goals, strategy and scoping for the plan, and walk out and simply be able to have somebody that is trained, educated and skilled enough sitting, I won’t say behind, but next to them, to just pick that up and run with it.

Andrew Rocks
And I really think that this that percentage was was is really the North Star. You know, I think if you interviewed every every advisor, and I have a bit of a saying, you know, if the if the financial advisor is your front office, and our engine rooms, the middle office, and people have back offices, they’re the easy ones. They just want to see clients. And they want to know that what they say can be done by their team. And they’re so simple. You ask an advisor, I’ve got a spare day up my sleeve a week, they’ll go and write revenue, because it’s the bit they actually like. So to have a vision of that 70 to 80%. Mark. Okay, is a really high Northstar, especially against the backdrop of the last couple of years. And I think the hardest job is being able to, to build the ecosystem underneath the adviser. Not so they can do it. But so they they feel confident that what they say in meetings gets done, because their reputation is paramount.

Dean Holmes
Absolutely. And that that is process, Andrew, that’s the key of what Mitch has been able to communicate, for example, saying, essentially saying to his team of advisors, we’re heading towards his 70% client facing time, and we will take care of everything else in the background, we have to know and understand what the processes are. And so the investment that they’re making in technology as well, as you know, he’s still called out that there’s a few spreadsheets hanging around which which we all have, but the idea that they’re heading towards that is key. And so that was coastal advice group. Belinda talked about mistakes that the business made in terms of technology in and around process. So they moved to a different CRM and they did the CRM roundabout. Correct. So everyone, everyone, not the Belinda made this mistake, but we made tech mistakes often as the advisors, because advisors probably made the decision as opposed to business managers making this shiny, some of them are shiny. Absolutely. And so Belinda moved, everyone moved the business back to x plane and that would have been difficult change management to move from one system back to another system essentially. But the real reason and rationale from from my perspective and listening to her is that the business couldn’t run on that other software that it needed. X plan as the calling out what it was but it needed that more robust software to actually get things done. And that decision couldn’t have been made by an advisor.

Andrew Rocks
Agreed. And also advisors don’t like to admit they’re wrong. And that’s because, you know, we’re previous advisors. So we’re coming through that we’re working through it therapy their day by day. One of the other things when we’re talking about people, just to go back to the theme of people is, we had a once in a generation occurrence. The last couple of years, we had this thing called COVID. And although we’re, we’re clear of it, thank goodness as we speak, it really did impact different people differently. It wasn’t until we sat down and discussed this podcast and put all the companies up on the board, I went, you know, what, four of the five practices were in lockdown, a couple of them were in Victorian lockdown. And I have a bit of a feeling that locked down, made them look microscopically at every part of their business, and just changed the way in which they interacted with their people. Okay. So in fact, just to counter that one, Belinda and boutique, we’re in Western Australia. And I’ve got a great quote here, which, which I’ve seen with a few wa businesses, where they didn’t go through that same change back in 2020 2022. But maybe just grab a quick soundbite from Belinda on COVID. In WA Yes. So

Belinda Good
we’re in Subiaco. Everyone works in the office, we do have a couple that occasionally will work from home. We’re we’re very lucky with COVID that it didn’t really affect things with us and having to move, you know, home and work for one or two years. So we are very grateful for that.

Andrew Rocks
So my gut feel is that Melbourne went in hard. They had to literally figure out how do we communicate with people, New South Wales, and Sydney followed, were on finding Western Australian practices are, they’re now getting that talent squeeze. And I think, you know, when when Belinda spoke about her, her practice, there now, really digging deep into organically bringing people through, there was reference about a program at the University that they’ve went into, they’ve got to associate advisors from that. So the theme is, is that you can’t just hang around and just expect talent to pop into your lap. Sometimes you’ve got to go and actually co create it. And so boutique, have gone in and CO created that talent with the universities, which was something that stood out for me amongst the four of them. And I think that’s because who is talent squeezes happening now. This has been a bit of an echo,

Dean Holmes
it’s been a bit of a delay, essentially, because they could all Belinda was they’re all working in the office the entire time, which is completely different. And you look at James’s business, and James works, any works anywhere. And he you’ll have a we’ll have a quote from James in a second.

And it moved in from now where we are now we have no location. We don’t have a head office, we don’t have an office anywhere. And we’ve got team in Australia from Cannes down to Tassie. And as I said, we’ve before, we’re talking about the Philippines, we’ve got a half our teams in the Philippines as well. So in terms of structure, we anyone can work from anywhere, we don’t mind that we’ve got to, you know, do a lot around engagement and make sure that we’re still catching up and doing all that type of thing. But yeah, really, really works well.

And that’s amazing, James, that there’s a complete business that is remote anywhere that it doesn’t matter actually where any of the staff is located. And I love that for the two reasons a you can get talent from anywhere in Australia as a result of having that attitude. Which is interesting, because so Belinda could be grabbing a Sydney advisor if they had this idea, ability to work anywhere, for example. But the other thing that about James and a few of the other practices is that by working anywhere, when you had this concept that you brought what are called Remote Staff. So typically, there’s a theme that the Filipinos staff is part of most of these practices as well, which we’ll get onto. But the idea of that it doesn’t, it doesn’t matter where your people are located in Australia, you need to expand that slightly broader and say, well actually doesn’t matter where your people are located in the world now. And our ability to grow our practices, using people because we’re a people heavy business at the moment. There’s a lot of administration and paperwork that needs to get done. And so the ability to grow and scale our teams both in Australia and abroad is a key theme of lots of these practices.

Andrew Rocks
And I think that when you talk about the scaling, I think gone are the days where people will just take have spent some money if you look at the cost sort of structure and the EBIT, da that’s been demanded. And and there has been there’s, there’s no doubt about it there, you know, small practices may still be the last vestige of recurring income. But the reality is everyone now has been valued on the profit that they derive today. And the probability of that profit continuing in the future or EBIT da to be quite specific. And, you know, the best and brightest are looking at around about that 30 to 35% EBIT da, and you’ve got two levers on how to do that, or three, let’s say three levers. One is your pricing. Okay, so it’s already well documented that, that the price for financial advice has gone up 40%. In the last two years, that’s well documented to the general public. So that’s one element. The other element is your cost structure. So how do you manage your cost structure, and some of that, to be honest, also leads to the way in which you’re licensed. And the first five, not one single common license? We’ve had people in there in two of the larger licenses. So we’ve got a practice from our I’ve been coastal practice from a&p Being a JM, and then we’ve got three self licensed businesses. So it doesn’t seem to be you know, the old adage of if you’re in a licensee and you’re in a big one, you make more money. Or if you’re self license, you make more money is actually redundant. It’s got to do with what you do with it.

Dean Holmes
Absolutely. I think licensing is almost somewhat like a fixed costs, like the cost of running your own FSL is, is fixed. I would argue that most, most advisors that are trying to run their own FSL aren’t valuing their time in the savings that they think that they’re going to get by becoming self license, but the cash out the door is is fixed. And as I’m sure as you get bigger and bigger in terms of licensee world as well, the fees that you pay start to become fixed, but definitely as a percentage, then it’s much smaller than your people costs. Oh, yeah, people costs is still the largest amongst all of the practices. And so to hit those EBIT EBIT numbers that we’re talking about Andrew, most practices are trying to balance of the administration and work that needs to be done, and ensuring that that’s done by our cost center. That is that is the right for the for the business. And so we’ve seen four of the practices, build offshore teams. And so the theme around that that I that I I communicate to people that I talked to, and it was really evident through this process is they never use the word outsourcing. Outsourcing is not what these businesses have done by any means they have people, humans, that work for them in another country, part of a team. And so being part of the team is really key in terms of what we spoke about earlier about vision and values, making sure that the your your Cebu based team as these are making sure that they’re actually aware of where this business is going. And they vote for the values and all the all the Employee of the Month and things like that as well through that through the process. And then we go over and visit them. So Corey went to a wedding of one, one of the staff members. I’m not sure if that made the podcast, but I do know Korea that you went over and that’s amazing. I know James has gone and Pete has gone to visit the team and and the ability to not only have that support network located in in Cebu, but then treating them like humans that you can go over there. works very well.

Andrew Rocks
Yeah, absolutely. And look the the the other common theme, and look a shout out to the providers of those teams. The common theme is that the companies that they’re working with value data security, they have a process, and they’re aligned, so they’re not cutting any corners. And I think collectively, I think they’ve, you know, one of them is using five elk when I’m using their platinum, one of the musings virtual business partners that that I’m associated with, but the common theme is that they get it. Okay. So it’s not, it’s not picking out which one is going to be the better service provider. It’s how you include them in your people. Strategy. And how you because because and how you include them in your team and communicate which which is absolutely that there and that’s allowed that’s allowed these businesses that the time to think I’m not saying that it’s made them money from the get go. I’m just saying that it just gives the people in the businesses in Australia time to breathe, and from that they can innovate. And on that topic, technology. What was your take on technology across the first five engine rooms?

Dean Holmes
Look, it was it was interesting because not everyone was chasing bright shiny toys. So there was a few that were still you using x plan as as the workhorse of their of their business, I know that James, for example, uses Basecamp. We only know a couple of advisors that are using that as a tool. And so I thought that that was quite interesting because he was not not restricting himself to the traditional CRM CRM is through that through that process. And Mitch was using a couple of spreadsheets. So there’s a variety of tools. And I know Mitch was trying to get who won’t be happy with that. I know, he’s, he’s looking to automate the process there as well as we, as we all are. But yeah, there was a few different there’s nothing consistent around tech, except to avoid the bright shiny toys. So Peter was avoiding it. And Belinda definitely went back to the core.

Andrew Rocks
Yeah. And I think, look, if there’s anything to take out as learnings, and if any of the tech providers there, there’s a market for for getting it. Right. Okay. And so what what the advice practices and their RMS near licensees are doing at the moment is just playing safe. But I think that hopefully over the next year or so, with potential sort of tailwind in regulation, or deregulation, in some respects, that we’ll be able to see better engagement of tech. And yes, let’s duplication. You know, the inefficiencies around some of the duplication between the tech platforms, you know, must really get on peoples nerves. I hadn’t, I had a thought as well. None of these businesses are getting smaller. And although I think Peter and Mitch from AGM and coastal laid out quite a successful and albeit aggressive, sort of inorganic or merger and acquisition strategy, all of them came back to the theme of growth. And I was wondering what your take is on this thing that we need, we almost went to sleep for 10 years, or marketing, in financial planning. So who do you think doesn’t? Well, and what learnings did we take out of the first five episodes?

Dean Holmes
So I think with marketing, firstly, that marketing, there’s a lot of clients out there, and we know that there’s a lot of clients that need financial advice. And so there’s the demand. So what the marketing has shown us across these businesses is that they’re actually now clearer in who their ideal clients are. So it’s less about, you know, putting an advertising on a building, for example, it’s more about actually communicating to the, to the potential audience, what the ideal clients are. So first wealth, as an example, has a marketing engine, Cory spoke about his they use an agency to do a lot of the work in the in the background. And so he’s created a marketing engine by virtue of ensuring that he’s target ensuring that the pool of clients are aware. And then the target clients are aware of this wealth. And I thought that was really powerful in terms of not only just, you’re not throwing money away in terms of Google ads, but you’re being really clear on who your target market is. So you get a return on the investment. So that was doing really well. James is also doing well in that in the context that he’s marketing is in partnerships. And so I liked the idea that thinking about his partnerships, he was actually he actually gets some referrals from a couple of the other podcasts in relation to finance, finance, general advice, podcasts. And so his marketing partnership is more around supporting that, than advertising. Anyway, same with Peter don’t remember the gentleman in the business that’s actually doing it. But EGM is now having a partnerships person. So there’s someone within the business that is going to accountants and law firms to actually work on that higher level referrals. And, and the idea that advisors love to get referrals from accountants is absolutely true. But that takes a lot of work. And so if you think about, if we all head towards Mitchell’s number of 70 or 80%, client facing time, there’s actually very little time to then go and talk to accountants to get leads. And so the marketing activities of EJ M means that there should be sufficient leads coming into the practice. And the theme around that is that as businesses get bigger, there is a cascading amount of referral opportunities and client referrals that just start to happen. And so it’s this scale that has happened for all of these business that clients bring new clients into the business as well.

Andrew Rocks
Absolutely. And when we talk about the scale opportunity and the people that you need to grow because we are a people are a talent dependent business, we spent a bit of time on the different types of recruitment processes and and whatnot. These days, though, what’s keeping people you know, we’re at record lows, unemployed Moment. And as a as an owner, and a practice manager of these businesses, one of the key things you need to present to your, your CEO or your board or your ownership is the techniques and strategies, you have to retain key talent. And out of the people there, what are the different kinds of things or even ownership? So, ownership of the, whether it’s the firm or ownership of that division or something like that, what are you seeing Dean? Because, you know, I’m also then going to probably do a shout out to yourself, because the wealth network, that was the premise of how you’ve built businesses, as well. So what are you seeing in these five and maybe reflect on some of the anecdotes from your own personal journey?

Dean Holmes
Absolutely, absolutely. So what we’re, what we’re seeing in this regard is first, first and foremost, the building of the bigger practices. And so when we focus ourselves on building bigger practices, we need to retain more and more staff and advisors within that practice. So the way I look at that, first and foremost, is that advisors owning part of the practice over over time, and having a pathway so that they can see that not necessarily buying into the practices on day one. But actually being able to see that in years 1357 and 10, I’m going to build my ownership within that within the practices. Reflecting on my the wealth networks journey, essentially what happened for us was that we were at the other side of the other side of the coin, and we were observing that advisors weren’t being offered equity within their practices. And so we were there as the Cinderella that picked up that opportunity that advisers, if they weren’t being offered equity or weren’t being offered a path to owning part of their practices, they were willing to leave, and frankly, start their businesses from scratch. And so if you, if we don’t have a ownership strategy within our practices, on terms of how advisors can own part of the business, over time, they will leave and they will come they will look to start their business from scratch, or look to start something where there is a path towards co owning the practice. I think that it’s essential for the the the older advisors within the practice that will do want to retire that they need a plan to bring in younger advisors to do the work, but also to transition the equity from one generation to the next. There’s not always going to be a corporate via to buy your shares. There’s there hasn’t been a lot of examples in the last five years of big corporates buying up lots of financial planning businesses,

Andrew Rocks
no last resort anymore.

Dean Holmes
Oh, you mean, the buyer of last resort? No, the buyer like and you know, just generally if if you can’t find a buyer, the price is not the price that the price has to keep going down until you find a buyer. So

Andrew Rocks
when the great thing is, you know, the the juice is worth the squeeze on that because if you do have a going concern that generates good cash flow and good profits, the valuation is far higher than what it would have been under an old model anyway. Absolutely. From the ownership perspective, there’s many ways of ownerships and, and and some of these businesses are thinking about it. Some of these businesses have already implemented it. But I think specifically the practice manager, or the general manager, or the chief operating officer, is a key part of the ownership structure. For any aspiring founder who’s looking through a succession plan, historically, people weren’t as keen on it because they aren’t revenue writers. And it’s not simple I you generate this new revenue, you get this thing. But I think we can be more mature than that. We’ve got plenty of other professional services companies to look at whether it be law firms or accounting firms or engineering architect firms where you can see the value of a well run business. And I think that the takeouts are that every single one of these practices. I’ve been thinking about succession. I think, you know, Belinda even said that they’re planning on being around another 30 years. But that doesn’t mean the same composition of ownership.

Dean Holmes
Absolutely not. We’ve got to hand over that ownership to the next generations. And so EJ M, as the example is rolling up, well, maybe that’s not the right term from Peters perspective, but they’re buying firms in other locations. They’ve got multiple offices, and they had an interesting model whereby they were essentially having the share ownership was at that second level. So if I’m at a satellite office in Geelong, my ownership is in the satellite office until such time as I earn my stripes to have that rolled up into the back of your back in your cell company. And so that’s a great model. because then you can build something for yourself, but then have that liquidity at the back end to go, Well, I’m going to roll that into a bigger business, that bigger business has a has a corporate shareholder, as we understand. And so there’s some type of liquidity mechanism there. Because if we keep building our businesses and don’t get liquidity, we’re either collecting the dividend forever. But that’s still a hard prospect as well.

Andrew Rocks
Absolutely. And, and I think, you know, when I asked people’s vision for the future, these particular practice managers were in furious agreement that you need to have a level of, of scale, so that you can build capability and capacity to service the clients in the manner they deserve. And in the manner they paying for. These five businesses employ hundreds of people, as it turns out, those are surprised that the businesses are growing. But I think that, that also, you know, I’m not against small businesses. And we do interview small businesses throughout this series. But they need to almost become hyper specialized. So if you look at the law firm, or the law industry, for instance, they’re your barristers, the special, or maybe the Medeco. They’re your specialists, they might be just good at aged care, they might be just good at, you know, separation or divorce, they might have these particular niches that they do. But I think being a generalist, and being subscale, you’re gonna be found out by the clients. Yeah, it’s

Dean Holmes
difficult. I think that if you speak to a few of the older advisors, the question is starting to come up about retirement. So if you think about that, you know, if your advisor is in their 60s, and you know that you’re helping, the adviser that IRS is in their 60s is helping those clients into retirement. And the question, frankly, is, well, when are you retiring? What’s your retirement plan? And then what’s the retirement plan for me as a client of yours. And so it’s key to, to work out this succession. And if you’re, if you’re a solo, one man band, one man band has a challenge of what happens in a succession context. I did some research recently, there’s a couple of different alpha cells out there that will turn off all the client fees, the moment you’re incapacitated, and so not dead, not always dead, but TPD. And so the moment that happens, the value of your business just went to zero because all the fees got turned down. Now, I know, I know, we don’t want that. So the other call out, and we’re seeing larger businesses here. But businesses that merge NEJM is an example. And so is coastal, where they’re actively looking to buy, but also merge practices together. And that’s really important that just because you’re not selling at that point in point in time, you’re actually merging with someone bigger, that’s actually allowing you to do what you enjoy the most, and not waste your time on things that you really, you can’t honestly say that you enjoy.

Andrew Rocks
And when we look at these businesses, even though we’re now talking about how they’re successful in different aspects, and different themes, they all still have talent issues, they all still have an acute requirement for talent and, and we’re talking about the next generation be their associate advisors, be they, you know, administration into customer service into practice management, there’s just a requirement across the board for all of these people and what’s what are the sorts of things that would drive a young ish or young heart person into a practice and I suppose, you know, coming from someone who, who, as it turns out, but a history, Dean work from my practice when you were a wee child, many, many moons ago. And then you saw the light, of course and started the wealth network. Congratulations. But do you think do you think that they’re creating the environment that younger people want to be in? If so, what are they doing differently to everyone else?

Dean Holmes
Well, firstly, the bigger so I think one of the one of the interesting things and don’t quote me with data on this one, but younger, younger humans want to work in a community of younger humans. So the challenge if you’re, and this would be interesting to talk to James about if you’re a if you’re a young ish business, I you want to have young staff within your business. Those young staff want to work in an office, just generalizing, but they do want to come together in a in a location and learn from one another arm. And the the art of financial planning is an apprenticeship, that the way in which you learn how to talk to clients, you do not learn that at university and you do not learn that in the first few years unless you’re in an amongst client meetings. Now those meetings can be digital. I absolutely agree with that. But you’ve got to do the apprenticeship. And so the the ability to bring the younger staff in is actually thinking about how we’re going to make them, get them exposure to the meetings, get them exposure to other colleagues, whether it’s directly in the business or within a community like ensemble, but we have to create these little pockets of excitement to keep people engaged whilst they’re doing the admin.

Andrew Rocks
But the counter argument to that is, it didn’t fall over in the last couple of years. And people have managed to build remote teams. So absolutely. So right here, right now we’ve got, we’ve got businesses that want everyone back in the office, and I get it. Okay. But we’ve got businesses, if you’re a young person, what do you value more? Do you value community? Do you value collaboration, arguably, you can have collaboration, community, yes, you can have it digitally. But we all know there’s a bit of an extract with face to face because you have an incidental sort of conversations. But the flexibility of a young person to maybe live and raise their family outside of the big cities of Sydney and Melbourne, in particular, because their deer is poison is also quite alluring. So it’s a tough gig. And I think that in 2023, the jury’s still out, I reckon, by the time we get to the end of 2024, we’ll go. That’s the thing that worked right now. We don’t 100% know, and I can’t tell, you know, coming from someone who’s got people in the office right now, and I’m literally sitting here we can high five, you can do it. That was physicality. The sound guy laughed, shout out to Karen. No more jokes, Karen. But there’s from that extreme, but we also then have remote teams as well. So look, unpacking these podcasts is important, because for many people who come on as practice managers, this is their first rodeo in a podcast, they are quite often nervous to tell you about what they’re doing. Because they’re not quite often they’re not the lead singer in their band, quite often that a bad manager, or of another person who was doing those things. So what I urge you to do is, if any of the things that I saw that just jump back in, have a listen, by the way, lots of really quality links. So you’ll note that a few of the other companies reference today be a tech or be there any other or recruitment, we do put all those links in and in relation to the engine room. And the whole premise of it is I’m interested in your thoughts here, Dean, you mentioned these, these businesses are big, but where is financial advice going for, for these engine rooms? Is it is it get bigger get out? Or is there room for other operators

Dean Holmes
are there’s absolutely room for other operators, I think that at the end of the day, when we look at some of the data about the number of Australians that need and do have the capacity to pay for financial advice, they may not see the value, which it’s our job to articulate the value. But there’s enough Australians to get advice over the next five years that it adds another 50 clients per advisor. So the reality is, is that if I gave 50 clients to every advisor in Australia, right now, the engine rooms probably wouldn’t be able to deal with that capacity. And so Absolutely, we’ve got the opportunity to serve more clients through face to face strategic advice. And so we’re going to grow those engine rooms over time. And the two, the difference we have at the moment is that some of the practices are growing much more organically. So they’re just acquiring clients through their marketing engines, and others are growing through acquisition. And so acquisition is a little bit easier to then build the engine room because you have the revenue and the cost at a similar time. So you buy a business with a million dollars of revenue, you know, you can spend $600,000, servicing that million dollars the next day. The challenge, like if we look at Cory and James is they’ve got to sort of balance the two that they’re growing organically, which means there’s a flow of clients coming in, but the recurring revenue hasn’t arrived in the traditional sense. So they’ve actually got a got a curve going on. Yeah, they’ve got to be careful with the cost base. How do we how do we manage the cost base, and the reality is, is that the cost base is 150,000, you can’t hire half an advisor. So you’ve got to take these steps to say, I’m going to hire an advisor, which means I go backwards, a little bit in profitability, to go forward to go forwards

Andrew Rocks
and how long can you delay gratification? That’s the That’s the million dollar question, isn’t it? Well, if

Dean Holmes
you if you’re Yes, absolutely. But the reality is, is that all of them have clear visions, and those visions are bigger than themselves. And so they are delaying their gratification in that context, Andrew because they’re they’re building something thing that’s much bigger than themselves.

Andrew Rocks
And you know, what else I like is that we’ve spent a whole whole podcast talking about the business. Now, a lot of great insights on who they invest with what platforms, they’re using, the insurance companies, they’re all there, dig into the podcast, if you’re interested in that, it’s all there. But, but the actual essence is, is it’s finding the best business partners. And you mentioned that having a quality vision is important, because every other theme cascades from that, you know, what also I’ve just observed is, none of the first five have the word financial planning in their names. So that’s a departure from from history. They’ve they’ve got imaginative names that they feel reflect the type of clients that they’ve thereafter. And in the same way that they’ve attempted to, to find their good people. They’ve tried to align those people to the types of clients and I think that that’s a powerful statement. And I’m sure we are going to get a lot of financial planning practices over the next couple of sort of sessions and listening, but just just a quick observation there. And in fact, you’re the wealth network as well. Right? So absolutely, absolutely. It’s working well. Well, I would love to take the time just to thank you dean for for your insights. I like to think our sound guy who, who is so secure, and he’s, he’s sewed together a lot of these quotes. And look, we look forward to coming to you with some insights and some nuggets of gold so that you can pick and choose the assets and the resources you can do. And that just furthers Ensemble’s, unwavering, persistent desire to promote the positive evolution of financial advice. Thanks, Dean.

Dean Holmes
Thanks, Andrew.