In this episode of the Trusted Adviser Podcast, Rob Pyne sits down with HPH Solutions COO Nick Bordi to unpack one of the most strategically important, yet often misunderstood, levers in building a high-performing advice firm: equity ownership.

This isn’t theory. It’s a practical, behind-the-scenes look at how HPH has structured its Team Equity Trust (employee share plan) to align its people with the long-term success of the business, and why that alignment is becoming a competitive advantage in attracting, retaining and developing top talent.

Nick shares his own journey from adviser to COO, and how stepping into leadership gave him a front-row seat to the challenges of scaling a firm while maintaining culture, performance, and accountability.

The conversation goes deep into how the trust works, why it was created, and the commercial thinking behind it, including how equity can be used not just as a reward, but as a strategic tool for behaviour, decision-making, and firm-wide alignment.

Rob and Nick also explore the broader implications for advice firms navigating growth, acquisitions, and succession, and why traditional ownership models are increasingly being challenged.

LISTEN

WHAT YOU’LL LEARN

Why most advice firms get equity structures wrong, and the unintended consequences
The difference between ownership as a reward vs ownership as a strategy
How HPH’s Team Equity Trust actually works in practice
The role equity plays in retention, accountability and performance culture
How to think about fairness vs contribution when allocating ownership
Why equity structures are critical for scaling beyond founder-led growth
The commercial realities of balancing risk, reward and control
How employee ownership can support succession planning and long-term sustainability

KEY INSIGHTS

1. Equity changes behaviour, not just outcomes
When structured properly, equity shifts how people think, act and make decisions. It creates a mindset of ownership that salary and bonuses alone can’t replicate.

2. Alignment beats incentives
Short-term incentives can drive activity. Equity drives alignment with the long-term direction of the business, which is where real value is created.

3. Not everyone should have equity, and that’s the point
A well-designed structure is selective. It rewards contribution, leadership and long-term commitment, not tenure alone.

4. Growth creates complexity, equity helps manage it
As firms scale, maintaining culture and accountability becomes harder. Equity structures can act as a unifying mechanism across teams and leadership layers.

5. The model is evolving
Traditional “founder owns everything” models are being challenged. Firms that rethink ownership structures early are better positioned for sustainable growth and succession.

QUOTES

“Equity isn’t just about sharing the upside, it’s about aligning how people think about the business.”
“If you want people to act like owners, you need to give them a reason to think like one.”
“The real value isn’t in the shares, it’s in what those shares represent in behaviour and accountability.”
“Growth without alignment creates friction. Equity is one way to solve that.”

EPISODE HIGHLIGHTS

[00:01] – Introduction: Lifting the Lid on the Team Equity Trust
Rob sets the context — this is a deeper, more refined unpack of HPH’s Team Equity Trust and why it matters.

[00:57] – Nick Bordi’s Journey: From Associate to COO
Nick shares his path through HPH, from adviser to executive leadership, and how that perspective shapes how he views the business today.

[01:58] – The Shift to Leadership and Scaling the Business
Discussion around growth, acquisitions, and the need to evolve beyond purely adviser-led roles.

[~03:30] – Why This Conversation Matters
Framing the real issue: most firms don’t think about ownership structures early enough – and it costs them later.

[~06:00] – The Problem with Traditional Ownership Models
Exploration of founder-heavy models and the limitations they create around growth, succession, and team engagement.

[~09:30] – Introducing the Team Equity Trust
A clear explanation of what the structure is, why it was created, and how it differs from typical employee share plans.

[~14:30] – Ownership as Strategy, Not a Reward
A critical distinction — equity isn’t just something you “give”, it’s something you design to influence behaviour and outcomes.

[~20:00] – Who Gets Equity (and Why That Matters)
The importance of selectivity, contribution, and alignment — not just tenure.

[~25:30] – How Equity Changes Behaviour Inside the Firm
Real insight into how ownership shifts accountability, thinking, and decision-making across the team.

[~31:00] – Balancing Fairness, Risk and Control
The commercial realities behind structuring equity, including trade-offs leaders need to manage.

[~37:30] – Retention and Talent Strategy
How equity becomes a differentiator in attracting and keeping high-quality people.

[~43:00] – Scaling Beyond the Founder Model
Why evolving ownership is essential for firms that want to grow sustainably.

[~48:30] – Succession Planning Done Right
How structures like this solve one of the biggest long-term risks in advice businesses.

[~53:30] – Final Reflections: The Future of Ownership in Advice Firms
Closing thoughts on where the industry is heading, and what forward-thinking firms should be doing now.

ABOUT THE GUEST

Nick Bordi is the Chief Operating Officer at HPH Solutions. Having started his career as a financial adviser, Nick transitioned into executive leadership where he now plays a key role in driving the firm’s operational strategy, growth initiatives, and internal alignment, including the design and implementation of HPH’s Team Equity Trust.

TAKEAWAY

Most firms think about equity too late; or treat it as a reward mechanism. The smarter firms are using it earlier and more strategically to shape behaviour, align teams, and build something that outlasts the founders.

TRANSCRIPT

Rob Pyne

Rob, welcome trusted advisers. This is the Podcast where we explore what it really takes to build, grow and sustain a thriving financial planning business. Every fortnight, you’ll hear candid conversations with the leaders, innovators and trailblazers of our profession, people who have navigated the challenges, embrace your opportunities and are willing to share what they’ve learned along the way. If you’re curious, ambitious and committed to raising the bar in advice, you’re in the right place. Welcome to another episode of The Trusted Adviser podcast. If you spend any time around financial planning business owners, one topic that almost always comes up is culture, how to build it, how to protect it as a firm grows, and how to create an environment where the people in your team genuinely feel like they’re building something together. At HPH solutions, one of the ways we’ve approached that question is through our employee ownership model, which we call the HPH team equity trust, what started as a relatively simple idea around rewarding and retaining great people. Retaining great people has gradually evolved into something much bigger, a mechanism for ownership transition, a way to recognize contribution across the whole team, and even a form of what we sometimes describe as internal private equity inside the business. In this episode, I’m joined by our Chief Operating Officer, Nick Bordi, who has been closely involved in running and refining the plan over the past few years. Together, we unpack how the structure actually works, including how team members become eligible to buy equity, how the shares are valued, why we deliberately chose not to sell them at a discount, and how younger team members who may not yet have capital can still participate through a structured lending arrangement. We also talk about some of the lessons we learned along the way, including a few mistakes we made early on, why we had to change the legal structure of the plan and how we manage governance when you suddenly have dozens of employee owners in the business. And toward the end of the conversation, Nick shares his perspective on what the long term legacy of a model like this could look like if it’s done well. So with that, let’s get into it. My conversation with Nick Bordi. Welcome Nick Bordi to The Trusted Adviser podcast.

Nick Bordi

Thanks, Rob. Good to be here. Well,

Rob Pyne

this conversation has been happening for a good number of years between the two of us on the inside, Nick and today we’re going to go a bit more in depth into our team equity trust, or otherwise known as our employee share plan. And I think I did record a version of this for Episode One of The Trusted Adviser podcast when I was asked by our good friend Ben Calder how it works, but first episode is never going to be the best one, so this will be a much better version of how our team equity Trust works, and you’re the one running it for us, and so you’ll have a much better insight to share. But perhaps before we go straight into it, tell everyone who’s listening a bit about your background, and then we’ll get into the team equity trust details. Yeah.

Nick Bordi

So I am the COO at HPH, formerly an adviser here at HPH, well, actually, my journey in financial planning started in 2013 started with HPH, originally as an associate, working with you rob, and then couple years later, chased my partner, now wife, over to Melbourne and back again, successfully moving back to the west, where I tried to get a job at HPH again. And I said, No, we don’t have space

Rob Pyne

at the time. We didn’t, but certainly we were pretty keen to get you back. And we’ve made a great team for many years, Nick, and that’s the way it still is today. But then obviously, when we started to grow the business and do some acquisitions, we needed someone bit more on the executive side of the business alongside the work I was doing. And you put your hand up. That was, how long ago? When was that? 2022? That was and you stepped back from advising. And then you’ve been working side by side with me ever since. And that’s, yeah, four years ago now. But let’s get into the team equity trusted the employee share plan. You’ve been running it now, day to day, the admin of it for several years, probably since you stepped into that role four years ago. Yeah, you took the reins, and you’ve helped develop it and shape it to what it is today. It’s had some variations along the way. When you first got involved in managing it, what was your initial understanding of what it was supposed to achieve, and how has it evolved over that four year period.

Nick Bordi

I was invited into the plan the year before, so my understanding of what it was was based largely on my own experience of going through it, and the way that I assessed it at the time, which was, well, this is a thing that is designed to both reward and retain me, because once I’m in, I’m not going to want to get out. And I took it very seriously at the time, and I remember sitting down with you, Rob and saying, I probably took it more serious than it more serious than it needed to be taken. I said, this means that this is the last job I’ll ever have. You know, it wasn’t that big a deal, really. I remember you

Rob Pyne

saying that it was, like, wasn’t just a financial commitment. He said, It’s, I know it’s good investment, but it means I’ve got to psychologically commit as well.

Nick Bordi

Yeah, I think I was the end of my 30s at that point. But, like. I was 30 years old, kind of thing, and I’m thinking, all right, I’m making this decision. So I knew at the time, and I knew it was a reward, because I knew that not everyone is offered in. I was in a group of people that were being offered in, and I could see that there was a great return to be had. And I knew that it would change the way I’d think about coming to work every day, and therefore there’d be a retention mechanism to it. So to answer the question, was my understanding at the beginning was it was there to retain and to reward, which I knew going into it. And then I started being more involved in administering the plan a couple of years later, and it started to just solve a bunch of questions and problems for us that we saw coming into the future. So I think one of the main reasons that people do employee share plans is actually also to enact a financial succession. But that wasn’t the reason that the directors, at the time kicked this plan off. It was not because they had an impending exit of their own that they were trying to plan for. It really was around, how do we reward and retain people? But then, as those questions started to evolve over time, thinking, what’s our financial succession for? HPH, well, we’ve got the solution already. Next questions that came up are around, well, how do we do compensation for people that are doing things outside of the realm of kind of what we expected them, going above and beyond? How do we build in reward for them? The employee share plan was the answer to that as well. So it started to answer a lot of questions as they came up that we didn’t originally think of. So yeah, it’s been a great plan,

Rob Pyne

as you say, it looks like a master plan now, because it’s actually solved so many problems, almost by design. But it wasn’t by design. We just kind of figured actually that plan we’ve got can actually solve for that challenge we’re facing, about people wanting to get performance incentive and all the rest of it. So it has been, and we get into some mechanics in a moment, but it’s really given us a mechanism to do a lot of things more than that initial intention around rewarding and retaining our best people. And so it does mean a lot of different things to different people. You know, employee share plans. What purpose does it serve? Can you describe In plain terms what it actually is, the HPH team, equity, trust? What it actually is,

Nick Bordi

yeah, what it is is a systematic way to, each year, sell to the people who are part of the team, part of helping to grow the business, to sell a portion of that to them in a way that can take a meaningful stake over time, and in a way that they can plan for and know that it’s done each year. It’s not a sort of pie in the sky thing in the future that they’ve been offered. It’s an annual commitment that the business has made to sell a portion of the equity. And the way it’s done is through the actual entity we’re using is a unit trust. So it’s a unit trust governed by a trust deed, but that trust deed is very much off the shelf. There’s nothing special going on there. All the magic, all of the special rules are contained in a unit trust agreement.

Rob Pyne

Yeah, that was a real learning for us, wasn’t it? We had originally a trust deed that was more employee share scheme oriented, that created some challenges, and we’ve modified that to be a standard unit trust with the unit holder agreement, much like people would actually think about shares in a company and having a shareholder agreement, we’ve done that for the unit trust and the unit holder agreement. So it’s just got some rules around how that’s going to be. Around how that’s going to be governed, but it’s a pretty stock, standard unit trust, which I think that’s a really important point to mention here, because I think it cuts through some of the mystery around it. When people go, like, oh, but special rules around it? Like, yes, if you do it under an employee share scheme where you’re issuing units based on performance incentives and stuff. But we just went away from that more complicated structure and just used this more straightforward structure, which, you know, we like simplicity, because it actually has a lot of durability around it. And as you said before, it’s been able to service many things we’ve tried to achieve through it. But let’s talk about this kind of fundamental tension that exists in ownership transition. Because many people would be thinking about doing this, but they don’t want to give up the farm or sell the farm too early to young people coming through and thinking, Well, I’ve done the time. They should earn their stripes and so on. The next generation, they want a real pathway to be equity owners. They’re typically intelligent, ambitious, and really want to find their own path to ownership. And if you don’t give them one, they could much like you could have at some point said, Well, I could just go and do this myself. Why would I stay? So it was designed for that. But how does this structure really address that tension, and what makes it different from just a traditional offer to buy in the way that others would do it?

Nick Bordi

Yeah, there’s reward to be had by owning the equity of the business. People who are aspiring to become future owners of the business. Know that, and they want to take a slice of the action they can see the business that they’re helping to build around them, but at the same time to sell or to be diluted in your ownership stake as an owner is to give up future returns, because that comes over time. So it’s really about getting a transition that can instead of it being zero sum, instead of it being a case of, well, I’m selling shares, therefore this person’s going to get the benefit from that. Can you do it in a way that that handover is not too fast, that the first generation principals and owners are uncomfortable with that? And secondly, I think there’s part that people. Look, which is that there’s actually a benefit to be gained by having staff take ownership in the businesses as it is. It could mean that they’re more engaged, that they grow faster, that there’s less risk of them leaving. There’s less risk of advisers taking a group of clients and trying to sever those relationships, which hurts the business valuation. You can end up with a situation where, as long as it’s done with a lot of planning and a lot of foresight into if we sell this component of it each year, or diluted by this extent each year, and we model that out over the next 10 years or 15 years, or whatever our plan horizon is for being as part of the business, we can live with the fact that we’re selling 3040, 50% over the next 10 years, and we’re going to get all these benefits that come with it through the engagement side of things. So the way we’ve actually kept that really simple for us, is we’ve tied it to the growth of the business. We use a function that is, if the business grows by X amount, we divide that by two and say, well, the equity of HPH has gone up by however many dollars. Half of that amount is now for sale to incoming unit holders.

Rob Pyne

Yeah, so there’s a balance being struck there between first generation ownership that’s not selling all of the growth or opportunity for growth to next generation, but some of it, half of it, as it happens, both parties are real meaningful stake in the success of the firm year on year. And it’s not just about selling existing shares that people own, but actually, as we’re doing it, issuing units and actually diluting the first generation owners, so that there is a dilution event there, but not fully diluted. And it’s giving people a meaningful opportunity to invest, not just a trivial amount, you know, reasonable amounts, with a year on year investing. So talk us through the actual mechanism for entering the plan. Who’s eligible, what’s the offer that’s being made? How does the acquisition process work and unfold? Sort of as we put it to the team, yeah.

Nick Bordi

So these transactions are happening once a year. They’re effective one July, every year in advance of that, we try and give a good three four months notice. We’ll let people know you’re eligible to be purchasing units in the plan this year. And the way that we do that is very simply, have you been with the business for two years or more? So everyone knows if they’ve been with HPH for two years or more, as at one July this coming year, they’re going to be invited in to the plan. They’ve got a rough idea of how much the purchase amount will be, and we then calculate a pretty good estimate for them, because the amount of units that we issue is linked to the growth that we experience for the financial year. We don’t 100% know that until right at the end of the year, but we’ve got a pretty good idea of where we’re going to land. We track to a budget. We’ve got a target that we’re trying to grow by for the year, and we’re checking in on that weekly. So we’ve got a really good sense of, are we on target to hit our budget for the year? So we can say to the team, hey, if we hit this target that we’re on track to hit, then there’s going to be call it, say, $4 million of valuation that’s added to HPH, so $2 million is going to be up for sale for the team equity trust. We then pop that into a spreadsheet and apportion it based on everyone’s individual salary. So salary being a proxy for the contribution that people are making, we weight how much each person gets to purchase relative to their salary against the other people. So of that $2 million one person might be buying $70,000 and one person might be buying $40,000 and it’s all different, depending on what their salary is. We put that number out to them and say, Do you want to be in the plan this year? Or not? You’ve got three choices. Yes, I’ll buy as much as I can. Yes, but I’ll buy a reduced amount, or no, this isn’t the right year for me, or for whatever reason, that investment doesn’t suit me at this point in time. So that’s the kind of initial phase. And then we firm up those numbers when we know exactly what the amount is. People make payment for that once we know the share price of the business, and in some cases, they borrow from HPH as well.

Rob Pyne

Yeah. So we’ve given people who don’t have the equity initially, perhaps to acquire the opportunity is the balance sheet of the business, to get that first investment position in the business, and over time, get to that point where they’ve got maybe no more than half of their total investment amount being secured against the business. So tell us a bit about your thoughts on this one. Nick It’s about how we’ve not just quarantined equity for advisers only. So answer that question for us, but then also talk about how we have also, though, given advisers an incentive also that goes over and above the standard salary proportion approach.

Nick Bordi

There’s two kind of schools of thought on this. When people first approach the idea of selling a portion of their financial planning practice to the next generation. They’re typically just looking at the advisers. They’re thinking, well, they’re the revenue generators, they’re the relationship holders, they’re the people that are most critical to be retained, because if anything goes wrong, it’s linked to something that they’ve done in a lot of cases. So a lot of businesses will make the decision just to sell to. Advisers, but the decision we made was to involve everyone, but to use the salary as a proxy for the contribution that that person’s bringing, rather than trying to assess that role is more important than that role. It’s simply just to say that different people bring different strengths and different contributions all the way through, and they turn up to do their job, and you pay them a salary to do the job that makes sense for that particular person. So what a great proxy for us to be selling the future of the business to in the same proportion. So that’s why we thought about that mechanism. But it just became super obvious to us that some advisers will go through points in time where we set a target, and we do this really well, and we do it very fairly and very transparently here at HPH, in terms of what people are expected to do for the year. And a component of that is that they’re expected not just to look after their clients really well and to do it in a way that is compliant and following all the rules, but there’s also a degree of it that’s finding new relationships and winning new work. And some people really enthusiastic about doing that. Are going out of their way to do it. Are having conversations at their local sports club, and work has just become this thing that they’re always talking about, and the results show they end up winning more clients, winning more work, and contributing in a way that we felt we needed to recognize. And we’re looking at all the different mechanisms we had at our disposal, and we’re thinking, Did they just get more of a pay rise? Or what if that was an anomaly that year? Okay, well, do we just give them a bonus? And, well, actually, I don’t know what’s that going to do culturally? And then we realize that the answer is here in the team equity trust, we can build in an incentive mechanism, which is that if you do go above and beyond what’s expected from you for that year as an adviser, you get to purchase an additional amount,

Rob Pyne

yeah, so that additional amount, though, still falls within the 50% proportion that’s available to acquire so that it can shade other non adviser team members who are participating in the plan by an amount. So it might be, instead of being offered 73,500 might get offered 71,100 there might be a shading effect of that, because that adviser has gone above and beyond and contributed more in terms of new growth in revenue through client acquisition over the course of the year. But we kind of thought about that and thought, Well, that seems only fair, though, given they have actually added to the business value by way of the growth of their business, of their client group, greater than the expectation. And for those that are in the plan, they should be equally happy with that too, because obviously that growth is going to contribute to the improvement in the value of the business. They’re already an investor most often anyway. So it seemed like a pretty logical way to make sure we rewarded the advisers, and not just preclude everyone but advisers for being in the plan, but actually find a way to include both opportunity for achievement to be recognized over and above, but also opportunity for everyone who’s contributing to the growth of the firm. Yeah, totally. So we touched on it a moment ago, about this funding mechanism for young people, because this is the obvious question. You might have a 24 year old doesn’t have a house, they’ve got a car, don’t have a house, don’t have equity, but they’re really coming in and demonstrating very strong willingness to help around the team and doing a great job in there. They’re two years into their career, and we say to them, here’s an opportunity. There’s no obligation or expectation. But would you like to be an owner? And they go, Well, how am I going to do that? They’ve got no idea how they’re going to fund it. This is their first job out of university. So talk us through that whole how do we help them support them through that borrowing in year one and ultimately getting to a 50% LVR, if they’re using the business as security to support that acquisition, and how do we make sure that can fund the ongoing interest costs associated gives that whole lay of the land? Yeah.

Nick Bordi

Okay, so we’ll use some numbers that are pretty close to being real. Let’s say we’ve got a client service person who has come out of uni, or an Associate’s come out of uni. Let’s just say, because the numbers are neat, they’re earning $70,000 plus super they’ve been working for a couple of years. They don’t share finances with a partner. You know, they’re pretty young at this point. 2223 24 they don’t have property, and they’re just trying to kind of make their way and build their financial foundation. And they’ve just been asked by us, do you want to buy $50,000 worth of shares this year? This is like real kind of numbers. It’s in the realm of 70 to 80% of what someone’s pre tax income is. And you know, we know that it’s not possible for someone to save 70 to 80% of their pre tax income in a year. You got to have something else going on. You’ve either got to have a partner that’s helping you save you’ve either got to have a property that you’ve got that’s appreciating in value, or you could already have HPH shares that are going up in value as well. That’s an appreciating asset that can be used for security as well. Talk more about that. But at that point, this is someone just entering the plan for the first time. Do you want to buy $50,000 worth of units? We’re also saying to them, because this is your first. First Year. And because we want to help you get into the plan, you can borrow 100% of that amount from HPH, if you choose to. A lot of the time, they say yes, but going on from that, because a lot of what we’re doing here is we’re trying to build a plan that will not just take a small slice of the equity off existing owners, but last all the way through, and that we can roll that out right through to the completion of imagining this plan taking over the current shareholder directors that we’ve got and owning the whole thing. And if we did that, if we lent 100% of the value, it would not be sustainable. We couldn’t do that forever. So the question we had to ask ourselves was, well, what level of lending would be sustainable? And it’s a pretty easy answer. We just go and say, Well, how much is the bank willing to lend us against the asset that is HPH solutions, and it’s about 50% the bank will lend to us about 50% of what we value the business to be. So we’ve just applied that same methodology. So although year one, you can borrow the whole thing, if you want to borrow money from HPH. Beyond that, you have to meet a 50% LVR ratio, where we look at the amount of money you borrowed from HPH and the value of your equity in HPH. How do they get to a 50% there’s a few ways. Firstly, they could pay off the debt that they’d taken. Secondly, they could wait for the HPH shares to appreciate to the point that they’ve got that 50% ratio covered. And the third way is that just over time, the way we deal with the repayments on that debt. Because another big thing for people that are 24 years old and just starting to kind of make their way in the world financially is that they don’t want to be slowed down by a negatively geared cash flow thing, that’s suddenly, they’ve got this 10 year repayment term on a loan, and now it’s costing me money. I know it’s good for me in the long term, but cash flow wise, all I’m feeling is I’ve gone back by a few $1,000 a year. We didn’t want that situation, so the way we’ve gone about it is we’ve said that the repayments for the money HPH lends to people is the dividends or the distributions associated with those units. So that’s then on us to manage. When we’re doing our budget for the business and understanding what it’s going to look like for the year, we kind of have to make sure that the distributions are enough to make sure they’re repaying the interest and a bit of the principal on their loans for these people, because over time, then what they’re seeing is that their loan balance starts out and they got a loan, they’ve got an asset. It’s producing a yield in the way of a distribution the first year, typically, it really just covers the interest cost. The next year, what’s now gone up in value because it’s an appreciating asset. Hopefully we continue to grow the business, and the distribution remains a function of the value at the beginning of the year. And now I’ve paid a bit of the loan, and then the next year more and the next year more. So when you combine that repayment horizon with the fact that the assets going up in time, even if people are in a position where they say, okay, I can take the 100% value, but I just don’t have any money over the next five years to put towards it, I’ve got to prioritize other things. I’ve got to get into my first house. I’ve got to start thinking about all the other things that someone you know in their late 20s, early 30s, is thinking about they can still take a meaningful stake in the business and see it grow and be building up while they’re still building their financial backing.

Rob Pyne

Yeah, it’s a key part of the plan is that there’s a sustainable approach to how we fund people in and you just say that dividends continue to grow over time as the business has grown, so it helps to meet the interest costs, and they’ve just got this growth asset that they’re helping to contribute to. And so it’s working exceedingly well. But I want to touch on something that’s really important, part of the unit holder agreement, and how we’ve structured it. We’ve got a vesting model built into the growth in the value of the units that the unit holders hold. It’s central to this retention idea of our team. So we don’t want people coming in and out making short term decisions about their career, and if they choose to, that’s okay, but obviously that’s not the intention of the plan. Can you just explain how the vesting model works, and what’s the purpose behind that?

Nick Bordi

Yeah, the vesting model is designed to have people reap the rewards of the plan that are here for the long term. It’s a five year schedule, and it’s a vesting of the growth component of the shares of the units that they hold in the first year. So in that example, let’s just go back to that. You know, 24 year old that’s just purchased $50,000 worth of shares or units. They are buying those units, and then a year later, those units might be worth $55,000 now, if they chose to leave and go get another job somewhere else, they don’t get that whole $55,000 they get their $50,000 back their original principle, but then they only get 20% of the growth, the $5,000 of growth, they only get 20% of that. So they leave with $51,000 they’re not being left in a situation where they’ve gone backwards, because the interest has been covered by the distributions. They’ve gone forwards, but not forwards as far as if they had have written out the plan stay. There for the long term. What we’re trying to do here is we’re trying to align the returns, the incentives, the risk as well that people would experience if they themselves, were running a business. This is the alternative, that we’re trying to provide a better solution, and we don’t want young advisers that are great advisers here to say, I could do this myself. I want to go and start my own practice. We want them to really sit down, look at the numbers and go, Yeah, I could start my own practice, but I’m way better off doing this thing that I’m doing like I’m already ahead. I’ve been given the chance to basically take a stake in a business way sooner than I would have otherwise, and I can see that growing way beyond the point that I could get it to myself, and I’m going to have the momentum of everyone else coming through behind me, I can achieve the life I want to live, both financially and personally, by staying within this team that I’m a part of. So that’s the vesting schedule.

Rob Pyne

Yeah, it’s designed to do exactly that. It’s encouraging long term thinking, much like all owners do, and that’s what they are. They’re owners, so it sort of incentivizes them to acquire and stay invested over long periods and reap the rewards of the growth they’re helping to create. One of the things we encountered, one of the kind of learning things that we had. I mentioned this right at the beginning, when we had a an employee share scheme deed, and then we had modified that to a standard unit trust deed. Talk about the problems that created the employee share scheme deed and why we had to go to a standard unit trust and what trust and what that was a key, kind of a hard lesson we had to learn, what was the problem and why was that the solution?

Nick Bordi

Yeah, so there’s a couple of different ways people can go about setting up an employee share plan, and one of them is employee share scheme, which is, it means something in tax world, it means that there were some concessions around different pricing for people getting in different vesting schedules, and the way that that applies to things like fringe benefit tax, and it’s all the stuff that accountants can run through, and it makes a lot of sense for big businesses like, you know, Rio Woodside, they’ve got these things, and that’s the way they’ve set them up. But for us, we weren’t using any of the benefits that come from such a complex and protected scheme. And by having the restricted trust deed that it requires to comply with these rules, it meant that the bank NAB who go through our trust deed and say, Okay, well, we’ve lent you guys some money. What happens if we need to get that money back? They go through and they go, All right, well, yeah, Rob, you can pass back, and all the other shareholders you can pass back, and one of the shareholders is the unit trust. So we’ve got six shareholders. Five of them are people. One of them is the unit trust. And the unit trust is the employee share plan that we’re talking about. That thing was protected because the trust deed restricted the bank from coming after it, which was kind of okay in the first year, it was like, Oh, well, the five shareholders own 90% of the business, or 95% of the business, so it’s not a big deal. Then it’s 80% then it’s 78% then it’s 75% and it’s looking like we want to go, like I said before, we want this thing to go all the way through to the point that there’s only one shareholder remaining. It’s the unit trust. Look, that structure might change over time, but the principle of it remains the same. Obviously, that’s not a sustainable solution. If we have a group of five individuals that have got their houses up for grabs if anything goes wrong, and the bank comes looking for the money, and there’s this thing over here that’s just entitled to just as much reward, but taking a different degree of risk. That’s not fair. That’s not taking an Ownership mindset to it. So we had to change it, and the way we did it was by going just to a regular Unit Trust, yeah, overcome that issue about, as you say, disproportionate guarantees being held by the directors versus the owners of the business, which is now representing a greater group of people beyond five directors. So yeah, certainly one we had to solve for, and I’m glad we have, because it’s now everyone effectively, is on a pretty level footing around risk and reward, which is an important factor. I’ll tell a quick story about that one, actually, because I think it’s interesting at the times we made this change, and I’m explaining this change to the unit holders, and it meant we could do a few other things as well, like there were a lot of restrictions around being able to sell the shares under the old agreement. You actually couldn’t get out because you had to sort of be locked into this thing, and had to be protected and locked in in a way that meant that, because there were tax concessions associated with it, you couldn’t then go and sell it immediately. And people were saying, Well, what if I want to upgrade my house? What if I want to do this or that? And well, under the old agreement, you have to retire. Your only way you can get out is if you retire. We realized that that’s not sustainable. We’re selling $50,000 chunks of money to a 24 year old that might change their plans and want to stay an employee, but do something different with the money. So that was one of the reasons we changed it. And I’m going through and communicating this to the whole Aesop group. And I also mentioned the loan covenants and the way that the bank will now start to assess. And people sort of said, Oh, hold on a second. There’s a bit of risk associated here. I said, Well, yeah, there always has been they may understand it, but it’s really interesting when you’ve got this dynamic. And I’ve got a lot of friends that are financial planners as well, and you hear them talking about, geez, must be good being my boss, I earn so much money. But then when people start to really understand that, okay, the earning of the profit is associated with the owning of an asset, and that asset. It holds risk. And do I want to hold that risk to get that reward? It really changes the mindset there. And I think it brings everyone very much on the same page, to appreciate things like compliance, like cyber security. And, you know, you send these phishing emails out and people go, geez, another one those things I click on. It’s like, hold on a second. This is actually protecting that very important thing you’ve got that the bank are going to otherwise be coming after you for. So let’s take it pretty seriously.

Rob Pyne

Yeah, it’s amazing how it’s really just as you say, it introduces that Ownership mindset that every business is trying to create in their team. But it’s a real thing. It’s a really tangible thing. People start to think like owners, because they can see the risk of what they’re investing in if things aren’t done the right way. So we’ve seen a great engagement from our ownership group now as to making sure we do things the right way, how we run our business, and obviously we not only communicate, but ask their thoughts on how to make things work better in our business. So I think it’s been one of the great revelations, because we all want people who work with our team to feel and behave like owners would. But there’s nothing that makes that more certain than making them owners. They actually begin to do exactly that. Let’s talk about something I think that’s a really important point. People will be curious about it, because people associate ownership with control and voting rights, and some people a lot of it, will ask about quite immediately. When we talk about our employee share plan, can you talk a bit about the governance clarity when we’ve got 25 or more people, so 20 employee share owners and other five directors that have got a stake in the business, how do we actually do what works for everyone without having 25 people around the table trying to make a decision?

Nick Bordi

Well, that’s part of the reason we’ve got the trust set up as a separate entity. So the structure of HPH solutions is, we’ve got a company. We’ve got five people that own shares in that company, and the trust is a sixth shareholder. The trust doesn’t come with voting rights. So it doesn’t come with the right for people to say, I’ve got a stake here. I want to put a vote in for the way we want to do things. If we had 25 people around the table, it would just be a nightmare. But what we do, and we really make sure of and it’s important, I think, for anyone that’s going down this path of considering an employee share plan, is we do really have a culture here. Of the best idea is the one that we go with. It doesn’t matter if it’s Rob’s idea or it’s someone else’s idea, that’s what we go with. We listen to the collective wisdom of the group, and in terms of control, it’s not as though control is sitting with five people that are sitting around and making a decision, because if you don’t listen to the thoughts of the other 20 or 30 or everyone else in the business, regardless of whether they’re actually a shareholder or not, they’re still employees, they’re still part of the business, they’re still helping us all move in The same direction. If five people like the decision and the remaining 50 don’t, you’ve got a big problem on your hands. That’s where I control the control wise, with the people, not with the directors or the shareholders. But at the same time, there are decisions that need to be made around things. At points in time. Do we go out and borrow this money to do this thing? We’re not putting a poll out to the whole 27 group of people. We’re making that decision at an executive level, at a directorship level, and then we’re being really clear about describing what’s happening and explaining everything to our employee shareholders through a quarterly update, because it is important that they know this is a significant asset for them. And often people have borrowed a fair bit of money, so they want to know, you know, is it going well? Can I expect it to keep going in the right direction? Yeah, I want to touch on something here. Is it going well? You said there. I’ll touch on something that’s really important that people understand too. Because I think people often think, Oh, are you selling a discount to your team? Are you actually giving them an opportunity to buy in a discount? And I’ve heard people say that’s kind of almost like it’s almost like it’s a routine thing to think about. We haven’t thought like that at all. It’s maybe counterintuitive, but we avoided that heavy discounting approach and talk to everyone about how we price the units and how we do the valuation. How do we think about valuation for the purpose of people acquiring a stake in the business? Yeah, the decision to discount the shares. Going back to that principle before of does it work for the long run? Does it work forever? If you’re selling anything at a discount, you probably wouldn’t want to sell everything at a discount, so you may be all right, okay, this person, they’ve been here for a while. I want to get them in on the plan. I’m going to sell them something, I’m going to give them a discount on it. They help to grow it. They help to grow it. This is generally when people think of a discount, they help to grow it. I should give them a discount. Well, if you sell it to them early enough, then they get the benefit of the fact they help to grow it. So our mentality is not to give a discount, but to get people in as early as we possibly can, like 24 and have them reap the rewards of that as they go, they get the same outcome as if they had have got a discount, except it really aligns those incentives. And what it actually means is that when it comes down to the final dollar changing hands, where Rob, who started the business in 2002 says that’s it, guys, I’m 70. I want to pursue my future life as a marathon runner, or I don’t know what you’ll be doing at the time. I.

Rob Pyne

Not running marathons. I don’t think you don’t mind selling that final

Nick Bordi

dollar for the price that you sell it for the methodology that you sold the first dollar for. Yeah, you’re not sitting there thinking, and other shareholders aren’t thinking. And, you know, other people that come and go at different times of the business aren’t thinking, Oh, geez, I’d hate to be the one left holding the last dollar, because we have to keep selling it for a discount. And I can see that other people are selling it for more. It’s got to be fair for everyone. It’s got to be fair for the people that are selling the shares or being they’re not actually selling them. They’re being diluted each year. But it’s kind of the same thing, but it just feels a bit different. It’s got to be fair for everyone all the way through. Absolutely.

Rob Pyne

I think that the way you think about that’s a really good framing you talk about things. Let’s take it to the extreme example and say, Would you be happy to sell all of it at the discount? The answer is no. Well, why sell any of it? I like the way you think, like that. Nick, you’ve always kind of thought things to the extremes to kind of test the boundaries of what the idea is. And that really does usually crystallize thinking pretty clearly when you take it to the extremes. And Nick, when we first launched this team equity trust, I’ve got to be honest, I actually thought one of the biggest fears I had was, what if no one’s to buy in? What if people look at and go like, Oh, no, thanks. I remember that happened to me when I was very young, and I was offered the opportunity to take equity in the business that I was working at way back in the 90s, and I didn’t want to buy in. So I had that fear. I thought people might not want to and but looking back now, can you share with everyone what we actually found, what does the level of participation that we’ve had tell us about what really takes an employee ownership model like this to really work?

Nick Bordi

Yeah, definitely. And we’ve seen this with other employee share plans, other businesses actually not financial planning practices, but other businesses. I think we’ve actually got a bit of a head start in this space being financial planners. A lot of people that we have here are able to crunch the numbers and able to be very forward thinking, and can understand the idea of investing for something today that you don’t see to get anything back in the next 510, years, and then there’s a thing waiting for you before you retire that could really move the needle. So I think we do have a bit of an advantage being financial planners. And what we actually saw was that people were very much doing the numbers. And you could take a very short term view of it and saying, Okay, well, I’m 24 I’ve just been offered to buy $50,000 of this thing and but if the dividends are locked up, I don’t get the dividends. I mean, yeah, it’s like super. I don’t care about Super. I never looked my super balance. There’s just another one of those things, but people were very much engaged with it. They were sitting down. They were understanding the future of it, and it’s becoming easier and easier now that we’ve been running the plan for a good six or seven years, we’ve got the history that we can look back on, and we can share the experience of people that joined at different points in time, without making promises and without saying, well, you’re going to put this into a calculator for the next 20 years, and you can see how much money you’re going to have left over. But at the same time, we can say this is an unlisted business. It’s a small private business that there are reasons why private equity are trying to buy up small financial planning practices, because you can receive a return over a long enough period of time that outperforms what you’ll be able to get access to anywhere else. So we’ve just made that opportunity open for our people, and they have said, yes, it’s interesting, because it’s got to a point now where, because there’s a significant amount that people are being asked if they want to purchase each year, we’ve got to be really careful to help people understand that not everyone’s able to afford it every year, because in the years that people can’t come up with 70% of their pre tax income, which is a stack of money, they’re going, Oh, I missed out on something. There’s the fear of missing out that comes in and this emotional thing that comes into play as well. So we definitely don’t have a problem where people don’t want to buy it. A lot of people are saying yes, but at the same time, if people say no or if they say they want to buy a smaller amount, there’s no pressure from us. We don’t view this as like some form of engagement and people that are saying you’re on the bus and you’re not on the bus, there’s no pressure like that.

Rob Pyne

Yeah, so for a business owner that’s listening, what would be the case for a plan like this not being right for them? Why would a business owner, say, walking away from this, listening to it, thinking that that’s not for us. What would be the things that would, I guess, suggest to them that they’re not the right fit for building an employee share plan like this?

Nick Bordi

Businesses that it wouldn’t work for could be ones that had the business and use it as a bit of a lifestyle vehicle, any situation where a business is being run, not at an arm’s length, where perhaps a so the way the businesses might come about is, you’re an adviser. You’re working with a bunch of clients. You’re working somewhere else. You say, I want to go do this myself. You set up a business. You end up getting a bunch of clients. You find over time. You thought, Okay, I was kind of wanting to just be an adviser here, but I’ve done a good job, and now I’ve found myself running a business. I’ve had to hire a few more people, and now, okay, all right, but I’m not taking a big salary, because I’m just drawing the distributions out of the business. You know, running the car through the business, running the phone through the business. And, you know, this is a bit of a closed shop. I don’t want to talk to. Any of the employees about anything that’s going on inside this company. In that case, it definitely wouldn’t work, because it has to be a very much a separate asset. You have to detach from it the remuneration that people receive for the job they’re doing and the return they get from the investment in the asset that is ultimately the business. And if, for whatever reason, there’s any kind of mingling of the two, it wouldn’t work because in that case, the way it really works is, and this could be because the business is mingled, or it could just be because you don’t want to open up the books and show the staff what’s going on behind the curtain, which is to show them the financials, not individual people’s salaries. But other than that, like literally, other than the individual salaries, our staff get access to the full set of financials for HPH, I think that’s actually pretty critical part of making this work, especially once it’s scaling up to the point that people might have borrowed a million dollars against their house and be invested in this plan, they kind of want to know, probably fair enough, what are the financials look like, except for the salary of the person sitting next to me. So if you’re not willing to do that, then it’s not worth doing a plan like this. Yeah, it’s not for you. But the benefits to doing it we’ve experienced have been quite remarkable in terms of just the engagement we have from our team and the contribution they’re making to our success as a firm. So you know, speaking to those that are contemplating it, if they are inclined to treat their businesses in arms length asset and help others become owners in it, and then grow their own financial position as a consequence of their contribution. Then there is a very effective way to do it. So stepping back now, Nick last question, what do you think the real legacy of the plan is? What do you wish more business owners understood about employee ownership before they convinced themselves it was too complicated to try. The legacy of the plan really is the final form of all of the people that have been here, building the business, being a part of it, working with the clients, providing a great product that we all work together to make sure that we are really happy with the value that we provide and put out to the world. They end up owning the entire business. And it gets to a point where the people who started it, who founded it, have handed it over to a next generation of founders, I could say owners, but they are a next generation of founders. They’re people who have taken the business and taken it in a different direction, and because all the incentives are aligned. The people that come through and make the decisions next are making them for the long run, are making them in a way that means that it’ll serve them, serve the people that are working with them, serve the people that are yet to work with them. That’ll be future employees that come through. It makes it really robust, really enduring, and that’s the legacy that’s left behind.

Rob Pyne

Yeah, I would add that one of the things we didn’t probably appreciate at the time was when there are businesses out there that are actually doing private equity deals, bringing in third party financial capital to help them achieve their growth aspirations, our team have become that. For us, it’s in house private equity, in effect, people have come to the table with their own means, sometimes where they’ve got property security and they’ve bought into the business. And that’s business, and that’s helped to allow for equity transition, ownership transition, but also given us a really strong balance sheet to continue to acquire and grow the business and invest in things we want to invest in that actually make sense for all of us. So there’s that really strong sense of having a collective group of people that are actually inside the business, working in the business, working in the business, contributing to it, that are actually the owners of it, and making the decisions for the benefit of all and and not having that third party that’s on the balance sheet that really is there as a financial capital contributor. And maybe they do more than just contribute financial capital. Maybe there’s strategic guidance and some direction, but they’re not in the business every day, thinking about it, day in, day out. And so I love that we’ve created that, and I’m so pleased how it’s worked out. As I said right at the beginning, it seems now like it was just brilliant by design, but we’ve kind of figured things out along the way, haven’t we, as we built it. And it had one purpose to begin with, the reward and retention of our best people, but it’s become much more than that. It’s become a vehicle for ownership succession. We’ve actually been working hard, not just on ownership succession, but also leadership succession internally. And these things started early are actually quite smooth. There’s a glide path that makes sense for everyone. Starting late, it’s very difficult to make these things happen where there’s this transition of ownership. So I couldn’t be more pleased that we’ve started it and that it’s working as well as it is, and that you’re at the helm. Driving it with our next generation of leaders and owners in our business, and we look forward to many more years of it contributing to our success. And any final thoughts you want to share the Nick before we wrap up the conversation,

Nick Bordi

it’s a great team to be a part of. We’re lucky. We come to work. We work with clients that we like, with staff that we like that are all working and moving in the same direction, and this is just one of the factors of our business that helps us maintain that for the long run. So it’s exciting.

Rob Pyne

Yeah, we haven’t got all the answers about everything, but this one is certainly one we feel like we’ve got a very good answer for if people are looking to do employee, share, ownership. So hope this is helpful.

Nick Bordi

Yeah. And we didn’t have those answers all the way along. Yeah, it surprised us with a lot of things, and back to your point, a lot of things in a good way. It was a solution to a lot of problems that we hadn’t thought of. It also added a few complexities that we’ve had to solve along the way. So we definitely didn’t get it right to begin with. And who knows, there’ll be things that come up to do with more than 50 people in it, and that becomes a headache in the future. And but one thing I’d say is that, because it’s easy to look at it and go, oh geez, what about this? What about that? Have you thought about that? Oh, geez, I could go wrong in so many ways. It could also go right in so many ways, and it will. There’s the risk associated with doing it. There’s also a big risk associated with not doing it. So I would encourage everyone, you know, financial planning practices and other businesses as well to really have a think about whether this is something they could use.

Rob Pyne

Yeah, for sure. It’s a wonderfully constructed model that has been improved and changed over time to get it to the point where it’s working exceedingly well. And we do hope that by recording this episode that it actually helps others to think about how they might do it for themselves, as you say, even beyond financial planning, because the structure actually could apply it to many businesses out there looking for the next generation of ownership in their business. So appreciate you taking the time Nick to go down into the details of our HPH team equity trust, and hope this has been helpful to all the listeners.

Nick Bordi

Good one. Thanks, Rob, Thanks, Nick,

Rob Pyne

thanks for tuning in to The Trusted Adviser. I hope today’s conversation brought you new insights and inspiration for growing your business. If you enjoyed this episode, please subscribe on your favorite podcast platform, leave a review and share it with others in the industry, and don’t forget to connect with us on LinkedIn for updates on future episodes until next time, keep building trust, embracing innovation and driving success in your practice, you.