Pricing remains one of the most pressing – and misunderstood – challenges in financial advice. Rob Jones, Co-Founder of Peloton Partners, unpacks what more than 25 years in the industry and a unique database of validated firm data has taught him about profitability, adviser remuneration, capacity constraints and the myths of benchmarking.
Rob is known as one of the most respected voices in the profession on pricing, profitability and business management. He shares why average client fees tell us almost nothing, how capacity is the ultimate driver of growth, and why advisers must stop apologising for being profitable.
Whether you’re leading a small practice or managing a large team, this conversation will challenge assumptions, provide practical insights, and leave you thinking differently about the balance between client value and sustainable profit.
LISTEN
SHOW NOTES
Topics discussed
- Why most pricing frameworks in advice firms are outdated and erode value
- How to build a dynamic pricing system that adjusts to client and firm circumstances
- The “new business contribution” test – a quick diagnostic for structural fee issues
- The role of data in identifying when to add team members like CSOs vs. advisers
- Shifting from “review meetings” to “progress meetings” to frame value
- How advisers can better express and defend their value to clients
- The future of advice: more people accessing quality advice, fewer “rotten egg” advisers
Episode highlights
(Timestamps are approximate)
- [00:00] – Introduction to Rob Jones and Peloton Partners
- [02:49] – Rob Jones’ Journey in Financial Services
- [05:26] – The Importance of Pricing in Financial Advice
- [08:24] – Peloton’s Approach to Pricing Frameworks
- [10:53] – Building a Verified Database of Financial Firms
- [13:42] – Insights from the Database: Employee Expenses and Profitability
- [16:41] – Understanding Advisor Salaries and Business Valuation
- [19:21] – The Relationship Between Profitability and Growth
- [22:09] – Challenges in Maintaining Profitability and Growth
- [33:41] – Understanding Fee Structures and Profitability
- [39:58] – The Role of Management in Firm Profitability
- [45:57] – Capacity as a Key Driver of Growth
- [52:29] – Balancing Investment in People and Systems
- [01:00:04] – Vision for the Future of Financial Advice
Quotes
- “If no P&L is static, why would we have a static pricing framework that doesn’t ebb and flow with changing conditions?” – Rob Jones
- “Let’s button up value. Let’s give clients the facts. Let’s stand up to the plate and proudly say your price will reflect the ongoing changes at both our levels.” – Rob Jones
- “If your new business contributes more than 30% of your current profit, you’ve got a structural ongoing fee problem.” – Rob Jones
- “My wish is for every adviser to congratulate clients at the start of each progress meeting for making an investment into their future.” – Rob Jones
- “Advisers should make the right money all the time and not feel guilty about that—while ensuring every client contributes only their fair share.” – Rob Jones
Resources & Links
- Connect with Rob Pyne on LinkedIn
- Follow The Trusted Adviser Podcast for more conversations with leaders in financial planning
- Learn more about Peloton Partners
Key takeaways
- Dynamic pricing frameworks: Static pricing erodes client confidence and profit; a flexible model should mirror both firm and client circumstances.
- Diagnostic test for fee issues: Compare operating profit to new business contribution; over 30% means structural fee problems, under 5% means growth issues.
- Data-driven decisions: Use operational data to know when to add staff or resources and where it impacts pricing.
- Reframing client meetings: Shift from “review” to “progress” meetings to reinforce value and client achievements.
- Authentic value expression: Advisers must embed language and habits that show the investment clients make in their future, not just deliver advice.
TRANSCRIPT
Rob Pyne
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. In this episode of The Trusted Adviser, I’m joined by Rob Jones, co-founder of Peloton Partners, and one of the most respected voices on pricing, profitability and business management in financial advice, with more than 25 years in the industry, Rob has seen financial planning from every angle, building emerging practices, leading through large scale integrations and ultimately creating peloton to help firms find the right balance between delivering value to clients and running a sustainable, profitable business in our conversation, Rob shares, why so many advice firms still leave money on the table, the pitfalls of relying on self-reported benchmarking surveys and what his unique database of verified firm data is revealing about capacity, adviser remuneration and the true drivers of profitability. If you ever wonder how to price your services fairly, how to use data as a leading indicator for growth, or what separates consistently profitable firms from the rest. This episode will give you plenty to think about. Let’s dive in. Welcome Rob Jones, The Trusted Adviser podcast.
Rob Jones
Thank you. Rob Pyne, and wrapped to be here mate.
Rob Pyne
Good to see you, Rob. I always enjoy our catch ups, because you’re never short of some interesting information about what’s going on in the market. You’re very well connected to a lot of advice practices through your work with Peloton Partners. So, I’m very keen to explore a bit more of what you told me. Last time we caught up, you were in town a few weeks ago in Perth. We sat down for a chat at the Westin Hotel in the lobby lounge there, and you were talking about this database that you’ve built. But before we get to that, I want to go back a step. And for those that don’t know you, and you’re pretty well known, but there may be some people listening that don’t know you, can you share a little bit about your journey in financial services and what led you to co found Peloton Partners?
Rob Jones
Yes, certainly, and enjoyed that last conversation with you, mate, by the way, it was a few weeks ago, so it’d be nice to cover off a bit of that. But look, I’ve been in the industry 25 years, Rob pretty much to the day, almost, and I came into a small financial planning practice. And Collins Street in Melbourne, there was, I think, nine of us at the time. The business was run by Kevin Bailey, set up by him, and he’s very well known and a really fast-growing financial planning practice, and it was exciting. It was new for me. I’d come from the police force, so I was staring down processes and things that were vastly different to the experience that I had. And perhaps because of that, I brought no prejudice to it and just threw myself into it. So we then grew that business rapidly to the point that seven or eight years later, we were interested, as we knew a couple of the other participants in Shadforth Financial Group, or what became Shadforth Financial Group, which was that sort of 13 way merger around the country, and we were one of the three in Melbourne. And that was an incredibly exciting time and again. It was a chance to enhance and expand your knowledge on the business that we had built, and thought we knew so much, but realised we knew very little. And then we came into this big thing called SFG, which was a melting pot of 13 firms and 400 egos 100 people. So, it was fascinating. In fact, someone asked me the other day Rob, I was at a conference, and they said, Oh, you know, what was that like early door? And I said, Well, if you can imagine, I think one of the reasons it succeeded, if you don’t mind me saying, is that we actually decided, I think, correctly, that if we were starting a financial planning practice from scratch, knowing everything that we currently know, the mistakes that we have made, the successes that we’ve had, is there such a thing as a formula that you might want to build from The Ground Up. And to the credit of the principals, who also had the big egos, they sat back and sat in a room and did just that. So we built the investment story, we built the client value proposition, we built the technology from ground up. And we decided that, okay, there is such a thing as perhaps utopia, and that was a nice thing to be a part of. And I was given the task while I was there, of could I unite the fee structures of all these different firms around the country? Very naively, Rob and, I mean, very naively, I thought this would be an easy task, because surely, you know, they’re probably all like us, percentage based fee, and you know, they’re doing a pretty good job for clients, and there’ll be fee ranges from, I don’t know, $500 through to 20,000 maybe. And boy, was I throwing a curve ball. We did manage to unite them all, but it was a huge process, and I suppose it started my journey in obsession with pricing advice. Initially. 30 but now pricing value and advice and service, and I’ll get onto that in a moment, but that’s where it started. Then I was asked, once we did that exercise, could you do some M and A we’d like to grow that business? And that gave me exposure to looking at goodness. There would have had to have been three to 400 firms that I personally went in on, obtained data on, tried to work out some system of being able to benchmark those firms to the SFG business, if you like, so that we could actually work out who we were going to target and why, and then we could make offers to various firms to acquire them and it was in that process, in that sort of four years, between 2008 and 2012 then it really just drove home to me the fact that, gee, there are some great firms in this country. That’s number one. Doesn’t matter how big or small they were. There’s some really fabulous firms out there. But the only uniting feature amongst them all was that they appeared to be leaving too much money off the table. And it really confused me, right? I don’t claim to be an expert in everything, that’s for sure, but I kept thinking, Why would you leave this off the table? And that then, and I remember the last deal I ever did. You know I was doing the right thing by my employer, but you know I was short changing the firm sitting in front of me, because I knew that they were worth X, but also knew that they wouldn’t be able to tease that out themselves, and we could, yeah, and it’s not an easy thing to say, but it’s the truth of what we have found back then, and almost in every case, for the last 13 years, after founding peloton. But that was one of the reasons we set up. There’s got to be a way to help Advisers continue to deliver a fantastic service and be as valuable as they are to their clients but also make it fair to them as well. So this notion of peloton sort of coming out with right and fair for client and right and fair for firm is something that’s really sacrosanct to me personally, and it’s a belief system that peloton runs with to this day, and that’s what we’ve been doing for 13 years, and that’s the reason why I set it up. Yeah, I set
Rob Pyne
it up. Yeah, you have built a very strong reputation for helping advice firms price their services appropriately. Because as you, as you’ve just recounted there, your experience was, there’s many, many great firms out there, but they’re not often pricing appropriately for their services, perhaps not generating sufficient value for the work, then the value they’re providing to their clients. From your experience now, Rob, you’ve been doing this a long time. Why is pricing such a troubling issue for businesses? What are they doing? What are they not doing? What are you seeing and what’s your approach to kind of helping them through that?
Rob Jones
I mean, there’s a couple of layers to that, but I would suggest one of the biggest issues for firms these days around pricing is that they don’t pay enough attention to it. It’s actually funny when you sit down with a firm and just have a general conversation with them, and invariably, pricing comes up. We’re known for that, but it doesn’t always. At the start, it’s, why are you running your business? What sort of brand of advice do you believe in, and what are the type of clients you’re delivering that too, and what’s important to you and the same things I know you and your business will resonate well with this Rob, is that I love looking after people. I love making a difference in their life. I love a change that advice can materially deliver to clients that might have been going through some challenging and struggling times and or there are various other reasons. That is why they come to advice, of course, but they themselves. The owners put themselves and always relegate themselves second, third, fourth and fifth in the pecking order. And I think it’s sometimes this moral thing of I’m making money. Is it a bad thing to make money from doing such a good thing? And yet, when you sit down and have a functional conversation with them, and profit is not a dirty word, and they’re in it for profit, unless they are a firm that’s set up not to be in it for profit. Then let’s elevate the conversation around profit. And I’m sort of a little bit tired of it not being legitimately and fairly at the center of their own thinking. And then our job is to say, one, it’s okay for you to make a profit. And two, it’s okay for you to make this level of profit. Here’s why. And three, the biggest thing that we’ve got in order to help us to achieve that, outside of getting rid of people, and outside of trying to play around with the P and L and cost out is that your ongoing fee structure is most likely archaic and wrong, and it’s not actually aligning to the value your clients receive, number one, and the cost of the services that you’ll supply. Number two, and it’s almost bar a couple of exceptions on I’ve chatted with you about a couple of exceptions. Bar a couple of exceptions, it’s almost true in every single case. Yeah, we had people say to us, gee, you guys must have firms falling at your feet all the time and at times, we do, but at times we don’t. And one of the reasons we don’t at times is the distractions that firms have in their own business, and they always seem to be scrambling to I’ve got to give clients more. I’ve got to find technology solution that gives them more. I don’t feel I can ever change my figures. I’m actually not sure I’m actually delivering enough, you know, but you are. So, our biggest competitor is the distraction that a business has, and often that distraction is the inward looking. And perhaps they’re over analysing a bit too much, and they’re coming up short saying I’m not sure we can do more or charge more, because I don’t think we’re doing enough now, and I think that’s a sad reflection on the industry, because if you ask their clients, it’s the absolute opposite, and that’s what we set out to prove, and have proven 10,000 times, that their clients actually value tremendously what they’re doing, but they value most that trust and peace of mind,
Rob Pyne
yeah, for sure, and I totally am aligned with your thinking there just about the impact and the value we offer. And you have to ask the clients, and I’ll often recount the feedback we get from clients to the whole team every week, because you just got to constantly remind your team just how much value we’re offering to clients and what they’re telling us about the things we’re doing for them in their life, confidence. We bring the peace of mind that they’ve got a plan, they know where they’re going. So, there’s a huge amount of value there. And advisers, perhaps sometimes don’t always acknowledge the value they’re offering, but need to be reminded of that. Can you give us a bit of a high-level view of how peloton goes about helping firms as a starting position? Then we’ll get into that database you guys have built as a consequence of working with so many firms.
Rob Jones
Yeah, fantastic. And I was asked recently, are you just there to increase fees? And I sort of object to that, because it’s not actually true. We’re actually here to insert a framework, a pricing framework, that properly validates the value that the clients of that particular advice firm are receiving. And I’ll talk about how to price value in a moment. It’s the missing link that the underlying services that those clients receive, and the intensity or otherwise of those services, that’s the complexity levers that should be present, and also making sure that profit is added to the equation the whole way through, and applying that. And to do that, it takes us several months, even if it’s a single advice firm, or if it’s a much larger firm, it takes us even longer to get all of the elements of the math and the science that should underpin it, which is the psychology bit of slowly but surely. And if you can imagine a group you start with and in your own business, Rob, I’m sure you’ve got some advisers that are potentially really good and quite robust in terms of how they view pricing. And you might have others that are such terrific operators, but they actually might find the conversation really challenging, and if pressed worse, they can sometimes fall apart a little bit and not explain themselves articulately when it comes to the fee and what have you. So, what we deliberately do once we’re engaged is we go through a lot of math and a lot of science, and that’s to get that conviction. There is nothing like adviser looking up at the screen and wanting to challenge. I’m waiting for Mrs. Jones to come up in your model, because I know damn well that I’m not going to change the fee on her. And then when Mrs. Jones eventually comes up, they actually see that. Oh my god, this is extraordinary. Yes, all those things that you have pointed out, or I, as the adviser, have pointed out that I’m doing, is now reflected in a framework, and their mind slowly shifts from current fees actually wrong. This new fee, with everything I’ve tried to stress test, and all the math that’s in it has actually come up with a new to perfect example of a properly priced client with profit that’s also fair to them. It reflects their circumstances, and it reflects the value they’re receiving. And we think once that’s obtained one, they get this really, really immense internal conviction. Then what we try and do is to go, okay, well, now you’ve got that. Why don’t we take you through a training program? And this training program has two parts. There’s an intense retraining, bit of role play, of a client presentation and all of that. And the advisers come to that, and they go, wow, this is fantastic. Yeah, I might be a bit nervous going through a role play, but I like what the client’s going to see. This is really good for them. And of course, Rob, I’ve said this to you before. It’s got nothing to do with the client. The client, we know the outcome, what they’re going to say. It’s more to keep the advisers anchored to their value, anchored to what we’re doing for the client that’s sitting in front of them, making sure it’s individual and unique to them, and making sure that if at any time a client goes my fees going up, or what if affordability is an issue I can’t afford to do this, or what if I don’t agree to this, the adviser has got a really logical, clear, not practiced response that simply talks about the value of advice, the investment the client’s making in themselves, the mix of services required to keep them on track and to achieve their goal, And the fact that fundamentally, there’s a fairness here, and that we as a firm need to be sustainable as well. And when you package all that up together in total, that’s really a lot of the peloton value proposition. It is not. And even if the fee is increased by $500 or $10,000, we still follow the same rhythm. We give the client. The due courtesy. We make sure the adviser is really, really well prepared, and we make sure it’s executed with confidence. And that’s sort of what we do, and we continue to do that until the first client has been dealt with and the last client has been dealt with, the firm has a framework that they can then run themselves off they go. I don’t know if that makes sense to you,
Rob Pyne
but it does, in fact, you know, you’ve been doing it a long time. And I can’t count the number of people that I’ve bumped into that have said, Yep, we’ve been through the peloton process, you know. So, you’ve clearly had a long time in the industry and done a lot of work with a lot of firms. And I mean that genuinely, I’ve been to so many people and they say, Yep, we’ve done repricing. We did with peloton a number of years ago. So, you’ve had an impact. No question across the industry from a lot of people that I bump into. So thanks in the process, as a consequence of meeting all those firms, you able to build a really deep database of what those firms look like in terms of their pricing, but also in terms of their capacity and where their constraints perhaps, are in their business. And when we did catch up. A few weeks ago, you mentioned something very interesting to me. It was always interesting to chat to you, but there was one thing you were talking about, this properly verified database of financial planning firms, which really sparked my interest, because many of us will participate in benchmarking studies, contribute our information through to a benchmarking survey, and we’ll get our report back, and we’ll see what others are doing, essentially, but aggregated data so we can see where we’re at relative to others. But how does your approach with this properly verified database differ from those self-reported figures coming through in traditional benchmarking surveys?
Rob Jones
And it’s a great question, and it’s and it’s one we’re very passionate about, and it started from valuing financial planning firms Rob all those years ago, and continues through to this day, that in order to value something, you’ve got to get to the source of truth of what you’re actually valuing. And people have naturally, their own opinions and views. I remember when the money managers went through the SFG normalisation process, and we were really passionate that our number, our Weber, was the right thing, and yet it got normalised, just like everybody else, and it was pulled back for really legitimate acquisition reasons. And so that, again, taught me that maybe we should be looking at firms through not a blended, blurred view of how lovely they are on the outside, but a properly normalised, scrutinised, validated process so that we can actually have a discussion around well, this is what you look like through a buyer’s lens. Now you might see yourself differently. You might even argue that there is aspects of that data that speak in a different way, but fundamentally to look at it through the lens of the buyer, I think we think is the right way to go, because then we are dispassionate as to whether the owner needs to come up in terms of their salary, or they’ve got their spouse in the business, or they’ve got X, Y and Z personal thing. Running through it, we just run the ruler over and make sure that, okay, this is now ticked off and validated. So that’s on the financials. Then we even look at adviser salary, which is such an important part, and there’s so much uncertainty with adviser salaries out there. But because of the strength of the data, we know that there is a range of models, obviously out there and business sizes. We started to learn through data and a number of the key factors that may influence adviser salary or are consistent across firms. And we noticed there were 10 sort of contributing factors, not all of which we use. We weight them in order of what we need. But it tells us a tremendous amount. It tells us whether the advisers in the firm are notionally overpaid or underpaid, which is also a normalising factor Rob by the way, so we look to that as a guide. And it doesn’t mean that they have to change their salary, but we say guys using these 10 factors, including size of the firm and client revenue and experience and qualification, and a whole range of factors. It is our belief, and the data tells us that that adviser is standing in front of us, looking after those type of clients with that level of experience in that type of business, fulfilling that role should be paid this number, and then you see their actual number, and then you see a differential. So, we’re really conscious that if we see a really large discrepancy pop out of that, that potentially, that’s what a buyer is going to also see. And the buyer is going to go, well, I’ll do two things. I’ll either adjust your profit, or I’ll adjust my valuation for something that we’re seeing. Whether you believe it or not, is irrelevant to you because I’m buying the business, or I’ll allow it to be but I’m going to put some conditions. On it. So, when we look at data and we look at a firm, we try and look at the buyer’s lens to give them a really, sort of clear, honest view that that’s what your business is actually worth. That’s what your business looks like operationally. Here’s where profit actually is on a normalised basis. And how about we start from that, rather than if I put the information in myself, it tells me I’m pretty much at the top end of the market, and I’ll get a bit lazy and a bit apathetic and just sit on that. And maybe that’s the wrong thing, and that’s why for us, that externally scrutinised data is important. And I remember at the money managers I used to put in our data various ratings. Things. And what was coming back was telling me all of those things that, gee, you’re in the top quartile of advisers in the country, and you’ll issue that. But we always felt, hang on a minute. We’ve got some problems here, and who’s actually looking at this properly? So it might seem over analytical to some, but to us, it’s critically important, let’s agree a source of truth with respect to where your business is now, and who cares what it’s done in the past, but it’s where it needs to project to into the future is the most important thing. And how about we agree on a set of facts that this is what your business really looks like, and we think that’s a missing link.
Rob Pyne
It doesn’t sound overly analytical to me. Rob, it sounds something that I would greatly appreciate seeing, because you do hear a lot of people talking about their metrics, and you see your benchmarking studies we participate in, you don’t get to see the depth of the data that you’re naturally gathering by being an inside sort of assessor, if you like, as opposed to an outside sort of self-reported set of numbers. So, I can imagine it would be pretty challenging at times for businesses to see and be confronted with either they’re overpaying or underpaying, or they’ve got their even normalisation process really gives them a bit of a shock to the system. And you said that at money managers, you had a bit of a normalising effect that brought your number in line with the SFG process. So, what are some of the most surprising or counter intuitive insights you’ve seen emerge from that data when people are doing that, by a view assessment
Rob Jones
look, by far the biggest mitigating factor is the employee expense side. For the moment, we’ll just stick on that for the moment, right? Yeah, you and I have discussed this numerous times, and I said this at a presentation in Sydney just the other day at a conference, and said, utopia in a financial planning business, absolutely. And maybe it’s a professional services business. More broadly, utopia is that total employee expense as a percentage of total revenue is no more than 40% Yeah. And when you ask people in the audience, you know, oh, that’s impossible, and that’s hard for me to do. And yeah, it is hard for you to do, and why is that? Well, I don’t think in the 700 firms I personally have looked at across this country, I’ve ever seen a corporate expense anywhere less than 15% and anywhere greater than 25 it tends to sort of, in that cluster of call it 20% of non-staff expense. So, if you’re at 40% for your totals for staff, and they’re on costs and everything, and 20% for corporate, that leaves you a 40% profit margin. And any change to that, you’re really digging into your pocket. Then there’s no doubt about it, and we are finding that the average firm in our database at the moment is recording a 53% total employee expense as a percentage of their revenue, 53% adding the sort of 20% to 22% on top of that, and you’re getting that 75% and that’s why average EBIT margins average are coming in around that 25% mark across our industry. Rob reflective in our numbers and everything else properly normalised. Now I know your business is slightly different. You’re higher than that, and you operate a really, really good model. And we’ve certainly got some firms that are very significantly above that. And when we notice them above that, the Pyne mitigating factor is the owner’s determination to run a really slick, not cut down business model, but a high functioning business. And there’s one in Perth that’s very, very high functioning, where they are really, really fastidious about the time that they spend in meetings, what they do pre and straight after meetings, and having that run like such a machine that they can run a high number of clients versus another firm that might have half the number of clients that spends about the same money. And there is a real, real difference when it comes to internal efficiency. But it’s not technology that’s necessarily making it efficient. It happens to be the individuals and how they’re motivated that seems to be a mitigating factor of whether a firm is successful or not, and it’s still a people business. And you and I said this long time ago, but I recall coming into the money managers 25 years ago and a staff to adviser ratio, we were running roughly one to three, and yet I still find one to three or one to 2.7 the norm inside most firms today. Yeah, so with all the technology going with everything we’re trying to do with cut down versions of clients with this that and the other it’s still the human element that seems to be the mitigating factor as to whether or not a firm is high functioning and therefore highly profitable, or whether or not it’s challenged. I don’t even know if I’ve answered your question, but yeah,
Rob Pyne
you’ve prompted me to ask another one, which was that. So what is the optimum when you get that number around 40% that cost, all labor costs as a function of revenue, 40% with about 20% going to overheads, everything else, and then 40% being left as earnings. What is it that you would see as being the optimum ratio? Because you said one to three or one to 2.5 so adviser to everyone else, so how many support staff effectively are saying there behind the scenes relative to the adviser? Are. What are you seeing those high functioning firms doing there? Is it closer to one to one? Is there one support for every adviser, or is that a bit too lean? What’s the number there
Rob Jones
on average? Rob, it’s actually one to the low two point something, right? So it’s definitely not a one to one. And again, of course, it depends on the type of client. So the client demographics been missing a lot from the equation, but we have noticed that a high performing firm that delivers a really good service, and what is a good service? By the way, we can debate that another time, because there’s some interesting data on that. But delivering a full financial planning service that are high functioning, typically there is a one to low two point something. However, the norm, or the average, is one to two point something high, so 2.7 or 2.8 staff, whether there’s offshoring Rob or a combination of offshoring and onshoring, it still seems to be that one to two point something and then firms such as yours that are corporatised and much larger. And we do, we actually discount the management layers in there, so we can get back to the core of the operating model and what it’s doing, but we’re still looking at the same sort of ratios. But I think the client demographic and the type of service the firm provides is such an important factor, and it’s often lost on basic stats, which is why straight benchmarking, I have a problem with it’s okay and instructive at times. But if you want to get very probing, and I’ll give you a really stark example, mate, to be honest, I was at this conference, and prior to the conference, the firms attending gave us their data and submitted what we call a snapshot, which is on our website. And 24 firms submitted their data. I looked at every one of their websites, and they all look the same, right? We’re financial planning. We deliver X, Y and Z to retirees and pre retirees, and we provide investment related service and everything else. Yet, if you took a snapshot of that room with those 24 firms in it, my God, there was one firm that if that principal was standing around the cooler. And another principal was standing around the cooler, one’s going to have a heart attack, or one’s going to go, what the hell am I doing? Because one turns around and says, I’ve got an average client fee of $14,000 and the other one goes, they’ve got actual average client fee of four. It doesn’t mean one’s right or wrong, by the way, but they could have a heart attack just in that conversation alone. And they were so different. And we actually realised that of the 24 firms that submitted their data, there was actually five separate business sizes, business types, business capability, business length of tenure, a whole series of factors that really you should carve them up. And that’s what we did. So for us, that peer benchmark data and actually saying, as far as we possibly can using service type of clients, type of service, type of support, average client revenue, average client size, and a whole series of factors, I’d rather look at myself in that sort of peer review, rather than the average of the industry, which is very average. So that’s why, when it comes to data, we’ve been very fastidious to say we’ve noticed there is some bias towards firm types. Firm size is only one. You don’t all follow the same pathway. Some firms like yours are very good and have an acquisitive aspect to it. You also have a fantastic employee share scheme as well. Other firms don’t. So we try and actually pair up firms that make sense to each other, that if you were looking at four or five or six, you’d say, You know what. They’re really closely correlated, which means the data that then spins off that is far more interesting, far more probative, and perhaps it’s also predictive of the next phase that business is likely to go into, and that’s where we like to use data is more for its future predictive value, rather than its past or present
Rob Pyne
latency. Yeah? If it absolutely becomes a leading indicator, not just a lagging indicator, absolutely no one does that enough. Yeah? No, I totally agree. And I just want to check in on the number you’re seeing when you see high profitability at 40% whether that’s high or just normal in the world that you’re talking about, it’s really that’s what you would expect to be generating in earnings. What is the growth profile of those firms? Do you find this sort of inverse relationship between high profitability and high growth? Because I was talking to someone the other day. It was Dale Scally, who’s a practice management contact at Dimensional, he was saying the rule of 40 is kind of almost out the window. Now. He said he’s seeing firms that are doing both high profitability and high growth. So, 40 is being comfortably covered by a combination of revenue growth and profitability. Are you seeing the same thing in your data, that high profit firms can still grow with a strong growth profile as well on top of their profitability, because the theory was, you know, if you’re high profit, you really can’t grow very fast, because all your staff are maxed out. There’s no real capacity to grow because you’re really getting everything you can out of your current team. There’s no real growth capacity in there. Is that not true from your perspective,
Rob Jones
Rob, there are some firms in the data, Rob, that are high profit at present, but really, really sluggish growth. Now, one said to me recently, I’ve made a decision not to take on any more new clients. So, by definition, they’re actually stemming their own growth, right? That’s a separate thing. But we’ve also got several firms at the moment, both clients for various reasons, that are at that very high end of profit and are growing greater and we have a rating of the, you know, the bottom 10% and the top 20% and in our top 20% these firms both feature in terms of growth of revenue and the conversion of that into profit all the time. However, the characteristics of both of those firms is, when we extrapolated them forward, they both needed new teams at some point coming into the equation, so the reinvestment in people to maintain that position and to maintain both of those standings of current profit and also profit growth and revenue growth had to be met by at some point within the next 24 months, three additional people being applied to the team, because otherwise they weren’t starting to get stressed. So, there is not a perfect relationship always between high growth firms and high profit firms, and they keep doing that in perpetuity, because at some point you can’t grow faster than the economy. Of course, you’d be bigger than the economy, but they are able to keep pace and keep maintaining and sometimes they’ll have their years where it’s a little bit lean, or whether they’re consolidating or what have you. But all firms are experiencing a little bit of growth inertia at the moment because of the, arguably the dearth of advisers and the other side, more clients coming into the market, and they should be converting that into higher levels of profit. And yet we’re not seeing that. And perhaps that’s the lag indicator Rob that’s coming. Because I get worried a little bit that I keep seeing firms keep going back into the P and L and either putting on more people or putting on technology expense and layering up on things, waiting for the profit growth to hit, but it always seems to be catching and lagging and never quite there. But those few firms that are at that top end, the interesting thing was, one was with an accounting firm, the other one wasn’t. But the one that wasn’t that is really high growth and high profit, and I mean extraordinary firm, it’s been going for 44 years, so there is a tenure-based sort of inertia to that business. And arguably it should be at that level of profit. Arguably, it should be growing at its rate, because it’s been in business a long time, whereas the other firm has been filled with accounting referrals. Everyone’s a little bit different. But we believe the attainment of that 40% and maintenance of that 40% is infinitely achievable, but you’re going to have some years where you’ll pull back a bit, which is fine, or you might even push forward a little bit. Notionally, it’s fine, but to try and stay at that position, rather than staying at where you currently are, at a 25% because after the government takes its slice of your after tax profits, you know, the return comes down below 20% well below 20% and I think this has been our challenge, and the challenge of the industry is, how do you factor in the bumps along the way and the hurdles along the way, maintain a healthy profit, maintain fairness at the client level, and keep all that in check and in balance? It has been, I suppose, a universal issue, and our solution to that is to actually have better science and more elasticity in the model. Rather than having a static model that deals with a static, often past set of facts, not a variable future set of facts, we would rather see the model quickly adapted. And by that in our world, it means you can grab a P and L at any given point in time and effectively stick it in the back end of our frameworks, and it will show whether the current clients are on trajectory or not to be able to meet the desired profit target, which in our world is anywhere between 35 and sort of 40% debit and it’ll tell us whether it’s on it’s off, that whether there needs to be an adjustment, whether The new business growth is fueling part of that, and because of that, we’ll get there. I guarantee that any firm that relies upon new business activity for any more than 30% of their current profit, they’re the ones that we do our little sort of risk assessment on. And I guarantee the buyers do too, because they go, Well, you know, if most of the profits reliant upon new business or a large chunk of it, we’ve got a bit of a problem here, and it’s one of our first signs that there is an issue in a firm. Yeah, yeah, is we just look at those equations and go, I think you’ve got an ongoing fee structural problem, because it’s not actually standalone, doing what it should do. It’s been supplemented by high growth, which you have to have, and you’ve got to keep repeating, because strip that out, you don’t look so flash.
Rob Pyne
Yeah, not the right level of recurring revenue pricing, and they’re relying on upfront revenue to kind of make that profitability look good. So I want to come to that because you were quoted in a professional planner magazine article back in. In June this year, you were quoted as saying you got a firm in your database that says average client fee of $38,000 and another with an average fee of $3,300 correct, and the one with 300 300 was more profitable than the one with $38,000 as the average client fee. So it’s nothing to do with the average fee. Could you expand on this point and explain what the data is really telling you and us about the link between client fees and profitability.
Rob Jones
So, the average fee thing is a classic thing. I don’t believe in an average Rob. I know it sounds odd from a pricing person, but when anyone says, Oh, my average fees are $7,000 Rob, what do you think? And I go, I don’t know. I’ve got no idea. In fact, I don’t really care. Perhaps what we should be saying is, is the business profitable at the desired point of the owner and fairly compensating them for the risk they are taking in running a small business, but is also the fee to the end client fair for that result. And if you can tell me that my $7,000 is doing just that, I go over your $7,000 average fees. Bang on. And congratulations, you have got Utopia running right there. But when anyone ever tells me is this fee, okay, I really don’t know how to respond anymore, because we as an industry, quote averages so often, and the average is the average. Are you a smart person? By saying, well, I know the current average fee is $4,458 and again, I always go, who cares? And when someone then tells me and that this has happened, we’ve walked in and said, well, Palace, I’m telling you now, our average client fee is nothing like your other clients, and we’re already at $19,000 and my response is exactly the same, whether it’s the one who says my average fees are at three. Is that generating a reasonable profit is the client fee, service value equation making sense, would the client, if they’re sitting in the room, in the table in front of us right now, be happy and understand why their fee is their fee? Should they be paying more or less? Why don’t we get to that level? So let’s just dispel with that myth of average right up front, because I’m about to walk into a firm in today’s time that’s got an average fee that looks reasonable to any observer externally and to any set of data you randomly put your information into, it will turn around and go, fantastic. This firm is making a 10% margin, right? So straight away we have gone all right, let’s do our usual thing. Let’s pull back the layers on the firm. Are we overstaffed? Are we understaffed? Are we overpaying people? Are we underpaying people? Have we got any other costs that are in the P&L that look unusual or should be normalised out that is currently bearing down on us this financial year? And if all those things are normal, then we know that there’s two things. We’re either not growing and we’re not bringing on enough new business to keep the fires sort of burning, or potentially, there’s some deficiency in the ongoing fee the current clients are paying. And that’s the way we methodically look at every single business, large or small, is once we eliminate the obvious points, it sort of just directs you toward the only thing that perhaps it could be, and that is, there’s a structural problem with the ongoing fee, and perhaps it’s been one that’s been established in the years past. Perhaps it’s got a whole heap of inputs that actually aren’t the right inputs, or worse, it’s actually failing to price the value of advice as well, which is one thing we do and we’re proud of doing. So it’s my old detective days. I suppose it’s this elimination of things to get to one thing that could be a fact, and let’s work on that one thing, because if we get that right, we’re going to get the whole equation right. I don’t know if that sounds logical to you or not, but to us, it is very logical. It becomes a very, very neat logical, dismiss, or actually, we found one scenario, for example, where the firm was actually overpaying its advisers, Rob, notionally, by nearly three to $400,000 as a collective, which was impacting nonprofit. Now this was really fundamental to them, because the owners had told us that they’d been feeling some pressure, they had responded by nominal increases in salary. All we went and did was we ran our alignment and said, Actually, there is a misalignment here. You’re overpaying now. Is the overpaying by a reasonable amount, according to the numbers, a factor in your lower profit 100% it is, should clients be paying for that. No, they shouldn’t. If you’re overpaying someone, perhaps that’s your issue, and you shouldn’t be passing an overpayment through to a client. So there is actually a lot of sort of detective work involved here in trying to get to a source of truth which exposes a problem, so we can work on the problem.
Rob Pyne
It’s what I enjoy most about talking to you, Rob. Perhaps it is your detective days, but you speak truth, and that point you made in that article, and you just repeated, which I love, is that the average fee that you charge your clients, it’s a data point that actually, without any other context, tells you nothing. It simply tells you what your average fee is that you charge clients, but doesn’t tell you anything about the profitability or the growth of that profile of that firm. So as I said. I really enjoy our conversations, because you just speak true to these issues and make people stop and think, actually, yeah, he’s got a real point here. Because the average fee of that article, you quoted $38,000 versus $3,300, and you quote another one. Now it just points to the fact, highlights really starkly that it’s the profitability of the firm, irrespective of what they charge the average fees for clients. So I really, really appreciate the way you just cut through the crap, if I can say it, and actually just tell us what really is the key issue that we should be focused on. So when you look across the firms you work with, what is distinguishes the consistently most profitable ones from the rest? Is it that, simply, that overhead, cost around labour, predominantly, as you mentioned earlier, is that number one issue? Or what else does distinguish those firms?
Rob Jones
Well, one of the distinguishing features is your firm itself. Rob, HPH, and the reason I bring that up is that you have moved from an adviser position into management. You have got a really good quality separate management team looking at a host of things. So one of the profitability factors of the firms over a certain size, one of the influences is that they have devoted themselves and invested in professional management. And I can tell you now it makes a big difference. Like, where’s a little bit obsessive at the moment about the growth or the trajectory of a perfect firm. We’ve built a virtual firm, by the way, Rob a notional perfect firm, moving from startup phase all the way through and trying to maintain the right levers to keep it in check, but knowing that there’s a future investment coming. Now, when they get to the 9 to 10 staff, it always happens that internally, either the owner or another major adviser turns to each other the owners and go, whoa. Do you want to take on this hat, that hat, that hat? Do you want to drop down a little bit? Go up a little bit? I still got to stay in there. Let’s not get a two ahead of ourselves. Then they get to 15 and they go, oh gee, I think we might need a practice manager now we’re going to boot up. We’ll grab Sally, who’s a head of Client Services, and we’ll lift her up and so they drop down in profit for a period of time because they’re investing in their business. Fantastic. That’s great to see. We like to see that, by the way, when we look at a P&L, we want to grab the past history just to get a sense of how that investment of capital has actually logically or illogically gone over the period of time. And we love to see it. We go then, and we correspond that to when all of their staff and when they’ve come on board, and we go, okay, that’s logical. We can see they’ve made the investment there. Obviously it’s got a bit too much on the HR side, so we need some expertise. Okay, okay, compliance, okay. They’ve gone self license there. Okay, we can see that, and it starts to make sense. But as the firms get larger, it doesn’t mean they become more profitable, unless they’ve booted up like you have a really solid management team. You’re obsessed with your own data, not just the collection of data, but the interpretation of that data, is leading your strategic decisions. I know it is, and we’ve noticed that that is a factor in the high performing firms. In the startup phase, and the two to three advisers, sort of firms, I’ll be honest, Rob, there’s a truckload of luck, and there’s a truckload of just trying to get as many clients as we can on board that’s been a factor in their success or failure. And some are really good at acquiring clients, and some are not so good. But then it really goes through a shift when professional management starts to boot in at certain levels. And our data tells us really clearly that firms in between that 2 to 3 million revenue mark are at a profit sweet spot. We call it, where profitability is sort of peaking. They don’t need to yet take that next jump, because to do so is going to pull that down a little bit. They’ve optimised everything really well, but then when they start to get up to your size, they really start to peter off. Yes, their level of profit at $1 level that’s coming through, but their actual profit percentage is not until they have people like yourself that go, Okay, we need to stay over the top of this. We want to be focused on return as well. We have a right to be focused on return, and we start to see the effect of professional management kick in. So it’s not an easy question to answer. What are the single factors? I think it’s broken down into the life cycle stages and growth of these firms, and whether or not they pivot to an acquisition at some point, whether that’s reactive or proactive, or whether they’re sitting underneath an accounting firm and paired to an accounting firm. We actually think there’s so many business types and styles we’re trying to build a set of metrics that make sense in those various phases, rather than just trying to say these are standard metrics that should work across the board, they actually don’t. And even in our pricing models, we create sort of uniqueness according to where that business is at in their life cycle, and whether they’re self licensed or whether they’re in need of management. So we just advised one firm recently who were doing incredibly well, so profitable. We noticed there was a vacuum in terms of management. We noticed that the practice manager was very stressed and not actually capable of that next level. And we suggested to them, and thankfully, we were right, at least we didn’t upset the apple cart, that perhaps they needed to think about the investment of. Someone now to take more of a strategic lens and take it further, they agreed, and that was a quarter of a million dollar sort of investment. So I hope this is making sense, that there are different levers at different times and different metrics at different times that define firms, but not one set necessarily tells a story for everyone at the same time.
Rob Pyne
It does make sense, because you’re making a really key point that people shouldn’t miss, and that is that, you know, we do love our data. You referenced there. We love our data and like to see what’s going on and making decisions interpreting our information about our business, KPIs, we do treat that data set as leading indicators looking at what’s happening. You talked about the fact that your database now helps businesses see where that perhaps they need to think about their capacity currently, but also future capacity. You suggested it’s probably the most consequential driver of growth and profitability, why is capacity. And in fact, I was talking to, as I said to Dale dimensionally the other day, and he said the issues that firms encounter falls into one of three things. It’s capacity, it’s revenue, or it’s profitability. It’s one of those three buckets. And capacity was the one he emphasised, and you’ve emphasised it too, Rob. So there’s clearly a common theme here. People are saying it’s about how you use the people you have and what capacity you have, and when do you bring on the next person in your team? And who is that person? Is it a management person, or is it actually the next support staff member, how does your database help businesses anticipate the right time to make a new hire, and what typically happens if they leave that decision too late?
Rob Jones
So it’s a great question. Robert, so we have a model that says, if I look at your last five years and your current year, great. Thank you. It tells us little bit about yourself. It tells us about how focused you have been in various areas of your business, how you’ve deployed your capital, what return you’ve had on that capital. But then we flex it out for the next two so we take all of that past, we take the current client metrics, we take the rate of new business growth, we take whether there’s a percentage of the business that’s risk insurance and which percentage is FP, and we model it all up to show us a set of stress points effectively. And what’s really interesting is this, you might then present that to an owner and go, guys, this is actually telling us that we’re at a profit peak right now, and actually we’re headed to a period of decline, and it’s either their arms across, no, that’s bullshit, because you know that’s not going to happen. I’ll never know. That’s just what it says. Look at what we’ve done in the last five years, acknowledge what you’ve done the last five years. But how about we delve into that a little bit further? And this stress test has proven that definitely we’ve got an issue. And then one owner will go and this actually happened. And we just asked the question that we said to the owner, listen, you’ve managed a very high number of clients, right? You have clearly done that. It tells us a couple of things about you. One, you’re either not good at handing clients over, and you’re closely guarding this group of clients, of which there might be family, friends and exceptions, there always is, and we get it or two, perhaps you think the way that you operate, it you currently operate, is an easy, replicable process that all your other advisers should be able to do, and therefore, you’re actually seeing the metrics and the future of your business through a lens that perhaps is a bit unrealistic, because it’s what you’ve done and what you’ve created and how you operate. And you seem to think that, well, that’s the rhythm that everyone else should operate at. And we found this in really stark contrast recently with a firm who said, Yeah, I actually do have an expectation of that. But when we spoke to the other advisers, they said, there’s no chance. You have no idea how he operates. You have no idea. Now, the interesting bit of this is that several other advisers were also shareholders, albeit minor. So we actually try and naturally, as you would too, push ownership quite separate to the functional day to day job you’ve got. But that notion that the business and its future success should be anchored to the way that I presently operate or have operated in the past, that’s a real danger for some owners, and they’ve got to be careful of that. We don’t try and dismiss what they’re saying, but we absolutely say, well, let’s now model that out and reflect that out and look at the issues that’s showing up. It’s showing we have got an adviser issue, we’ve got an incoming PY that we’re going to need to employ at some point, because three years time, we’ve got a major issue, we’re going to need to rebalance the equation. So you either wait and do it reactively, or we actually think about it in a more proactive way to make sure the culture is okay. But two, have a look at your support teams and the way that they’re presently operating. They would say to you, if you ask them, honestly, I’m at a bit of capacity here, and now they’re asking me to specialise, and I’m trying to cover this off or off short over here, and suddenly you’ve seen the stress layers that you may not have at first glance, chatting with the owner, you may not have picked up, but it’s only sometimes in the data that we can pull that out and have a really good, logical fact based on emotive conversation that guys, I think we’re headed for this scenario. So it’s up to you. You either violently disagree. Thanks, Peloton. But we disagree, or and go and do something yourself, or we take a proactive view of the immediate future and think about maintaining rate of new growth, maintaining the structure within the business, and not culturally upsetting the apple cart by dropping an extra 150 clients and all stressing about it, then closing up shop for a period of time, profit drops, and suddenly we’re in this cycle of up, down, up down. Why don’t we think about a smoother transition and understand we have an investment to make. And all we’re saying to you is think about making it a bit earlier than trying to make it too late, because those other things I talked about, the culture, the mistakes in the back end and stress levels, all seem to bubble up, Rob at the worst time. And will all we see when we look at the trailing five years ago and is, Oh, there’s one of those points where we were underfunded then, and we did this, and we had a big stress thing, and people left, and we then we go to the employee list and go, Oh, gee, they’ve had a turnover of staff. Oh, Jeepers, it’s correlated now. It’s actually correlating to this time, and it’s amazing what data tells you. That’s why I love it so much. There’s some truth telling in the past. We’re trying to make maybe the future a little bit more logical by using what we’ve got to extrapolate out into Logic. You know, someone who does a, you know this notion of a 10 year business plan, and I hear consultants say this all the time, Oh, you shouldn’t be having your future headwind. I find most owners struggle even for struggle to even project a year out. So what were you saying to them? Why don’t we use the power of data, power of past, power of present, power of future, and properly, properly align metrics to the future. That makes sense to even an uninformed reader who could come through and go, Oh, okay, well, I can see what’s going there. They got 1000 clients. They they’re grown at this sort of 20% rate, profits at this level. They want to maintain that position, not necessarily grow the profit anymore than maintain it. And that’s sort of suggesting, right now, we’re okay, well, we need investment. Yeah, I think in our little humble way, in our simplistic way, we’re trying to say, as professional financial advice firms, it’s too important our future just to put it to chance, why don’t we get a bit smarter around our data, view data, capture data, interpretation. Everyone’s got data, but let’s interpret it through not what is it the fuzziness of war, but through the clarity of a properly polished mirror so that we can make better decisions. That’s all we’re trying to do.
Rob Pyne
Yeah, no, I love it. Rob, it makes so much sense to use data. And actually, what you’re describing, it’s actually about being systematic, isn’t it, because you can actually and begin to be systematic. And you can say, at this point, we’ll need this person. At this point, we’ll need this person, because the data is actually telling you that data evidences that to you, if you have the data, and you can see it both lagging what the historical data you’ve got, but also the data set you’ve built. Sounds like business owners have this visibility over what’s going on in their world almost all the time, live, looking at how their business is looking today, but also where it’s going based on the data set you’ve built out with others. So I want you to answer that if that’s what it does do, and then how should business owners think about that balancing investment in people versus systems and technology when you’re planning for that capacity?
Rob Jones
That’s what most of the utopia one. And it’s funny, Rob, I don’t know one firm at the moment, and this may even include you. I don’t know one firm at the moment that actually is sitting back going, this is utopia. I’ve got the best system in the world. I don’t need to tap it. I don’t need to tweak it. I don’t need to add to it. I’m going really well. Everything’s working so perfectly well. I find every firm is in a state of flux, to an extent of I’ve got distraction over here, I’m going to platform channel, moving to an SMA. I’m doing this, I’m doing this, I’m doing that. And sometimes we stop and ask the simple question, why are you doing this? Is this actually in relation to making your efficiency better and your time with clients better, or is it giving the client a better outcome? And you know, it’s really confused. Some people are confused. When you ask a simple question like that, they don’t actually give you a clear response. They’ll go, Well, no, my clients have been doing okay. I’m going to the SMA because, you know, all right, so you’re doing it because it because it makes your life a little bit easier. Oh, well, you know, you know you don’t have to do X, Y and Z, and you have to play the market, and we can rely upon good reporting and execution. No, I get all that. That’s fantastic. But why are we doing these things? Has to be challenged at times. So, so a little a window into our world and how we think about and how our framework works, it will tell us, and tell the owners, yes, you’ve got certain points in your cycle now, into the future that we need to think about. Oh, by the way, we got a CSO. And here’s the reason we need a CSO. Here’s the reason we don’t need a new adviser, and we need a new CSO. So when it drops into the system, it impacts our pricing menu. If you want to call it that, although it’s not really mean you clients don’t get a choice, but it pops into the area and says, Well, this isn’t the advice side of it. This is more the administrative and the account management side of it. So it’ll go in behind the scenes and increase that fee that relates to an additional support coming on board, which is more time with clients, arguably greater. Accountability for the administrative work, and it pops in exactly where it should be. So it’s intuitive that the data says we need a person like that, but then it’s also intuitive where it says, Well, this is going to impact this part of what the client’s ultimately going to see, and that is a spliced view of what they look like when a mirror is held up to the firm. And brings me to this other point, that most advisers in this country are not that flash at the expression of their value, rob the defense of their value at times. And I’m not trying to be critical of advisers. I work with advisers. I love what they do. I’m so passionate about their impact that I get annoyed with them. And why not? Because I go, Well, why aren’t you standing up to the plate a little bit greater around these things? Why aren’t we actually bringing to account the full value of a client relationship, not just the last 12 months? Because clients forget and start unbuttoning value all the time. Let’s button them up. Let’s give them some facts. Let’s stand up to the plate and let’s proudly say and into the future as circumstances change at a business level, as circumstances change at your level, your price, and our pricing framework is going to reflect both of those settings all the time. It’s a continuous thing. So there’ll be times when your advice need is intensive. There will be times when your advice need is more rhythmic, and we are going to ebb and flow with that. And we’ve tried, and still trying to be honest, mate, it’s not perfect, but we’re still trying to create that system that says, if it’s true that no, P and L is static. I’ve never found one over five years, it is. If it’s true that no firms not growing, well, then why would we have a static pricing framework that doesn’t ebb and flow and move with those changing conditions? Why do we go to the abrasiveness of going, well, let’s wait till we get all these things in place. Oops, we’ve got a proper problem. Oops. Advice is, go and increase all your fees now and then they go, thank god that’s finished. Wait for three years, and the cycle comes again. Yeah, this, this is eroding value in advice, as far as I’m concerned, mate. It erodes value in confidence in clients, and it erodes profit that you earn. I don’t like that. I like it to be in check with each other.
Rob Pyne
So Rob, I’ve got two more questions for you to wrap it up. Second last one, if a practice owner listening to this is stuck at a certain level of revenue and they can’t seem to scale, what would be the first data point you’d advise them to take a look at, oh,
Rob Jones
really good point. Definitely, please, definitely, definitely, definitely, take your last year, your most recent year’s result, take your operating profit. Work out whatever that is, let’s call it 300 grand, for the sake of it, and then alongside it, right alongside it, please put your current rate of new business, your new business growth, and what your new business contributed. If it is any more than 30% big problem. If it’s less than 5% you’re not growing. So you’ve got to do something right. There is a dearth of new clients out there. For some reason, your business is not connecting. But if you’re stuck in that zone, in order to analyse whether or not you’ve got some inertia in your business, or you’ve got some opportunity, latent opportunity that’s sitting there is do that equation and Look mate, we doing what we call an iFocus. It’s like an SOA on a firm, right? That’s what it exactly is. It’s a proper diagnostic on a firm. And for that, we get to and I often my analyst. He’s amazing. He does all the work. He’s been with me for 10 years. I go to a single page often to get my read on a firm, and I’m doing it as just before I came onto this podcast. And so I go to this one slide. It’s about slide 14. It tells me just that equation, have I got a firm that’s in a structural scenario where they’re so reliant on their new business, they’re not able to breathe properly because it’s contributing way too much profit that there is an obvious ongoing fee issue. And then I quickly look at their staff numbers and go, if those ratios are generally okay, and we’re generally paying people around the mark, well that’s a massive lever to be pulled, and it should be pulled, and I guarantee there’s a profit related problem. And then I’ll go back to the financials and see the profit issue, and then I’ll go to the client numbers again and see the opportunity, and then we crystallise what that potentially looks like. But if that’s not the case, and if the firm’s maintaining a high level of profit, and they’ve got a normal contribution of new business to that profit, we look to the other factors, do they look like they’re at capacity? Can they suddenly continue this maintenance of organic growth, and what will that do, then, to their P&L in the next year and the year after and so forth. So it’s a bit of an art. It’s a bit of a story. But if I was an owner right now, please look to that equation and go is my new business activity delivering a high proportion, greater than 30% of my current profit? I have got a fee, an ongoing fee, structural problem right now in that business, and it’ll only get worse if you keep adding clients to it, and that’s unfixed.
Rob Pyne
Yeah, that’s a great insight, and it’s a really good, as you say, straight cut through data point for them to pick up where their issues are. So finally, one last question for you, what’s your broader vision, both for Peloton Partners as a business, but also for the advice profession as a whole.
Rob Jones
This is a bit of a passion project in many ways. I’m tired of seeing the incredible value of advice that’s out there. I’m tired of advisers is dumbing down the word Rob. Perhaps it is. They dumb down their value all the time. I can ask advisers in your business, and I’m not having a crack, but I guarantee this will come. We’ll bring up a client, we go to price a client, and the first thing they’ll see is, oh, Rob Pyne is my client who’s popped up on the screen. Rob’s really easy to deal with. Oh yeah, no, really simple set of circumstances, really good guy, and he’s really easy to deal with. Well, first question is, well, actually, didn’t ask you whether he was a good guy or not. That’s fantastic, and I think that’s great. But can you just tell us a little bit about background, a little bit about the family, a little bit about their aspirations, a little bit about where they’re headed, and what is the reason they’re actually a client? What do you mean? Well, why are they a client, and why do they need to remain a client of the business? That’s a really interesting point, Rob, because when it’s answered, you watch these advisers go from a little bit. This is an easy client. They’re quite simple. Oh, I’ll tell you what we’ve been doing for this client, and this is the reason why. And they give me this 20 year amazing walk back through the life and times of Rob Pyne, the ups and downs, where they’ve had to pivot in terms of strategy, whether they’ve done X, Y and Z. It’s such a privilege to sit and listen to that. But my wish for the future is I didn’t have to open that can up all the time. I wish it was embedded in them to know every time that the client walks in for a review meeting. I don’t like the word review. I like progress meeting, but they come in for their progress meeting, and the very first thing the adviser says, outside of how are you and how the family is, thank you. I want to congratulate you again for making the investment that you are into your future, into your family’s future, into working toward and state the goals. That’s a real credit to you. And I want to say congratulations, because it is an investment. That’s my wish. My wish is for every single adviser to have language like that so that they show clients that this is a decision that they’re consciously making they’re not forced to make. They get so much value from it, therefore it’s profitable, and therefore they don’t have to worry or apologise for making any money, because they’ve sowed the seed of investment and value and everything. And then my greater wish for this industry, naturally, is probably like yours, is that more people can get exposure to advice in this country, more people can enjoy the benefits of a disciplined, perhaps at times unemotive, and when it needs to be emotive, needs to be emotive, conversation with their adviser, sometimes it’s a wrap over the knuckle, but that they can live a little bit more peacefully and sleep a bit more peacefully. That’s a noble thing, right? That we all should want anyway, and that we get rid of that tiny 0.3% of rotten egg advisers in this industry. That’s my mission to weed them out as well, because they are a scourge on everything. So I’ve sort of a three way answer, and that is advisers articulating value in a far more authentic, believable, defensible way, making the right money that they should be making all the time, and not feel guilty about that, but then at the same time, making sure that every client contributing that is only contributing their fair share, no more or no less than what their circumstances define, and that more people can come into this great industry and be looked after.
Rob Pyne
Yeah, I love it, Rob. I mean, you speak with such passion and you, as I said earlier, you are a real truth teller, which is why I always enjoy our conversations. And today is no different. You speak with a genuine passion to make a difference. And there’s nothing I enjoy more than talking to people that actually really believe in their soul, in their gut, that what we do is make such a difference in people’s lives, and they’re determined to make a difference. So, I really do appreciate you taking the time, Rob. Thank you for joining me today on The Trusted Adviser podcast.
Rob Jones
And thank you Rob Pyne too, I really appreciate it.
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 favourite 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.