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New home, new licence: Crosbie Wealth prepares for the future

Mark Alexander and Josh Drake,
Crosbie Wealth Management

On the day CoreData visits Crosbie Wealth Management in Newcastle, just more than two hours’ drive north of Sydney, the sharemarket falls almost 3 per cent, or almost 190 points, wiping $60 billion off the value of shares and sparking TV-show speculation about a recession.

Meanwhile, however, Crosbie’s brand-new Stewart Avenue headquarters is an oasis of serenity. As directors Mark Alexander and Josh Drake sit down to discuss new models of advice, there are no clients lining up at the front door, and no string of irate phone calls (and not because of teething problems with the new phone system). 

“We’ve been in business for a while so we have a long-term client base that we’ve spent a heck of a lot of time educating and training, for what it’s worth, so that it’s a good outcome when you do not get a phone call,” Drake says.

“But it’s also a double-edged sword, because you wonder what you’re not hearing. We’ve spent a heck of a lot of time making that distinguishing piece [clear] between what is the impact and effect of an investment outcome, and our relationship to that, and the strategic outcome on the other side.”

Alexander agrees: “Half of our meeting times are spent educating clients around short-term volatility and not reacting to it,” he says.

“Clients who have been with us for 20 or 30 years have seen this happen on multiple occasions, one headline after another, and the market is going to go up by the same points next week and it’s all squared off. Clients do not necessarily panic; they’re not reactive, panicky clients we have. They’re strategic, long-term clients.”

Moving house, moving licensee

As well as physically moving premises, Crosbie is in the final stages of moving to its own Australian financial services licence, which it will operate under from September 2. 

Drake says Crosbie’s destiny was always to be self-licensed and Alexander says the former Securitor practice had decided to make the change before the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry got underway, and before Westpac Banking Corporation announced the closure of the licensee. 

“Then the royal commission was announced so we put the project on hold because we wanted to see how the commission would roll out to see if there was any reason not to go self-licensed,” Alexander says.

“When the final report was handed down in February we pushed the button immediately. Then about three or four weeks later Securitor announced they were closing.”

Alexander says the future for financial advice as a profession is to be unaligned from banks. He says licensing laws still focus on the wrong thing – product sales – and need to catch up with the developing profession, and banks are not a natural home for professional firms.

“What they end up doing, and where we ended up with Securitor was they were treating the external advisory firms like us the same way as an internal Westpac financial planner and the two are totally different,” he says.

Alexander says an advice firm needs to be corporatised before heading down the own-AFSL route. That doesn’t mean it needs to be a large firm; “you can have a licence as a single trader and be corporatised, as long as you’ve got that mindset”, he says.

“It’s a certain personality type, which luckily I have
and luckily he [Alexander] doesn’t.”

Josh Drake

Drake says successful self-licensing depends on having an individual within the advice business willing to take on the work and responsibility to get it done.

“It’s not hard, it’s just long and there’s lots of boxes to tick,” he says. 

“You need someone to drive that. It’s a certain personality type, which luckily I have and luckily he [Alexander] doesn’t. It’s not that it’s easy, but it’s not hard. But it takes a certain level of dedication and you need to enjoy if because if you do not enjoy it, it will burn you.”

Drake says he is concerned at the number of advice firms that seem to have gone down the self-licensing route for the wrong reasons, often in the mistaken belief that it will permit them to do what they want.

“There’s a bunch of people who’ve gone down that route who shouldn’t have – good people making bad decisions, because they thought they had no other choice,” he says.

“Think particularly about Securitor and Magnitude, that thing shutting down, and people feeling like they were getting pushed into a corner. I think we’re going to see a flurry again in 18 moths to two years of businesses who come to the realisation made the wrong choice because the they find it doesn’t fit and they’re going to have to unwind some licensing.”

Delivering professional services

Part and parcel of professionalism is charging a fee for the delivery of professional services, and Crosbie is adopting separate mechanisms for the two, distinct services of advice and investment management. Drake says Crosbie was “a typical business for a long period of time” and based its charging structure on a percentage of clients’ funds under management.

“Moving forward now, we’re adopting more of a hybrid approach to the service we provide and how we charge for that service,” he says.

“In particular, a basic assumption is that someone is paying us for strategic advice, for a financial strategy. They should pay an appropriate rate for that, a dollar figure; and if and when we’re managing money on their behalf we should charge an appropriate rate for that, separate. 

“We still have a fundamental belief that there is a floating risk that comes with the size of assets you manage, so that’s still typically a percentage of FUM. There is a fixed cost, and there is a variable cost that sits in our P&L that we need to account for. We think a fixed and floating charge is certainly more appropriate than it’s been in the past.”

“Moving forward now, we’re adopting more of
a hybrid approach to the service we provide and
how we charge for that service”

Josh Drake

Alexander says that clients have a perception that the firm is looking after their money, and to be rewarded adequately for risk the business needs to be compensated for investment management differently from how it’s compensated for strategic advice.

“It’s really distinguishing for a client what they are paying for asset management by an advisory firm, and how much technical advice they are receiving as well,” he says. Crosbie had strategy-only clients on its books already, so it had a reference point for how to set its pricing for strategic advice and investment management.

Drake and Alexander say the Crosbie aims for a net margin on services provided of 20 to 30 per cent, after all fixed costs.

Alexander says he and fellow director Tim Deamer spend about 30 per cent of their time managing the business and about 70 per cent of their time with clients. Drake says his time is split about 50/50. Each director – all in their late-40s – has clearly defined responsibilities – Drake is responsible for IT, governance, investment platforms and has been managing Crosbie’s transition to its own AFSL; Alexander is responsible for strategy, finance and brand development and marketing; and Deamer is responsible for HR and delivery of advice.

“We’re very, very clear, we do not overlap each other and we rely on each other to deliver,” Alexander says.

Getting the client mix right

Drake says the firm is aiming to reduce client numbers for the three advisers that have directors’ responsibilities from the mid-200s to around 150 each, and to around 180 each for the three advisers who do not have directors’ responsibilities. They’re supported by five paraplanners, four account managers and a client co-ordinator who specifically handles client interactions, managing advisers’ diaries and acting as the go-to person in the business for any client inquiries.

“And then we have an executive assistant who looks after the three of us for our directors’ responsibilities,” Drake says. So we’re about 18 to 20 in number, depending on who’s on maternity leave.”

Drake says the firm has about 150 clients that have more than a$1 million of FUM with the firm, and a similar number of clients with between $500,000 and $1 million.

“The future of advice is new advisers wanting to be advisers
from university, and the universities really programming
financial advice and financial planning into their core curriculum”

Mark Alexander

“And we’ve got about 375 people between $100,000 and $500,000 – which is normal; we look like everyone else,” he says.

“The average account size is $500,000 and our typical client is a two-person family – a mum and a dad – so it’s about $1 million per group. We carry 585 family groups, which equates to about 950 accounts. About two-thirds are in pension phase or drawdown phase. When you’ve been in business a long time you get that. Our fastest-growing age bracket is 75-plus, which is 10-year clients or 15-year clients rolling into their 70s.”

Crosbie is embarking on a new program to attract younger clients to the firm, and Alexander says the future for the financial advice profession itself is also very much dependent on younger people.

“The education standards are a key thing for the future – having advisers professionally educated, a high level of education required, and those sorts of things, will play out well for it,” he says.

“But the future of advice is new advisers wanting to be advisers from university, and the universities really programming financial advice and financial planning into their core curriculum and offering courses much more widely than they are today. You need students to become more aware of the profession and wanting to be advisers. 

“That will change the profession moving forward.”

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