Fee-Based Advice: The Hard Questions with Johann Maree

0:00Last time Johan Maria was on the show, which was last week, we opened up quite a debate and a lot of questions came in around the specific thing and this is moving to a fee-based business and the response is immediate. The questions came in fast and direct and in some cases it does make one of sort of uncomfortable to think about these things and say like, oh, but you know, we all have different places where we come from and sort of different views of the world and different realities. So today we're doing part two and we're not going to, you know, try with soft answers and that we're not going to dodge the hard bits. We're going to talk about how, you know, books are valued. This is our most people talk about this. We might have a bit of a different take on that. We'll talk about that, how fees are collected and then also what happens when clients do not pay. That was a big question last week and with a lifetime value of client still matters in today's world, in this world that we are in. And what it really takes to move

1:03from your current model to a fee-based business, that was also a big question. So you've been thinking about this change but have not known where to start. In this episode he's for you. Welcome to Propulsion, the weekly show for financial planners and advisors who want to build better, more successful businesses. I'm your host, Francher de Dwy and every week we dive into the practical strategies that matter from growing your client base and improving your services, developing yourself and your team. Whether you're running your own practice or you're part of a larger firm, you are guaranteed to find actionable insights to help your business thrive. So with that, welcome and let's get into today's episode. All right, so Johan joined us previously for a conversation last week that sparked a lot of strong reaction and even more questions from the audience. So today is back for part two and we take on those questions directly and continue

2:05the conversation about fee-based advice, what it means in practice and what it could mean for the future of advice businesses. So Johan, welcome back. Good morning. Good morning. It looks a bit chillier there than last week. Yeah, we've got a big storm here, pouring with rain and wind is howling, yeah. Wind is coming. Yeah. Good stuff. So for those who don't know, that's a game of rain reference. Right, so Johan, let's get into it. We're going to tackle a lot of the questions that were supposed that we didn't get to last week. So I'm not going to go back and revisit what we said last time. If you missed it, you can go watch last week's episode. So I want to get straight into it, right? So obviously we were talking about how you can try value for your business, etc. And in the question is okay, but how do I value my book of business or how do I value my book or what is my book's value? And I'm quite interested to hear, you know, how do we go about that and

3:10what are your views around that? Because I think you touched on something that you and I spoke about that. I think it's very relevant about how we look at this. So I'm going to hand over to you and then it's really fair. So once you have questioned, you can turn the slide on there as well, but it is, if you're asking that question, it's actually a serious business management problem. So we talked about business management and practice management. So if you're running a business, you shouldn't be asking that question because you're already doing it. But the good news is many advises on to learn that they are probably about 30 to 40 percent of the birds internationally that guess what the business value is. They call it the rule of thumb. And it will be very wrong. So they expect to us that they are three basic approaches. So if you are a business evaluator, they use a market approach, which is kind of rule of thumb, but they've looked at a whole bunch of businesses that have come over 12-year period that have come through and they've valued them,

4:14and they can give you a rule of thumb. But that alone isn't enough. Then you've got the asset base approach. And asset base approach is really not applicable to financial advisors because it means you have to build up a serious asset base. It's more counting assetless liabilities and whatever you've got left. And then the one that we really use is the closest for financial advisors, the income approach. You're looking at future cash flow, discount cash flow, looking at the future. But that's not enough. The real value is taking all of those three values and getting an average. And that gives you much more solid average for your business. So we're hard to go about putting some things in place to get a value for yourself. So the quick way to see if they're in slide one is really pull your revenue, recurring revenue for the last year. The last 12 months, how much recurring revenue? If it's zero,

5:14then that's basically your commission. Commission isn't recurring revenue. And as soon as you're running in commission, your multiple drops and you'll see just not. So it's roughly about one time. So in other words, commission business only, whatever you earn in the last 12 months, that's what someone might pay you for your business might. Because they have to do some due diligence. If it's a recurring, strong recurring based business, you're going to get between two and three and a half. And if there are more buyers than sellers, that multiple goes up. Now what would a seller or buyer be looking for? He's looking at the value driver. So are we looking at client retention rate? Do you have client attrition? Do they stick it? Where the summer talks about the stickiness of advice? We talk about the stickiness of clients to you. So if you've got clients that have stuck to you over a long period of time and they're paying a fee, that's a good sign. Then we have this fee or commission split, or you waited in commission or wait more waiting in fees.

6:15That has an impact on your business. Then we look at your quality of your clients. Deena cats, you just say, if you can fog a mirror and you've got a couple of cents in your pocket, I'll sell you something. And she's an American practice management specialist. She's a professor. I think it takes a state university and she's a very, very good financial advisor. You need to segment your clients. We talk to last week. I said, business health in Australia said, you don't treat the tree clients of love respect that you don't treat them equally. So if I will be looking at the different levels of segmentation that you have, they can be looking at the team, the support that you have. And I'm going to put it in there. You're going to start having to look at coffee readiness. If you're thinking about selling your business in the next year, how much work have you done in terms of that? Then the final one is, if you want to increase the value of your business in the next three years, and what is quite sad with a lot of advice, let's just pull the plug and leave. And they can do a couple of things,

7:17and they can double the treble the value of their business. And I would encourage advice to think about that shortly because it's a lifestyle practice. Nothing wrong with that. But if you can increase the multiple two or three times by being a little bit more coffee-ready or business astute and put some structure in, that's awesome. So, you know, set a target for what you think, your business could be worth and what you want out of that, work backwards and put these things in place. And one of them there, I've got sort of a 90-day action plan. And I think from, sorry, we're going to share these slides, make them available for your community. So, there are a couple of things you can do, is look at your customer revenue multiple. You can list the five things that reduce that. So, it's commission dependency, no documented process, single advisor, one man show as we call them. And that, oh, drops the value of the business, even if you're a commission. So, you could get three months out of the 12 because your business is such a

8:18terrible state, hopefully not there, or you get 12. And then you set a target for those three years and both towards an investment in your business, and grow. It's sad to see someone spending their whole life in the business. I'm not wanting to invest a little bit more to create that leverage. So, that's how you calculate the value of your book, so to speak. Yeah, awesome. And I mean, there is a difference, just quickly, just maybe an additional question is, I mean, there is a difference between sort of focusing on the book that you have, versus the business that you have, because people will pay more for a business than they will for a good day. Yeah. So, I mean, the next slide, Dave, will show what I've sort of set out just to show the community, the difference between what we call a book of business. And there's nothing wrong by selling your clients when you retire, because most buyers, if you haven't got something

9:25attractive, and remember, for most advisors, the clients are the same age as the advisor. So, if you knew 55 and 60, because that's the average agent advising internationally, your clients tend to be that age 2. They're drawing down on their pensions. So, if your businesses are assets and a management business or life business, those clients of post their cell date for a buyer. There isn't much there. They'll be looking at the younger generation, because we'll get to it just now. We're looking at the lifetime value of a client, the earning capability of that asset, which is the client. So, if you have a bunch of clients, and you want to get out of the business, and your commission earning business is 1% or at the one time multiple of your business, the only advisor there, you've got an old client base, your commission only, and maybe some head opt-on section, revenue coming in, the institution is paying, your revenue, the chances are you've got a book of business, and if you do sell, you're not going to get much for it.

10:25On the other side, the rail businesses got the process, they got the team, they got the infrastructure, and that's something we saw in Australia, though, the smaller business started teaming up. Not dealer groups, they sort of found forming a community of their own with the license, and they stopped sharing the costs. They share better plan, share call centre, share offices, share equipment systems, and you can immediately plummet your operating costs, because we think about the costs that are going to come through with the change that regulation brings, there's a cost to all of that. So, if probably more cost effective to team up and share, and that gives you a great opportunity, I think, to move out of that book environment into something which could become a legacy business, that you could be a shareholder in something and leave something that you've taken all your expertise with a bunch of buddies and you've built something substantial. It has happened, and there's a great opportunity, I think, for that to happen here, but the sad news is, if you're sitting on the left side there,

11:31you're going to battle in a little bit, the owners is on you, and it's a massive load to carry down the track, so you need, we humans, we need a team, and I think the way out of that is to look for a team or a home that you can fit into. Thanks very much, John. Then one of the other things that came out clearly last week was, okay, so we talk about fee for service, and it's quite interesting, I mean, you shared a report with me yesterday, I think it was yesterday that advice pay actually, it was just released now on the 18th of March, or something, so it's very, very new, and it's quite interesting, so I worked through that and sort of looked at it, and it's obviously very much US-based, I would assume, and what advice pay does is that they process these kinds of things that we're about to talk about, it's a platform that they use over there, so they've got lots of insights and things into there, and there's a clear, clear message there,

12:35you're on that fee for service is really taken off, because I think 87% or something of the transactions that they processed were all for subscription-based services, so we just got into it, anyway, let me not run things there, but how are fees collected? How do I collect the fees? That was one of the big questions. Look, again, everything depends on your business model, so let's assume you decided what your business model is, and we're moving into fee environment, there's probably three different models, the most simplistic one is the traditional asset and management deduction, now you think that simple, but in the fee environment, and listening to Loroni by the way, I'm just quickly aside, Loroni speaking, it might seem strange for setting a lot of advises, hearing, accountability, cybersecurity, et cetera, et cetera, that's not new, we've been doing it for

13:43three, four years now, so we've got systems, processes in place, we do all that stuff that Loroni mentioned, it happens in Australia, that's how we operate, cybersecurity for one man business is big, there's proportionality, but you have to have those things in place, so that's just a quick aside, so your business model here in terms of fees, we have conflict of interest, assets under management is no longer percentage, so what advises have done is they still get the institution to pay, but the agreement is different, it's gone into a flat fee environment, so this old thing, the market grows, the market grows, the market goes down, I bleed with you, that doesn't happen anymore, that's not professional, so you charge a client, fee for service, you build your value proposition, and you charge the client, there's a million bucks assets under management, you charge the client a fee, now the rocket science really, because the contract and then the

14:44legal stuff is going to be in place, but in short, it's so quite simple, if you say you're taking one percent of your one million fee, you can equate that to a flat fee, pretty much, so you just try and align it, so you align your fee, so whether it's a thousand bucks or ten thousand bucks, flat fee, so whatever the assets under management are, your fee for that class of client, because you are going to segment the client to charge a fee ten grand or ten thousand rons per ennem, more than five thousand rons per ennem, so it's still based on the assets under management, but you're charging a flat fee which more or less equates to your basis points, and the institution pays, because you've got a contract and agreement and basically its instruction to the institution from the client to pay the fee to the advisor, the second one is just a debit order, so you're going to like the the procuriers doing, the attorneys do, is they charge a fee for service,

15:44but again you can't charge for fresh air, you have to have a business model, you have to have a value proposition, you have to have structure, Lilloni talked a lot about the processes and and infrastructure and evidence based and outcomes based, that is all the meat on the bone of your practice, and that's the sexy stuff that the client sees, so the client will come and say you could option one, two or three, the client selects what they want, you help them with that, you could have more than that, and then they charge whatever the price for that service is, so you will have to spend some time thinking about your value proposition, it is, it's not something you can do overnight, we're talking a couple of months, work just to think about that and get it right because you have to have the collateral, once you've got that right, it's a straight fee for service and that's what the advice pay guys and the states do, they offer that functionality to advisors, to collect the fee and pay it over, so that's the monthly debit order, just like you do from, so with your subscription, we do, you know, 12 months upfront, or you pay me a monthly

16:51debit order to simple as that, and then the other one is the invoice billing, which is projects, so what you could have there is, let's say, an onboarding client to get to a financial plan, cost you a fee, to implement the fee, to implement the plan, there's another fee, and then there's also a fee for ongoing service, so the client decides, obviously, guarded by the advisor what they want, and key to all of this, particularly in Australia, is the pushback by the regulators on ongoing fee, so the client contracts for life to pay you a fee for 25 years, that doesn't happen anymore, the red tape around that and the conflict of interest, the whole fee for service, the Royal Commission, really, really ping that, so the best is, we call it a renewal meeting, every 12 months, when you shoot anyway, meet your client at least once a year, you reconnect with your client, if you haven't been doing that during the year, you renegotiate and discuss what

17:55the proposition is for the next 12 months, so that's quite easy, so that is a project which runs for 12 months at a time, but now you have to have systems and infrastructure to run all of that, which brings us back to all your book or lifestyle practice or business, so simplisticly, those are the three collection type models that you have, but they're both of the back of your infrastructure. So you don't do you have any insights into, because I think the one challenge that a lot of us have in South Africa particularly is that the FSEA phase and all of that isn't very, very clear around when can our charge for certain things over and above other things, right? So does this mean that if I go fee for service, just for clarity, that I no longer take any commissions on any products, I no longer take any ongoing advice fees on any products,

18:58unless I decide to do the AUM deduction option, but I mean in general, if I decide to invoice for planning work and for implementation work and all of that, then I obviously don't take any commissions anymore, but is that something that that the regulator is happy with, is that something that that we need to still think about? So they're in South Africa just now, basically the Australian version is your commission is conflicted. So most of that's why we had the tradition, apart from education standards, where advisors had to have a postgraduate degree in financial planning and do that in a very short space of time. So it was the fee issue, commission issue and the education issue that just shut down the advisors. Again, sitting behind all of that, depending on where you go, you have to build an infrastructure, so if your commission owner, you have to change your business model to move into the fee space. But if you still decide,

20:02the South African regulation, my reading of that is saying it doesn't say you can't have commission, it doesn't push either one, but reading into what the regulator is saying in the bull, we talk about fair value, the transparency, we talk a lot to the non, you did again about customer outcomes. It means that you're moving a little bit more into the fee space. So I'm not saying no commission, you could probably have a hybrid model. The big thing here is all about disclosure. As long as you can deliver and you can disclose to the client and you can provide the value and they're happy to pay you, then I think you're good. But again, you've got to think about your agreements, your documentation, the infrastructure you put in place. Now that's not something you can just get off the shelf, it's not something that a compliance offer gives you, you have to, and this is my concern in terms of what I'm hearing from South Africa, there is work to be done. You're going to have to do some hard yards. The good news is once you put it in place,

21:03it just works, it works fine. The big thing, they talk about leading us towards the water and it doesn't drink, and I'll just see everyone pushing back at the moment and saying wait, wait, wait. It's not about that, it's about how you want to run your business, it's not about waiting for the regulator to make up their mind before I make up my mind. You want to be in this business or don't you? If you want to be in this business, you want to be professional. Commission is not professional, we've seen it, and it's not me, it's happened in the UK, it's happened in Australia, I've been involved in the fallout there of scene advises, take their own lives, sadly. So this is serious stuff, so you need to make some calls, don't sit on the fence and wait until July. We've got an opportunity here to think about things and malfeans over and do your research, and it comes back, if you don't know where you are, do an assessment, you need to do a stock take, so that helps you make your decision fees, commission, sell, grow, buy another business, because there will be opportunity, there's going to

22:07be a great opportunity for structures right to buy other businesses, to team up with businesses, and build something really substantial, so it's not bad news. So the bottom line is really think about, are you going to be a commission, business, there are advises that only do risk here in Australia, so that's all I do, they get paid a commission and a fee, they've worked at a fee model as well, but they're very transparent and clear, that's the niche, that's what they specialise in, and what's happening is a lot of advises are outsourcing their clients to the risk specialist, so it's time to see in the advice profession, what's the specialisation of certain areas, the other thing in the regulation outside and I can see it happening there, you can't charge a client for a cup of coffee, you can't charge a client for a brochure, you charge clients for advice, the newsletters, the brochures, the coffee, that's part of the deal,

23:13so what's important in this environment is to understand just what it costs you to actually provide the service, so there the three tests, who sets the amount, who benefits from the structure, these are things you need to think about the next couple of months, and then particularly for the platforms, there's ostem about what's happening in Australia, ostem, how do we move from just the asset and management, how can we structure this, so it starts looking like a fee, they might not know, we're really doing it in Australia, you know, Ellen Gray's in Australia, Ellen Gray's also in South Africa, they are experts that can start helping advisors think through that kind of process. Thanks John. Okay, so the other thing is around this, you know, because I think the whole debate was around also that obviously at the moment I can't tell the product provider as far as I've got it that, you know, I agree the fee

24:16of $10,000 for the year worth you on, you need to pay me $833,000 fixed every single month, because it's a monthly fee, so it's still paid by the product provider, it still comes off the investment, but it's a fixed amount versus a percentage, right? So that they can't do at the moment as far as I've got it in South Africa, and the reasoning in the comments was that, you know, if the institution pays me, I don't have to go and chase invoices and bad debt and debit orders that's balanced and that kind of stuff. So that was obviously a comment that was made, and can we talk a little bit about that? Yeah, look, it's easy if someone else is collecting your fees for you, it's nice. The problem, the problem with that is, is that you start running the through the definition of conflicted advice, because you've got an institution, we're talking

25:20independence, we start professionalization, and it's not me saying that this is what the regulators found, this is what the World Commission, you've got the application of an investigation into what all of this means from judges and top people in Australia, the outcome space is coming to South Africa, Australia is already outcome-spaced. So it's really here, when you've got a model, it is down under, and you do beat us at rugby, but we've got a model that we've three years ahead, why do you want to go through the fine and reinvent your unmodel when you can just take the best, and that's nice, you can take the key learnings from the Australian model and the UK model, and apply your own South African model. So it is easier, but the bottom line is, what is the client want? Because we haven't talked about the client in all of this, we've talked

26:22about the advisor and advisor's missing out on losing fees, and are they going to send you a bit now to come and fetch your fees, I don't know if it's still alive, but in 10 years, 15 years ago, everyone's talking about Jimmy Abbott to come and collect the fees, it again comes back to your business model. So if you want to go to the fee model, who's your target client? What is the value proposition? How are you structuring that into action? Does the client agree and understand what it is? For example, how many advisors actually have a one-page map, which shows the client what their processes, and each step when it's three meetings or four meetings or two meetings, what the client is going to get, how the system works, and because of all of that, this is what it costs. The client understands. There's a good story about the car salesman who wanted to, you know, you're thinking about a car, so weird, because every time you want to buy a new car, and you find you buy one, and everyone else on the road's got the same thing. But let's say you

27:26want to buy a nice German machine, and you go to, and you've been doing a lot of research, and you've saved your money, and you go and buy this German machine, four-wheel drive SUV X5 or whatever it is, dream car, smell the leather, you get the drift, you sit in the back seat, there's a lot of leg space, the clubs can go in the back, but they don't have any stock. But the salesman says, no problem, he has a brochure. Just look at this brochure, you can pick your color in your model here, and there's a waiting of three months. So what happens, you've gone buy a Suzuki, because they got lots of stock, and when I was in South Africa, October, I noticed there's more Suzuki's there than ever before than they were 10 years ago, so I don't know what's happening there, but so you buy a Suzuki, good vehicle it goes, but you lost that. Now all I'm trying to say is that your clients want to see, feel and touch, and if you are talking to them about financial planning, without showing them what your model is and hard works,

28:30you know 10 years ago I used to tell the advisor, show the client what the plan looks like, open up the plan, show them what they're going to get from you. If you're going to get the same thing from my advisor every year when I go and see him, I'm going to lose that client, because it's what's the point. The challenge for the advisor, you know, is to make sure that there's an experience, they talk about the client experience, client engagement, you have to make it exciting. When the client will pay, the client never leaves your office without something from you. The client must have homework. Financial planning is a two way thing. I've got to do a whole bunch of stuff in his advisor, but you miss the client who got to do a whole bunch of stuff as well. Part of that process, you also have to pay me for my time. So we have to change our mindset a little bit, so it's about the structure, setting up your process. The platform story again, I've talked about that, but you'll have to go and have a chat to platform and work away around it. They're going to have to think, the

29:32institutions under the same pressure as the advisor, because go for your plus to them too, and how they're going to make sure you get your fees, and how do they pay you, and what's that arrangement, because they can't operate like they did last year, 10 years ago. They're going to have to, it's going to have to be, I think, some groups like yourself, the FBI, FBI, will have to be part of that and seeing how can we develop the South African fee model. I think there's got to be community involvement and group involvement in that. Yeah, I think that's, I think one thing I want to say at this point in time is that, I mean, we've got, we've got members in proportion that are building a business, clearly, on, on recurring subscription basis, and people that are can't be done. It's being done, right? And this is, and also people are paying for all sorts of other subscriptions. And this is sort of the thing that they understand and that they get value from, et cetera. So I think the one thing that we, that we batting, there's a few dots that are

30:34not connecting yet. And it makes you anxious when you think about this because we don't know exactly how to do it. We've never done this before. But yet it is being done. So it's not a question that does it work? Does it not work? I guess another part of the question could be, you know, is the market big enough? You know, all is, is the, are the first movers going to be the ones who capture that part of the market who is able and willing to buy, let's say, a subscription fee for financial services, not all about subscription, but this is an example. Although you're going to capture that in the rest of us, I was going to go like, you know what, now I must, my deal with commissions and things because that's what's left, you know, kind of thing. So I don't know, I was busy doing some research around trying to figure out how big is the market and would, you know, what is the, the spending power of the market to be able to do this because we also, it's not just about having a fee for service, it's having the right fee for service. Because if you don't price

31:36it's right, you're going to be out of business. If you're going to price it according to what you think people are willing to pay, you're going to, you're going to make a massive mistake. You've got to be very, very clear on what the value is and what the service is all and what your costs are so that you can price it right. That's really, and these are things that people have never had to do before, to be honest. Look, that's why forums like this is good and that's why I'm off the cup of coffee, as you know, Anton and I got together and we built, we built something quite extraordinary. I don't think we've seen in South African community, you hasn't yet seen what is coming and these questions that we're dealing with now are going to be in that platform purely to help advise us. The cost of what we're charging is peanuts when I do my exchange rate, something the work that we do here is probably five to ten times more for the same thing.

32:36So I think South Africa is really, really lucky. But yes, it comes back to, we have to use forums like you've got here, there is a method, there is a process and I can spend a whole day taking people through a workshop on what that transition consists of. People shy away from it because you have to spend a whole day thinking about your business. You've got to do the hard yards, it doesn't just happen. And then there's this whole issue of change management. You know, you can't just sit in a nursery the whole time, you have to move forward, you've got to push that flywheel and move forward. Let me, let me show you a bill back right story and if you do subscribe to Bill Becrack and he's a road map and that process that he's got is he's outstanding. It's proven over 30, 40 years, the success. But Bill is quite upfront, not me saying it. Bill says, if you follow his recipe, he's methodology. In other words, we talk about structure, the whole value that he offers, the whole engagement process. He says the best clients to target

33:40or yours. Don't go and look for them somewhere else, target your clients. So to your point about, do you want to be first, do you want to be leader of the pack or the straggler? I want to be leader of the pack in this whole new environment because the clients will be the ones making the decision. They're going to be saying, this guy or this advisor has got a structure, he's made the change, look at the value he provides. You know, there should be client portals already, you shouldn't be communicating with clients by emails anymore. Cyber security, we know Australia was my fifth most heck country in the world last year by emails. So client portals and digital stuff and the things that you are providing is critical to this change, this new way of doing things. So yeah, you want to be first, otherwise the clients will be the ones that are going to make a call for you. So the other part then, so let's move on a little bit from that and we're going to go the whole

34:45morning. Right, so the other part, I think we can just briefly maybe touch on is just bad date. How do we, I think, want to avoid, because the best thing is to avoid the bad date or to not bad date necessarily, but to avoid people, you're having to chase people for money, right? So if you can have a process to avoid that, that's first prize, but then if it happens, I'm assuming you. No, I'm very quick. It comes back to target market client selection infrastructure. So the theory, the theory, remember, there's always theory in the inspectors, but the theory tells us that if I have segmented my clients and I've got the right target market and I've built my infrastructure and value proposition, the clients will be paying. Unfortunately, the day is 20, 30, 40 years back, most of the old advisors remember that you went to school at one of the companies, you got a

35:45right book and you were sent out to go and find clients. It doesn't work like that anymore. So that's your bad date client, because you're desperate and the client is pushing to something that maybe shouldn't have got. That's 20, 30 years ago. Hopefully, it doesn't happen anymore. So if your process is right, you actually de-risk. That's why you have your pre-meeting, your screening call. You are called the 15 minute pre-meeting call. Before you even see the client, the advisor should be finding the client that prospect and do a bit of screening. Research from the States, I think it's horse's mouth, they tell us that 85% of clients who go through the pre-screening call with the advisor actually stick. They actually sign up. But what most people do is they give it to the assistant to find. Who does the client see? The assistant or the advisor. So those are the little things that you start putting in place. I don't have an answer to say, we've sent out Jimmy Abbott. That was just a joke. That was the dynamic, but the bad dates you try and stop. That's what my slide is showing you. Try and stop the bad date putting in a

36:46process. Again, it's a difference. You've got the infrastructure right. The clients will deselect themselves because they want it. The golfing story about LinkedIn is critical. You have to be on social media. It's exponential. The exposure you get and you're creating your own community. It all starts working for you. So again, there's a process for this. As far as we're going to go back to a bit of schoolwork, do the business management, practice management, spend the hard yards, and there is joy. If you're doing all of this systematically, it gets better and better. I've seen it being in businesses like that. Here in South Africa, you're right. There's some outstanding businesses that have been doing this for 10, 15 years. So if they're doing it, why can't everyone else? Unfortunately, we've got a good community. The advisors here that are happy to share and stand on platforms until people are doing it. You're so lucky to have that. Absolutely. I want to jump on to client lifetime value. If we can, I'm just going to

37:54go to that one. How do we... I mean, talk to us a little bit about client lifetime value because that's often a term that's being... You want to look at the long term. You want to have a relationship for long term, trust is so important or all that. But how do we evaluate and manage that? So client lifetime value is... Let's say there's new answers and the problems with it. We talk about that now, but I'll put this as a philosophy. You build clients under management, not assets under management. Now, client lifetime value is about building assets under management, which is actually your client. What revenue do they bring? How much fund under management? They got how much of those funds generate for us. And then we project that over 10 or 20 years. Time, and we get to a number and say, this client, if I sign them up now, they stick with me for 20 years. This client is worth $1. So that was a good theory five or 10 years ago because that was great because we

38:58pushed the ongoing service. The mission was for mental 65-hour life cover. Then I could have their client from now to 65 and I could work out what each client is worth over the long term. So it's still important, but now we have to do a couple of other things because if commissions going clients vote with their feet, clients are becoming more and more transactions, especially the younger generation. I'll see it even with advisors. Of course, the shiny new things syndrome, you must have seen it dissolve from. So there's a new app, there's a new product and everyone's buying these things, but they haven't done their own work to say, is it fit for purpose in my business? So we end up with a tech stack in Australia. I think that does lost count to about 16 different apps that the vases are using in their practice and not one is connected. They're terrible. They're spaying all this money for stuff that someone sold you. And it's not fit for purpose. So it's the same with client lifetime value. It's great for the old

39:59style. I think we have to tweak it slightly. So if we go to the next slide there and we have a look at how to use it. So we look at the annual revenue per client as your step one, then you subtract all your cost to serve. So just now we're talking about what does it cost to serve? Have you walked through your A, B and C clients because each one costs more. That's why you charge more. We do more. So what does it cost to serve? Your tiered clients. If you don't have tiered clients, so what is the cost to serve? Because remember business health come back with treat clients with love and respect, but not equally. So you can't have one client subsidizing another one. This cost to serve is important because you probably find when you finish the process just how much money it's costing you to serve the client. In Australia, the specialists here believe that advisors are undercharging their clients between 15 and 25% per annum. That can be a big number

41:02if you've got 50, 60 or 100 clients. So then you also estimate the lifespan of the client. So let's call it 20, 30 years, and then you can come to a number. What you might have to do is apply some percentage because we found when I was at Mercer that clients drop off every three years. You have probably about 10 or 15% of client's dropping off. So you apply that number or factor to your calculations. And then you'd end up getting a number here on the screen of 60 or 90,000 dollars present value that if this client stayed with you, you would make 90,000 off them. There's this James Adams or James Abrams. He's got a nice book. He's got a book that you can read. He talks a bit more about that and there's a methodology that he's got where he talks about the average annual spend for clients and where you can upsell them. He talks about the frequency of

42:02engagement and the length of relationships. So these are all the costs that you do to get the benefit of the client sticking to what it is. But the problem with all of this is I believe which is the next slide is AI. I think AI, we have to put it there. I'm involved with a tech company myself. I have, as you know, a colleague that I've been working with for a very long time and he's doing extraordinary things with AI here in South Africa. There or it's coming. And I said last time that I do believe that 80% of an advisor's back office process work is going to be done by AI. They're really in Australia. There's a system called Clarisse that does your file notes for you. It does your tasks. It does all of that. I have another colleague here working with me at a student well and he has eight employees, they're all agents, they're all AI, eight people,

43:09and they're more efficient than the staff he used to have. So it's coming. And with that it means that your clients that you thought were going to be staying with you for a longer period of time or no longer going to be there. So AI is going to compress your costs because it's going to reduce your costs. And remember that's a good thing to reduce your costs because there's a cost to serve. So that could reduce. It might increase your stickiness of the client so that you might get more revenue from the client. But then the other caveat again is that if you go for fee model and you have to re-subscribe or re-sign on this client every year there's more work. So I think that this whole calculation is going to have to change. I don't think you can put value in this formula anymore with lifetime value of a client. The lifetime value of a client to me is a guesstimate of what that client is bringing into you now. And the challenge

44:13that you have is to keep that client every year. So you almost have to do this calculation on an annual basis because these clients are not staying with us. You might say they're all but it's coming. So as I said, you've got a dual problem. It means they have a good AI coming and you've got coffee coming. And I said, lost on get the structure right. All these things you've been talking then AI will fit into your business. They call it the enabler. AI is not going to replace the advisor. So I've seen all over the world, I've talked about it before. Those will move into soft skills which will keep the client with you because clients don't want to talk. Yep, they might be talking to the AI about they want to talk to an individual. And I believe financial advisor is going to be a master facilitator. You're going to be a master facilitator and coach going forward where you're going to use AI and your technical skills in helping the clients on their particular journey. And that's really what that bottom line is there

45:14is looking at the little journey that you do and the value that you assign to the client whilst it goes through that process. John then also, I mean, we've spoken a lot about the fee side of things and we've looked at lifetime value and all sorts of things. But there's also way, because I think the biggest question is how do I go from what I'm doing today into a fee for service? How do I transition over to that? So I know you've got this seven step fee transition road map. Yeah, that's the most exciting part of moving to fees because you get to know your business seriously well. You can't move to fees, you don't know your business, so you get to roll up the sleeves and get in. So again, I say, do get an assessment done, do have to call an audit or an assessment of your business. And part of that is, is really,

46:17look, upfront, this is frightening. If you haven't done this before, it is really scary. So the best way to do this is, is take stock of your clients. And if you haven't segmented your clients, you need to start thinking about your niche clients, your ideal client. Peretta works have done it in lots and lots of businesses, advisors have fought with me. There are some serious practices in South Africa that disagree entirely with segmentation clients. In fact, that we stopped working with them because they wouldn't do that. And they used to get calls six to eight months late, say, guess what, we've taken the plunge. And some of those businesses on now, some of the top 10 businesses in South Africa, they've segmented their foot structures in place. They've worked out that 20% of their clients are bringing 80% of the revenue. And if the whole relationship thing is also a problem when you are looking at this transition with

47:19your existing clients, if a client is your friend and he's a good guy that you have drinks in the pub with and he's always introducing to you to people like him. But they don't buy, they don't, they don't giving you the big fees. So that's part of client segmentation. The other thing that you need to do is think about having a client advisory panel to talk to your best clients. So here, look at your clients. They are spreadsheets available that you can do that. Go to chat GPT inside the chat GPT. What is the structure, best structure for client segmentation and ranking my clients? And that will help you with step one there where you do that bit of segmentation. You've identified your top clients. Now the ideal thing is to find more of those success leaves clues. These clients that you're following, they go to the same club, they play in the same golf course, they do, there's a clue and you can build more of that. Build a service model that you can charge a fee for. So what have you done?

48:22They've stopped 10 clients. What have you offered them? What have you done for them that will prepare a pay? Because that again will allow you to start mass customizing your process. What is the fee that you're going to set up for the service? Am I supposed to charge them whether it's a commission or not? What was the cost of that? And that starts benchmarking. They should be the research again and they isn't. It will be coming probably by July when we will do some research on what is the average fee in South African compared to international fees. International fees will be out the park but at least gives us, we can dampen it down, give us an idea of what you charge. Have a face-to-face conversation with these top clients, what they want more of, less of, etc. They'll tell you. Then load what it is with value. This is what you do. I talked about that road map. This is my structure. This is what you're going to get. And you know if you have three of those, this is my structure for value A,

49:24this is my process for value B and this is my value C. The clients says I want one. Normally it's three and the client chooses the middle one and that's where you want them to be because you planned it like that. That's behavioral finance. Then model this bridge, you know, build the cash reserve because before you make the leap you need to have some fuel in the tank. It's like an emergency fund. You need to have three to six months cash because you are going to take it. It does happen. And the problem is when you start losing money or not making the same money you made before we all jump ship. In the company that I worked with, the big one in Australia, we lost probably 23% of the clients and we changed the fee structure to because one year, 12 months to do that. And we brought at least 25% of those clients back over the next 18 months. So because of the shortage change management, it does get better. And what happens,

50:27those clients start talking but honesty, transparency, value, the clients start working for you. They really do. And then finally, if clients don't want to, rather than say you are fired and do a Donald Trump, you actually say to them, this is my product. This is the deal. And do you want to. And the clients will, they will gracefully decline to take your service on and leave because you probably find that these clients are costing you a lot of money anyway. If you've done the business, so it's a good thing. But you're not the one who's saying you are fired. You go and see them. You send them the emails and there's communication and structure around that. There's more meat to these seven steps. But if you follow those seven steps, you kind of get a structure on how to tackle this transition problem that is facing you. And you also have a like a 90 day transition sprint plan. So I think we can have a look at that

51:27and then we can wrap up. But yeah, like I mean, talk us through the plan. Yeah. So really, just like I said in step one of the seven steps, this is what you're doing your first month. You pull your client list. You have a look at what it costs to serve. All the things that we're talking about during today's session, look at your profitable unprofitable relationships because if it costs to serve is $3,000 a year or one to year, and the client is costing you $4,000 during trouble. That's a wake up call. It's a horrible wake up call to realise that you've been undercharging that for that in Australia. Force the advances of putting more value and rethinking their process and what it is that they do. Calculate your gross profit margins and the cost to serve. And then you move into the 5th value drivers.

52:27You decide what your value drivers are. It's really, if you've done good analysis of your business, things that you do well, the way you're bang for back, the things that create value for your clients, value for your practice, give yourself your brand name, what are those things that you do and do more of them. And then write down the bigger, bigger scaps. So now you want to move to fees. What's holding you back from making that transition? Because you have to identify that and fix that. So if you do that in your first month, if you've been slower, two months, but it needs to be done. That's the point here. You need to do this to take the next step. Then you start looking at your tiered service model. And tiered service model, I talked about three. You could have four, but three is good, because you're going to weigh the middle one. That's the one that you want all your clients to go on, because that's mass customization of that proposition. That's your specialist area. So you'll have the two high net worth cars, because you're going to have that kind of bronze silver and platinum. You want everyone to be

53:31taking the silver approach. And then there's a third model, fourth model, two, the three. It's the transaction one. It's what the attorney's to, the project. So you only do one to financial plan. And it's going to happen where people are going to say, do my plan for me? I'm happy to pay the plan. I'm going to go on to ABC website. And yeah, we've got them in Australia and I get five quotes and I get my own laugh cover. So that's coming. That's I are getting in there, but you still get a transaction. So have a look at the value that you deliver to those top 10 clients. And then transition. You have to experiment. Transition with the clients that want to move with you. They're good clients. You've got a great relationship. They have happy. If you're lucky, they probably end up paying the same as you were before. It's just doing a different method. So instead of commission, they're charging a fee and you've up to value with a whole bunch of thing. The big thing here is what value are you creating? It's got to be system infrastructure.

54:34So in terms of the cyber security, you're going to be working with Excel spreadsheets and no two-factor authentication and all of this. You're going to have to have systems in place. And finally, have the courageous fee conversations, document your experiences, move the clients across. So that's your three-month sprint. If you are really keyed up and ready to go, if not, well, maybe two months per step, but you need to go there. Even if it's one client, that's progress. It doesn't have to be three or five. Do one, get confidence and move forward. And the big message I think down the bottom is really that coffee to me and to people like Anton is not a compliance project. It's framed in compliance project because I've been doing practice management now for 30 years. It's business management. I've seen the regulators all over the world. We call it convergence. They're all doing the same thing. They're pushing you to run a better business. And those advisors that build what we've been talking today, the structured,

55:36client-centered business model will come out better in three years time than where they're on now. They will definitely have seen it, have loved it. And it's also the journey to go on. It's not something to be scared of. You're on. Thank you very much. We had a fantastic conversation. We think gave so much value today. So thank you very much for everyone that stuck around until the end. Thank you very much. And if you're watching the recording and you got all the way through, thank you very much for that as well. We will share the slides in the community and the member discussion space so you can find them there if you remember. And so this is a journey that is definitely worth it. I mean, I've worked with people who's been charging fees. You're honest work with the same people since 2000. So these are not so new, but it's definitely where people are moving. And I think the more people get to learn about this, in other words, clients and

56:42they add a choice between the two. Some would definitely go like, I'm not just commissioners funded, but it also, I think, depends very much on the way that we position it and the way that we sell it to them, which one they would choose. But I think a lot of clients would also go know, but I would prefer just to know exactly what it is that I'm paying. There's nothing that struck me, you're honest, much as my dad looking at his investment statement and going like, what's this? I said, no, that's the platform's administration fee. And he says, for what? That's my money. Because you could see the fee and it was like over a three year period, something like 30,000 ran. It wasn't like about 10,000 and a year kind of thing. And he's saying, for what? Wow, they're taking my money. And I think the more transparent these fees are becoming, the more people are going to go like, why am I paying for this? What am I getting for this? And that's the reality of where we are moving to. It's not to say that fees is the only thing. I think like anything else, the answer is probably somewhere in the middle, but it is something that there's

57:46going to be a part of your clients that's going to prefer that. And do you want them to go to the other guy who does offer that or do you want to offer that as part of your very proposition? So I think a very important thing to go and consider over the next couple of days or weeks. And so forth. So, John, thank you so much. I know it's quite late in Australia by now. I think the sun might be under now as well. Anyway, but thank you very much. And again, thank you very much. Thank you so much. Thank you, everyone. Thanks for being here. I know. As you know, we typically don't go over time, but these are very important conversations and something that I feel like, yes, we need to. Let's just finish the conversation. So thank you very much for sticking with us. That's it. So we'll be back next week. Same time. Same place. Please go have a fantastic weekend. Stay safe. Be blessed. We won't be back next week.

58:46I think next week is good Friday, if I'm recording correctly. So if that's the case, we won't be back next week. So we'll meet the week after that. So sorry for that. We're not back next week. Anyway, have a fantastic time. Enjoy your weekend and your Easter and all of that. If that's something you celebrate, and we'll be back then the week after. But until then, stay safe. Be blessed and prosper. Stay curious and continue to raise the bomb. Love you. Thanks for joining us on propulsion. If you found value in today's episode, then there's plenty more where this came from. You can find all our previous episodes right here on the podcast as well as on our YouTube channel. And talking about the YouTube channel, we go live every single Friday at 8am until 9am. And we host many different guests. And we also talk about interesting topics. And on the live show, there's also some incredible segments hosted by some of the most well-known and influential financial planning professionals. So you are most

59:49welcome to join us every single Friday. Put it in your diary and we will see you there. And on that note, also, please do check out propulsion.co.uk forward slash community for all of the goodness and learn more about how you can become part of our amazing community and how that would benefit you, your business and your career. So on that note, stay curious and keep raising the bomb.