What makes an attractive advice firm?

With Paul Barrett, CEO of AZ NGA.

How does someone go from sewing skirts in Japan to acquiring over 60 financial advice and accounting firms? Paul Barrett, CEO of AZ NGA, shares his fascinating career journey and gives insights into what he believes makes a great financial advice practice and what we can learn from brewing beer.

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Matt Heine: Hi Paul, welcome to the show.

Paul Barrett: Good day, Matt, how are you?

MH: I'm really well, thanks. Before we kick off, how are you and the team dealing with the current COVID crisis?

PB: I'll tell you what, I'm busier, that's for sure. This video conferencing and the time that I'm not in cars commuting into the big smoke, the combination of those two things alone, I reckon I'm 50-60% busier. It's interesting because a lot of the work I'm doing at the moment is business development work between the M&A front and we're actually starting, for the first time in our journey, to stress out the back office of our organisation because I've got more time to do business development. So there's some real learnings in that. So going to take some of this stuff forward after COVID, I think.

MH: Do you think that many of the ways that you're doing business now you'll manage to maintain when things get back to normal?

PB: It's a bit like the news year's resolution, isn't it? You're going to get back into the gym and it lasts for a certain amount of time and you've got to be really disciplined and clear on what you're trying to achieve to keep going when the winters start getting long and cold. So I think there'll be a bit of that. I think there's a lot of talk about the things that are going to be taken out of this but I think there will be things, there'll be habits that we go back into but I think it's critically important to be disciplined and try and take a handful of things out of this.

And I'll definitely, there's no question that I'll be working at least one, if not two days, from home on a permanent basis after this. So that's one. I think the way our team, our management team engages... We used to have one team meeting every week, we now have three. One of them's quite intense and the other two are more check-ins, and I reckon we'll keep doing that. I think a lot of the things our planning firms are doing with client engagement and tools like Loom and Zoom and all these things, I think we'll keep those sorts of things.

More regular, real-time communication, those sorts of things, but I still reckon I'll be back to that early 6:00 AM flight to Melbourne and to Brisbane and to Perth and the commute to a fair degree because face-to-face is still really important and so I think a balance of the two methods of communication are required.

MH: It's an interesting question. We're going through budgeting at the moment for the next financial year, we're just looking at the accommodation and travel budget. Have you got a number in your mind that you might reduce it by over the next 12 or 18 months?

PB: We'll travel probably at least 50%, if not more. I reckon we'll get our travel budget down to 35, 40% of what it was? Realistically. I think the accommodation's an interesting one because we were about to sign a new CBD office lease, actually, just before all this went down, and we've really had to review that. But what we've decided do to there, we're actually going to bring a whole heap more people together into one CBD location knowing thought we're not going to need the same footprint. So it's going to be... We're going to do it, we're going to make the office move, and we've certainly negotiated a rent saving.

We reckon 20, 25 percent rent saving but we've put to your COVID clause in the lease which says that if the Sydney property market, rental market goes down systemically by more than X%, then we have an option to get out of the lease, and we've also put a lease clause that says if we can't come to the office because of a government directive then the rent's zero. So the landlord's actually agreed to those things, believe it or not. The interesting point-

MH: Have they seen that COVID clause elsewhere? That's quite novel.

PB: I hadn't seen it before, I actually dreamt it up, I was at home cooking dinner for the kids one night, I was trying to work out... I was really torn because we want to make this office move for a whole range of non-financial reasons but I thought what a mug would I be to sign up, effectively a million dollar lease in the CBD of Sydney now?

So what can I do in the rental contract to mitigate any risk? So I came up with that and I talked to my business partner about it and when we put it to the landlord they agreed straight away. So yeah, you've got to ask, don't you?

MH: Rents are certainly coming down and we're seeing that, and not a dissimilar situation at the moment. One of the things that we've been working through as an executive and a business is what is the purpose of an office in the future? And I'd love to hear your thoughts on that and if you've thought about it much as far as is it a place to come and reconnect with the business? Is it a place to come and do work? What is the purpose of an office, moving forward?

PB: I think a lot of people who have been working at home in our network want to get back to the office, and one of the reasons they do is because home does have distractions, when the kids are coming through the door at 3:30 or they're leaving at nine o'clock, there's lots of distractions at home. So people, by and large, do want to get back to an office environment, but I think the way that offices are utilised will be different, and just the footprint issue.

If you look at actual physical design of our footprint that we had before COVID for this new lease space and what we've now come up with, we've added about 50% more people to the same space. So we're anticipating that there'll be quasi-shift work. People will be saying I'll be in the office these three days a week and I'll be out of the office these two days a week. And we'll actually be almost... In fact, I can see a situation where you will have that shift schedule probably on the wall somewhere.

One of the financial planning firms that we collocated with is significantly reducing their footprint and far more open plan as well. Yeah, look, it's still early days but the first thing I'd say is people do want to spend a significant period of their working week in the office, still, but they want to use their space differently and they certainly want home time. So it's going to be different but I dare say some of these larger institutions who have been using, I think they call it activity based work spaces over the last five to 10 years, that style of working arrangement's going to be in vogue again, I think.

MH: And at the same time they're looking at it and they're raising a whole lot of health issues because they're having to have more regular cleans and you've got different people sharing the same desk but it provides the most flexibility. So I think office design's definitely going to change in the coming 12 months.

PB: Yeah, well one of our CEOs of one of the financial planning firms that we invested in last night was talking about deep cleaning his keyboard. Now, that's a language we just didn't hear before, did we? A few weeks ago, we'd never heard of any... If someone had suggested hey you know what, part of my plan going forward is I'm going to deep clean my keyboard every day you would have wondered what they were talking about, but exactly. These are the new norms really, aren't they?

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In this podcast series Matt Heine, Joint Managing Director of Netwealth, chats to industry professionals and thought leaders on what opportunities and challenges they see for financial advisers and the wealth industry as a whole.

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MH: Indeed. Now, we've managed to get off track pretty quickly, I think from hello, so we might go back a little bit for those of our listeners who don't necessarily know who you are, there wouldn't be many of them, but I thought it'd be interesting just to get a bit of your background, where you came from, and why you got into the industry.

PB: I think a lot of people may know I'm a kiwi, so I speak the queen's English, and I came from a place called [inaudible 00:07:28] in New Zealand, that's where I was born and bred, and I went to school in New Zealand and university in Wellington. I actually, as a younger person my first real view of what I wanted to do with my life, was I wanted to speak Japanese and live in Japan, so I studied the language and my university degree I majored in Japanese and I went and moved my life to Japan as a pretty young fellow, and that was really what I wanted to do.

The only reason, by the way, that I wanted to go to Japan was because when I'd got the first option at school to select a subject ever, the schools I went to didn't have too many options, but this particular school, [Wickliffe 00:08:10] Intermediate School, you could choose between woodwork, metalwork, and Japanese.

And as the baby of six and the other five siblings all being metalworkers and woodworkers, there was no way I was selecting either of those two things. I always had this thing I just wanted to be different and do something different. So I selected Japanese because it was the only other option I had. And that actually took me in a direction and gave me a life experience that was very valuable and the jobs I had, when I eventually went to Japan, the jobs I had weren't exactly top shelf jobs but they were great living experiences.

I actually sewed skirts in a textile factory for about a year and a half in a little country town in Japan. That was my day job, my night job was wrapping newspapers and cellophane so the paper boys could throw them in the snow and have them not get wet. So Japan was my initial dream and what I wanted to do with my life, and I actually went there twice to live. First time was just before their very long-term recession, that was into the late '92, and then I went back '94, and they were two different places. The Japan I went to first was a wonderful place, a growth-oriented place, Japanese word comes to mind, it was [Japanese 00:09:29], it was lively and it was electric.

Then the Japan that I returned to was far from that, it was very different, and I found it pretty tough to be honest. I ended up coming back to New Zealand with my tail between my legs and relying on the other part of my degree, which was accounting, and got into accounting and worked for two accounting firms and narrowly missed being sacked from both of them. I think I left my two accounting jobs about a week before I would have been sacked on both counts. I was lousy. I was a good classroom accountant at school but I found the adjustment to the real world very difficult.

Yeah, then worked for ANZ Bank in New Zealand, ironically as a management accountant. I managed to use that accounting degree to get into a bank, which then opened up this whole wealth management career for me because the part of ANZ that I worked for was ANZ Funds Management as a management accountant, and I went from there really.

I did a few years there and then did my, as the Kiwis call it, my OE, my overseas experience, went off to the UK and met an Australian girl actually on a Contiki tour, and I came to Australia through those means, actually and found myself in Australia and got a job with Connelly Temple back in 1998.

MH: Right, there you go. Fascinating story, I was going to ask you how you went from sewing skirts in the outskirts of Japan to what you're doing now but it all makes sense now. Thank you, Contiki.

PB: Yeah, exactly.

MH: So when you came to Australia, that was early 2000s was it?

PB: It was June, 1998 I came to Australia, and I have a brother... I have a couple of brothers, actually, who live in Australia, I stayed with him for a few weeks and I applied for every job there was. Half the jobs I applied for I didn't even know what they meant, I just wanted to get... I had no money, I was a pretty young fellow with lots of dreams but not a lot of resources.

I applied for a few jobs and I got a job as marketing manager for Connelly Temple in 1998, and I went and worked there and about two days into the job they said to me, "You need to go and get a car." And I said, "Why?" And they said, "Well, because we've changed your job, you're going to be a BDM, a business development manager." I said, "Well, that's not the job I applied for, I applied for a marketing job." They said, "Well, it's the job we're going to change you to because you're going to be excellent at it and we've recognised that, we got it wrong."

The bummer there was I'd actually turned down a job with Rothschild as a BDM because I didn't want to be a BDM, I wanted to be a marketing manager for 20 grand less. So I went on the BDM pathway and I spent the first few years of my time in Australia with Connelly Temple and then actually ironically I went to Rothschild as a BDM and eventually estate manager and through the whole Rothschild Westpac BT transaction, I decided I wanted to have a change. I didn't want to do the BDMing and the funds management roles anymore. I felt like I'd done that and achieved a lot, actually, in both those organisations. Both by the way, Connelly Temple and Rothschild, great organisations. Awesome places to work. That's a story for another day but love them both.

MH: Why is that? That's something I'm interested in. The last couple of guests have sort of given the early days at BT and some of the companies back in the 2000s, they talked about the energy when you walked in the door. What do you think it was that made those two places so memorable?

PB: Well, Connelly Temple it was just they were so innovative. It was just this little company that felt it could... it just had this belief, it felt it could do anything, it really... Think about the business you're in today, net wealth, I mean Connelly Temple and [inaudible 00:13:22] probably started it all back in the day, and Connelly Temple was a real innovator. The lifetime pensions and term pensions, annuities, allocated pensions, and the way they went about it, it was such an innovative company, I loved it. It was agile, it was ever-changing, it was fast-paced and fun.

So that was a great place to be and the people I worked with were all of those things. And then Rothschild was different again, Rothschild just had the most incredible client service ethic. Its asset management products were a bit hit and miss. Some of them were very good, some of them not so good, but the actual client service and the way they treated advisors was second to none. The Rothschild, the [inaudible 00:14:05] funds and the premiere advisor programme and all of those things that I was brought up on and learnt and have left indelible marks on me. I just loved the client centricity and the advisor centricity of Rothschild, it was awesome.

MH: Where do you think that came from? So you've got two businesses operating at the same time, one was inherently innovative and one had an inherent customer service. Was it driven from the top or what was the cause of the culture?

PB: Oh yeah, I think so. I think in the Connelly Temple case, the two founders, they found an interesting niche for accountants that it just grew into this administration service and into financial planning and it had this momentum all of the time but it came from the vision initially of the leaders. But interestingly, the founders were able to identify talent to come and take over the key jobs at key times. They were equally as visionary and innovative. I think leadership was a big part of it.

But also, don't forget, back in those days, the wealth management industry was extremely competitive. Back in those days, before the banks took ownership of wealth management firms, you really had to fight and scrap for every dollar, every percent of market share and every new client. And there were lots of businesses like Connelly Temple, the Colonial First States, the BTs, back then the Asgards. Those companies were all doing the same sorts of things. They were fighting and scrapping and innovating every day and I think the last decade or two we haven't... We've seen different type of innovation but back in those days those organisations were fun places to work, because they were fighting and scrapping for every dollar and extremely competitive and innovative.

Rothschild was part of a much bigger, global organisation. But it still had the same elements. Rothschild had two businesses in Australia, it had the retail business and the private banking or investment banking business, and I was on the asset management retail side. And leadership was a factor there too for sure, we had some great people leading that organisation when I was there, and they've all gone on to do great things with their careers. So yeah, definitely leadership but also time, place, and circumstances. Luck plays a bit of a role in these things, Matt.

MH: Absolutely.

PB: If you're thinking of your career, everyone's got purple patches in their career, you look back on and you go oh that was a great period in my career, that was a purple patch, and those purple patches in those days, you'll be able to reflect on your own career in some way I'm sure.

MH: So you moved from two places that you loved working and you moved up into institutional land and I think the next job was CBA, is that right?

PB: No, actually. A really important, only 11 months of my career was with Indy Singh at Fiducian. I'm absolutely positive I would not have been able to have had the career I've had if I hadn't have had that 11 months there. And Indy played a really important role in my career. He backed this guy who had no experience at running licensees or advice experience directly. And I made a decision when I left Rothschild that I wanted to go in that direction, I wanted to go in the advice direction, and I wanted to compile a whole bunch of experiences and a CV that had lots of different things in it so I could one day become a general manager, or an executive general manager of a more complex organisation, and I knew to do that I needed to have different experiences. I needed to get that advice experience, and Indy gave it to me. He backed this person who had pretty much no experience but he backed me, and in that 11 months, it was only 11 months but man, did I learn... I learnt so much because he gave me so much autonomy and also responsibility.

It was an awesome company and still is. If you think about what Fiducian does, it's like the big institutional players in that it's got all the capability in the world but it's doing it in its own little pockets. It's obviously smaller. So as an employee and as someone learning their way it was a great environment to be able to learn and grow.

I did a reasonable job there and the people at CBA needed someone to come in and run their licensee businesses and I was fortunate enough to be able to join the CBA back then and that was the start of my more institutional career, I suppose.

MH: Yeah. And at the height of your role at CBA, you were running probably the country's largest dealer groups. Is that fair at the time?

PB: Yeah. My first job there was running Financial Wisdom, which to this day actually I say is one of the more enjoyable jobs I've ever had and it was really that job that gave me the general management experience I suppose. At Fin Wis, when we joined, I think three weeks after I joined, the biggest breakaway and pretty much effective dealer group breakaway I've ever witnessed, which was the Meriton breakaway occurred, and it was such a good thing for my career. It wasn't a great thing for Financial Wisdom at the time, but I learnt so much dealing with that, and it gave me the opportunity to build a new Financial Wisdom and the advisors, many of them by the way are with AZ NGA today who helped on that journey and helped create a new Financial Wisdom. That was my first three years in there.

Then from there I went into the general manager of distribution role running all of the relationships across all the product segments with the IFA community and with the internal licensee communities, and eventually was also running the dealer groups as well. So yeah, it was a big job and very enjoyable and lots of learnings, lots of things we did really well, some things not so well, but for me personally a critical part of my career working at CBA, that's for sure.

MH: And fast forward to what you're doing today with AZ NGA, you've done 64 acquisitions, you've got a variety of different equity models. Do you think that your vision of what a financial planning firm was or should have been back in the day has changed a lot to where you think it should be now?

PB: Oh, absolutely. And it will change again in a year's time and it will change again a year from there. You can never, with strategy and try to anticipate what lies ahead, you've got to be very open minded. You've got to take on board things that happen along the way, and you've got to attack and you've got to adjust and you've got to be agile.

I'll never forget when I first started at AZ NGA, I'll never forget this, we were at the quarantine station at Manly for our first offsite ever. And we had four or it might have been five firms on board at that stage. And they asked me, "What's your vision?" And I felt really uncomfortable with that question because back in the institutional days, I used to give really polished answers to that question because in the banks you'd spend a lot of time on this stuff, you'd spend a lot of time on vision and business planning and all that stuff, but actually ironically you had less ability to execute it in some ways, but fast forward to the AZ NGA quarantine station question and I was feel very uncomfortable because for one of the first times in my career I didn't really know the answer.

And I thought to myself well I'm just going to be honest. I said, "I don't really know." I said, "We've got this relationship with an Italian based supplier of capital and knowhow and we've got you guys in the room today and we've got a pipeline of a few other firms and we think we can build something great but we don't know exactly what it's going to be."

So initially I think there was a bit of disappointment in the room from the planners hearing that because they expected some really well rehearsed answer but over time what they've learnt I think is that they can trust me because I'm going to tell them the truth, and also we've created an environment where you can actually answer that question together. The leader doesn't have to always have all the answers. You've got to allow other people to influence that. So that vision for what the future looks like I can certainly answer that question a lot better today than I could back the. But I can assure it will be different in a year's time.

MH: It's an interesting point. I'm sure you had some thoughts around what the vision was. Did you take the idea to [inaudible 00:22:36] or did they bring it to you? How did that actually come about?

PB: This is really interesting. The idea to create a company that invests in financial services SME solving their succession growth and other things was an idea that I had come up with over the years and really crystallised in my mind sitting at my dining room table in the year off that I had to have after leaving ANZ Bank because I did three years at ANZ before I started at AZ NGA. I had a bit of [inaudible 00:23:11], and I really spent that time thinking about this business model.

And I recruited, believe it or not, my business partner from that great institution mothers group. I remember sitting around in these parties, these baby showers and similar events in the suburbs and the men would all sit in the corner looking awkward wondering what to say to each other and the women were on fire talking about the stuff that they all have in common around bringing up young children.

This kind of odd character, Paul Brain, turned up to these things and stood in the corner and he didn't say much but he had a twinkle in his eye and I started to get to know him and it turns out he's an aerospace engineer, he used design the weapon systems on British military apaches and black hawks, he's a world renowned base jumper and flies with these flying suits and he turns out to be a fascinating guy and a problem solver designer extraordinaire.

So I got him on board around the dining room table with me and we developed this system, we call it... behind the scenes we call it a business leverage system. Anyway, we had to get lifeblood into this system and the lifeblood was capital, we needed capital really badly. We realised how naïve we'd been about this, we actually left that way too late, and I was naïve, I thought if you had a really good idea people would want to back you.

Well, it doesn't really work that way and I found that out the hard way. I went searching for capital in every possible nook and cranny I could, I went to PE firms, I went to private family offices and [inaudible 00:24:45] with individuals, non-bank institutions, I talked to lots of people. And I got two forms of feedback. First form of feedback I used to get was you'll never executive that, it's too hard. The second form of feedback I got was, "Yeah, we could probably back you but here are our conditions." And the conditions were always unacceptable. They were either too short a time horizons or ridiculous return expectations or other motives like selling products and stuff like that.

MH: How much money were you trying to raise at the time to get going?

PB: We thought we needed at least 100 million. And that was... It proved a mission that was too hard, and I actually gave up. I was being headhunted at the time for a CEO job of a big industry fund, actually interestingly, and I... This AZ NGA project nearly didn't happen because I got down to the final two and went to the board, main board interview, me and one other person were interviewed by a full board, and it went really well, it went really well. And I got asked the final question was, will you move to... And there was another city I had to contemplate moving to.

I baulked at that, and anyway that was, in the end, terminal. I got the phone call, I was sitting in my library at home one night and got a phone call from the headhunter saying, "You've missed out." And one of the key reasons was they need someone who's going to live in that city and you wouldn't. And that night I just had this I don't know, it's like an energy force or something. Just had this huge rush of right, I've got to make this work, I've just got to find a way to get this idea off the ground.

And you won't believe this, it's amazing how life happens, but that same night my phone rang and a very, very good mate of mine, Chris Larson who runs Ironbark Asset Management, he called me and said, "Paul, I've met these Italians, and I just reckon you ought to meet them. They're a really interesting group and they've got some idea that I reckon you're going to have a lot of alignment with."

So I had nothing to lose and I met them the next week and this was a 45 minute meeting to change my life. The Italians had all returned, [inaudible 00:27:09] Group had already spent a year under the radar assessing the opportunities in Australia. And they had come up with their own plan, and they were looking for someone to help them execute it. And their plan was a mirror image of Paul and mine, a plan we'd come up with around the dining room table. It was a mirror image. Massimo Guiati, who's now their global CEO, came into the meeting and he sat down and he said, "We don't want to invest in the usual ways, we don't want to invest in big companies that are going to have lots of problems or expensive asset management companies or dealer groups, we want to invest in SMEs, brick by brick, bottom up. That's how we want to do this."

And of course, they had the capital and they had the vision. I had the same vision but none of the capital. We had the execution capability and a month later we were in Milan presenting to their board, and four months later we had a shareholder's agreement being signed and we were in play. That's how it happened. It just goes to show, Matt, you need a fairly hefty dose of luck in life, I think, and a lot of people who have successfully created businesses underestimate the role of luck, I reckon, because I can tell you the timing and the serendipity and the luck involved in those things that I've just told you, it was no small dose of luck.

MH: Sliding door moment. But I think it's also a mindset or a growth mindset where people that tend to get lucky are looking for opportunities?

PB: Yeah, I suppose. Certainly that was the case. Paul and I, we were busy, we were looking, we were talking to a lot of people, and I suppose by doing that you create these conversations that ultimately lead to introductions that lead to these sorts of things happening, for sure, but I still think even with that, I mean there are lots of people out there, Matt, who are having great conversations. There are lots of people out there looking for opportunities, but you do need things to line up. Sometimes they do, sometimes they don't. For us, on this particular part of our journey, they did.

MH: And it's been hugely successful ever since, I mentioned before you've done 64 acquisitions since that time. I know you're actively in the market looking for more. Through that process you get to see the good, the bad, and the ugly of practise land. What are the types of practises that you are interested in? What's the typical makeup of the 64 that you bought? Do they look alike or are they very, very different?

PB: The answer to that's changed a lot. If you had asked me that back then, I would have said, "They've got to have a P&L, a profit and loss that looks like this, so they've got to be making money, they've got to have good people, they've got to have good processes, and they've got to have good clients." I would have given you a typical balance scorecard answer and I would have said, "And the culture's got to be good, too." I mean all pretty obvious stuff.

You ask me that now, the answer's very different in that when we invest now, we don't really see it anymore as an investment in a particular company or a particular SME. We see it as an investment in capability. Because I think in the long run the key to our success is going to be organic growth and the way to get organic growth is to invest in capability, because if you've got capability, which is something special that you've got that you can take to a consumer, who's willing to pay for that, you can get organic growth. And so now when we're assessing companies, yeah sure, we look at their P&L, their balance sheet, we look at their people, their processes, their clients and their culture, of course. We look at all those things, we have extensive due diligence and we do all that stuff. But we are looking at their capability more than anything else. We're saying to ourselves, if we invest in this firm, do we now have access to a capability that we can leverage across our community?

For example, if we invest in a UK pension transfer specialist in North Sydney, can we utilise that same capability in our Perth businesses where a lot of the UK expats live? If we invest in a business that's located in a hospital in the Sunshine Coast, that deals with surgeons and doctors, can we take that capability to another market? If we invest in a pharmacy specialist on [inaudible 00:31:33] Road, can we take that specialisation in pharmacies to other areas around Australia? And it goes on and on, and by the way those three examples are all real ones.

And that's how we think now. We really are trying to build a long-term organic growth business and ironically, you build your organic growth based on M&A, the first phase of our programme is M&A. Everyone thinks we're just an M&A company, well no. M&A is a deliberate strategy we've chosen to invest in capability that we can then use to create a successful, organic growing business, and that's what we're trying to do.

MH: And within those areas of capability, do you then have centres of excellence where you're able to borrow or utilise efficient back office or frontend cloud engagement tools? How else do you cross-pollinate each of the firms, if you like?

PB: Yeah, well the stuff we were just talking about is more sort of the organic growth M&A stuff, but what you're really alluding to there I think is the ecosystem, and we have learned a heap about SME businesses. Forget financial planning or accounting, we've learned about SMEs in the last five or six years and become really deeply involved in all of our SMEs and so we're able now to put a programme together that gives SMEs access to things that we think are going to help them.

So we've got this internal phrase we use, the common spine, and we think an SME... Take a financial planning firm, we think financial planning firms have got a... if you would X-ray, if they were a patient on a hospital bed and you X-rayed them, what would you see? Well, you'd see at the very base of the spine you'd see a management information system, a general ledger, an accounting system.

Then the next level of vertebrae of note, you'd see a data warehouse, where all of the information that they get from their various systems can get plumbed and stored and reported on. Then you'll see their licence to operate, which is either their licensee arrangements or other arrangements. Then you'll see the next step, certain administration functions. Such as para-planning, for example.

Just a quick aside on that, and then we'll come back to the spine, one of my other hats I wear, you may not be aware of, is I'm the chairman of 4 Pines Brewing Company. And so I've spent a long time, about seven years now, deeply involved with 4 Pines. And I've learnt a lot about this ecosystem stuff from being involved in an FMCG business.

I'll never forget, we'd go to these board meetings and the head brewer would say, "Oh, we can brew 12 million litres of beer out of this brewery in Brookvale." And the sales guy would come in and say, "Oh, we can sell 12 million litres of beer." We'd only be doing four million litres. We'd say, "Well, if you can make 12 million and you can sell 12 million, why are we only doing four?"

This conversation would go round and round and round, there'd be people essentially saying well it's the other person's fault. In the end, the reason why we can only do four million is because we couldn't put the 12 million litres that could be manufactured and could be sold into enough bottles quickly enough. And so there was a problem in the manufacturing process. The bottling line was the bottleneck.

So back to the ecosystem of a financial planning firm, one of the biggest bottlenecks we have seen in the firms we've invested in is the manufacture of SOAs. So one of the big programmes that we've got underway at the moment is investing in an outsource function for planned production. We call it the plan preparation department. And so taking learnings from other types of businesses into the service area has been really, really valuable.

Then you go up the spine a bit further and you get to things like product systems and client engagement tools. And so AZ NGA has been putting in place various components of that spine over the last five years, and you've got to make a decision, which ones do you build, which ones do you buy, which ones do you just contract and we're going through that process all the time.

MH: So where do you see your secret sauce in all of that?

PB: Yeah, it's a great question. 2011 I was at Colonial, one of the big learnings I had there was when Colonial bought First Choice out, the platform, which to this day probably still is one of the biggest innovations in that sector. We sit back as Colonial First State, especially when we were right at our peak, enjoying large market share of both flows in pharma, et cetera.

 And we'd ask ourselves that very question, because we felt that the product system was replicated... people could replicate, we felt people could replicate the architecture, the design, the mandate system, we thought people could pretty much copy the whole lot if they wanted to. But the bit they couldn't copy, we felt back then, was the human capital. We had a very unique culture at CFS back then and the people in the client services departments and in the investment administrations teams, massive teams of people, the cultures that they created around continuous improvement and the way we all work together, was really special. It was a very, very successful business, and for me that's what we're trying, as a leadership group, here to do the same thing. We think our secret sauce in the end won't be capital because anyone can get capital.

To an extent there's certainly some IP and some smarts in the design of our system, thanks to my aerospace engineer buddy, but I think in the end it will be the human capital, it will be bringing together this group of people, this community, at this time, and the way we interact with each other. That's hard. It's really hard and it's hard to maintain. The other too, by the way, Matt. I don't know if you've ever bought a financial planning company or an accounting company but it's hard just doing... like doing one is really hard. When you layer personal, financial, tax structuring along with all the MNA components and bringing people on journeys and man, it's hard to do one, it's hard.

So to do 65, I'm really proud of that. I think that is some achievement and we think the combination of that human capital, the fact that we've done a number of transactions, we know how to do them, and the design elements of our system, those things together create something pretty unique.

MH: I'm sure you've thought about this long and hard. The question often is, do you buy lots and lots and lots of businesses, or do you make a couple of big acquisitions to get to where you need to? Talk me through some of the thought process that you've gone through.

PB: Well, I can tell you that there's definitely a trend towards larger deals. So if you look at the average deal size on our current pipeline it would probably be double, if not triple, our current average deal size. You know what I mean? So the pipeline of deals, they're much bigger deals.

MH: Is that the supply at the moment, given the current environment? Or just that you're better known and have got better systems and more confidence?

PB: Probably a bit of both. When we first started, the deals... All the deals we've done, the first dozen deals we did are with great company, all our companies are great companies, but back then on day one, I actually spoke to six businesses when we were designing the model to get feedback and to help, and we got their input into the design of the model.

So that gave us our momentum because for the first six to 12 months we were landing a deal every month, and it looked like we were just doing all these deals every month, but the fact was there'd been two years of planning... Sorry, a year of planning and these people had been involved from day one. And we were investing in medium sized SME financial planning firms, and then those firms would start doing M&A activity as well, so they were becoming larger. So they were all growing.

Then as with, yeah got more confidence I suppose, got better known, and certainly in the accounting... Once we got into accounting, that was incredibly important for us, because what that did was it opened up the world of multidisciplinary professional services firms to us. And right now our pipeline is largely those... We've got around... We're talking to around 26 firms at the moment, of which at least a dozen of them will be multidisciplinary professional services companies. And they are larger, typically. Because they've been around longer, typically.

Accounting's a much older professional than financial planning and accounting firms typically. So the average suburban accounting firm's bigger than the average suburban financial planning firm. And so if they've gone off into other areas, which the ones we're talking to have, they tend to be larger. So yeah at the moment, multidisciplinary professional services firms are finding us and we're finding them. We're about to do a couple of quite significant deals in that space, and I think once you land a couple of deals like that, it opens that market further and then others will come out of the woodwork and away you go. But for someone who was brought up in the financial planning sector, the accounting market's just much bigger, much much bigger. And look, the two are converging big time.

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MH: You're keeping quite vocal on that in the press as far as the future model for advice. Do you see that as multidisciplinary?

PB: Look, if you would ask me, if I was going to build a financial planning company or a financial services SME today, what would I do? I would build a multidisciplinary firm that had, say, between three and six specialist divisions. And I mean really specialist. I might have a pharmacy advisory division, I might have an SME outsource CFO division, I might have a legal division.

But I would have specialist divisions all coming together under one business, and my offering to clients would be very clear and articulated as we can help you do these things. And then we'd build the right incentive model to make sure that the front office was presenting a united offering.

So that's how I would do it and that's based on all of the learnings that we have had through what we've done in the last five or six years. That said, you can be... there's plenty of other successful business models and in our portfolio there are businesses that just do one specialised thing, and then there are still general financial planning firms too. So we've got a diverse portfolio, but yeah, I think multidisciplinary... Just think about it from a first principles, business first principles. If you've got a number of different specialisations and disciplines, then you've got risk mitigation because you've got a diverse portfolio. And you've also got a far clearer value proposition and I reckon organic growth's easier if you've got specialisation because specialists get passionate and they get almost obsessed about what they do, and you need that for organic growth. It's much harder being passionate about a general proposition. It's much easier when it's deep and narrow.

MH: So Paul, just quickly, we've gone on for quite a while now, it's been a fascinating chat. What do you see the future for what you're doing and what's next on the agenda?

PB: We're certainly going to continue our M&A phase probably for another three years, I think. We are probably halfway, when we think about our numbers, et cetera, probably about halfway in our M&A phase. And then from there on the focus is really going to be on that organic growth and efficiency. And our end game is pretty simple, we want to invest in these SMEs and make them as profitable and as efficient and as great a place to work as they can be, with the best client proposition possible. So that's what we're trying to do.

We're going to continue to do that, and what's on the immediate horizon? Getting these quality SME businesses into our portfolio. We've got a large number that we're talking to at the moment, and we need to execute those transactions to give ourselves the opportunity to take advantage of the next phase of our growth.

It sounds a bit boring, you probably wanted something a bit more interesting than that, but I'm a bit of a believer in the old school when it comes to business. If you can just focus on a long-term vision and building the best company you can, it opens up doors.

MH: No doubt some of the listeners today are thinking about their futures. What type of practises should maybe pick up the phone and give you a call?

PB: Anyone with a vision to grow a successful financial services SME, whether it be from already an existing mature business or a startup, if you've got an ambition, no matter where you're at in your career to do that, talk to us. Or if you're a person who's owning or in charge of a large, mature firm and you want to help with your succession, we essentially work with firms in terms of succession of solutions and growth solutions from startup to mature, from small to large.

We don't limit ourselves by having some view that we have to be dealing with X size firms or anything like that. We like to find the most talented people we can work with and help them solve their problems, that's what we're trying to do.

MH: Fantastic. Well, congratulations on a great career and the success with AZ NGA and good luck for the future.

PB: Well, thanks Matt, and congratulations to everything that you and the guys at Netwealth have achieved, I think you've really paved the way in the last few years, you've shown everyone what innovation and drive and determination can achieve and I think what you've done is incredibly valuable for the whole market, the whole industry, so well done mate.

MH: Thanks very much, appreciate it.


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Views expressed are of the interviewee and may not be the opinion of Netwealth or its related companies.

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