Starting your own business

With Paul Heath, CEO and Co-founder of Koda Capital.

After rising to CEO of JBWeir, Paul Heath, CEO of Koda Capital, made the decision to leave and start his own business from scratch. In this episode Paul shares his motivation for co-founding Koda Capital and the lessons he learnt during his career in financial advice that helped to make it a success.

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Transcript

Matt Heine: Hi and welcome to this episode of Between Meetings. Today I'm joined by another industry luminary who's been very successful over the last decade and a half. He was born and bred in Perth and subsequently went on to become a trader and adviser, and then lead one of Australia's oldest and most respected broking houses, JBWeir. Subsequent to his eight or so years there, he then moved on to set up his own firm, Koda Capital. Welcome to the show, Paul Heath.

Paul Heath: Matt, it's a pleasure to be here. Thanks for having me on the show.

MH: Absolutely. Now, as we tend to do, I've just given your life's history in the space of around 30 seconds, but it'd be great to hear from you, I guess, your history. How you got involved in finance and what got you interested in the industry.

PH: Yeah. Your brief summary just about covers a lot of it. It's very interesting that people can often find a trigger point that says, "This is the pathway you're going to go down." I was fortunate that I had that. It's a funny story. For someone who grew up in a house that valued education, both my parents were teachers, I perhaps didn't apply myself as much as they would've liked to my education. And I bumbled my way through school and bumbled my way through university, and then ultimately got a job working for CSR in their sugar factory.

So I was a trainee accountant. I was finishing my degree in accountant, and in those days it was a relatively small organisation. You had to do a little bit of everything, and one day I was assigned to cleaning out a filing cabinet and getting rid of all the documents that sat in there. It just so happened I came across this document, which was an FX trading manual. Now, I have no idea what an FX trading manual for CSR was doing in a filing cabinet in the Cottesloe sugar refinery, but there it was. And I read it and it was like light bulbs going off in my head, and at that point I decided I wanted to be involved in markets and it started to shape my career from there.

From there I went with CSR working in the part of their business that traded sugar futures. They had a very significant sugar hedging programme, and I did that and did the FX work around that. From there, an equity derivatives trader at Bankers Trust. But I also had this idea in my mind about stockbroking. There was something ... Perhaps it was at the time growing up, Matt, in the late 80's-

MH: Particularly in WA.

PH: Particularly in WA. The excitement of the run up in the bull market. The movies, Wall Street, whatever it was. There was something there and eventually I found my way back as an advisor at JBWeir in Perth. It's interesting. I first interviewed at JBWeir in 1989, and eventually ... In fact, it was 1998 I first interviewed. Eventually I got a job there in 1994. So I tell people, "I interviewed for nearly seven years before I got a job with the firm and ultimately went on to lead that organisation." Different from the JB Weir as a big firm was the private client division. The only thing that would make that story better is if I started in the mail room.

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MH: 
And do you remember why it was that they didn't hire you for those seven years?

PH: I think I just didn't have the skills and the qualifications. And I probably thought I was better prepared than what I was, but it was a wonderful piece of serendipity. And so often that's what happens. You know that in life. I was working as a derivatives trader for Bankers Trust. I wasn't particularly good at it. With the benefit of hindsight, I can see that now. JBWeir were bringing to the market or preparing to bring to the market a very good investment fund that they ran called [inaudible 00:03:23] Investments that had a derivative strategy across shares, and they were looking for somebody who would help explain how this worked to the private client advisors and their clients.

And so, I had the fortunate position of being able to start based in Perth, building a business as a private client advisor. But also adding something extra to the firm. It allowed me to have a wonderful opportunity to get exposure to people that I wouldn't otherwise have done so within JBWeir. It's a wonderful organisation. Great culture. No doubt we'll talk about culture later, but it was a wonderful part of that. And so, this little piece of luck that something that I wasn't terribly good at as a trader just turned out to be the catalyst to get me started on a career in advising.

The other light bulb moment I can't define as precisely as I can about that time, I decided I wanted to work in markets. But at some point along the journey of becoming an advisor, it dawned on me that when a client would show up with this pool of money that they wanted us to advise them on how to invest, the idea became that pool of money reflected their life's work. But more importantly, it reflected probably the hopes and aspirations that they would've had for their kids. And I remember at some point thinking more profoundly about this role in financial advice, that it's something more than just advising people on how to invest the money. It's acting as a steward and a shepherd for this thing that's so precious for them.

And I think it's that last thing that's probably been the important guide as to how I've thought about my role in financial services and I've thought about the organisations that I've been lucky enough to be responsible for, about treating this money as something more than just an exercise in investing. It's something that can have a really profound impact on people's lives, and that's, I reckon, why I've so enjoyed being involved in financial services and advice and the roles that I've had, because you can see how you can help people with something that's very precious to them.

MH: And I think, even though you're predominantly dealing with high net worth and ultra high net worth clients, that pool of capital could be $50,000 or 100,000. It's really not that relevant at the end of the day.

PH: The size of the money doesn't matter. It's the intent and what it represents. I think if you think about it that way, no one could feel anything but a sense of shame when you saw what came out of the Royal Commission. I mean, clearly, people lost sight of the fact that's what our role was. And again, it goes to these issues of culture. I look back incredibly fondly on JBWeir and the lessons that I learned watching some of the great leaders of that organisation set the cultural time, look after the clients and everything else will come from that. And those thematics have played such an important role in the way I've thought about the businesses. Especially Koda, and I know we'll talk about that at some stage.

MH: So you went from being a client advisor to performing, it sounds like, almost a business development role internally with the other advisors. How did you transition from that to actually leading the business?

PH: Again, it's just a piece of serendipity. And for whatever reason, people within the organisation formed a view that I might be able to be a manager. I had no background or experience in doing so. In fact, I remember the doorbell ringing at my house on a Sunday evening and it was David Evans standing there saying, "I've got a proposal for you." And the idea was that I would start a career in management. And so, that's what I did in 2000. I moved from Perth where I was an adviser, primarily, to running the Sydney office of JBWeir. And I still looked after clients at that stage, but then it was very clear that my career was going to start to take a different course.

And Matt, if I think about it, I probably being A, little bit flippant that I hadn't had a lot of experience. That was true. But what I did have is I had a lot of people who had given me guidance along the way. I'd been fortunate that I've had some fantastic mentors, and those mentors have done two things for me. The first thing is they've given me the right guidance at the right time, and that's critically important. But I think also they've created opportunities perhaps even before I was ready for them. And when I look back throughout all my career, I was given opportunities at times when I probably wasn't ready for them, but I was backed by people who were prepared to A, give me the opportunity and then B, wrap the support around me that was needed. And perhaps C, be there for me when I made the inevitable mistakes of which, by the way, there have been plenty.

And so, again, this idea that you'd love to look back and think that there was this precise course that you'd mapped out for your career. It never is. And all along the way, I can point to people who were very influential in giving me the confidence to take on the role that it was. So I began management in Sydney in 2000 with a very small private client team. Eventually I had co-responsibility for all the advisors. Ended up taking responsibility for the business, and that was in 2005. And then, when the then-Goldman Sachs JBWeir decided to sell the private client division, the private wealth division that I was responsible for ... That was sold to NAB in 2009 and that's when I affectively became the CEO of JBWeir.

MH: And how big was the team then?

PH: It was about 500 people. There were probably ... A little more than half of those were in client facing roles, either advisors direct, the support staff for those advisors, or the management infrastructure to run that. And the balance was running the very significant back operations, because at that stage JBWeir looked after its own platform, had its own custodian business-

MH: Which was [Invidia 00:09:09], I think, at the time

PH: Custodian at the time. So it was a business of quite reasonable scale, and of course, as you know, the management you need to run a business of 500 people is fundamentally different to the style you need. And learning how to bridge that gap and become a different leader was, again, one of the great challenges that I really enjoyed as I learned my craft.

MH: Yeah. Because you definitely went from what sounds like quite a small almost boutique business to something that had 500 staff and ultimately got sold into a bank. I think the cultural challenges as you scale up or grow a business pretty rapidly over the course of a decade must have been interesting.

PH: Well, the truth is JBWeir had its own culture and environment and it was a very different culture even to perhaps Goldman's in terms of the expectations that it had on its people, and then NAB was another very, very different culture. And the way you got things done within a commercial bank is very different than the way you'd get things done within a professional services organisation, which was the way that JB Weir probably thought about themselves. And so, understanding how to make things happen in those different contexts was one, at the time it used to drive me batty, but when you look back again with hindsight it's a great learning experience because you have to be agile in the way that you work through that.

I think one of the advantages that I had always had along that journey is that I had been an advisor and I'd spent the start of my career managing clients. In fact, I looked after client relationships directly all the way through to 2005, and I feel that was helpful as you navigate your way through, you never really lost sight of what you were there for and who it was you were serving. And if always you have that true north, what am I here to do and what's the real purpose that I'm trying to do? It helps you get through the complexity of navigating stuff through big organisations, which inevitably happens. It's neither right nor wrong. It just happens that way.

MH: Yeah. We've had lots of conversations on the podcast around client-centricity. Everyone's obviously talking about it, but few people do it really well. So I think having that experience actually being at the coalface would have been invaluable.

PH: Yeah. Well, if you are truly client-centric, you are going to create challenges for your business. Clients are never happy, one. Number two, they're all different and they want different things. As businesses grow, you are naturally going to gravitate towards trying to do one way, same way, and get all those efficiencies. And there's always going to be this tension between those two things. And so, really working out, how do we stay client-centric but in a sensible way is one of the great challenges for businesses, and it's even a greater challenge for businesses that need to be able to serve the client for their existence.

MH: So having worked at JB Weir and left with a staff of circa 500, you decided to do it all over again and start something from scratch. What was the thinking when you left, and had you formed a group of people that you wanted to do it with or did it evolve quite organically?

PH: It evolved over time, Matt, and there were probably two things that came together at the right time. The first one was growing up through that time I described, there was always a discussion that was catalysed by my own frustration, that advice wasn't a profession. And in fact, over my career up until that point in time, I'd probably watched advice move further away from being a profession and more towards sales. And it always drove me nuts a little bit that this notion that I had this true sense of moral value in what we were doing, that idea of looking after the client's life's work and their hopes and aspirations for their kids, but it was now increasingly framed up within a context that was never going to really allow that to be professional. There was structural issues that were in there. So what always had this idea that at some point this tension has to be resolved and there was going to be a solution for that.

And then the second thing. I found myself unemployed, quite possibly unemployable with no life skills other than private wealth. So necessity is the mother of all invention and the two things came together. I was incredibly fortunate that I had a couple of colleagues that I worked with at JBWeir, Andrew Rutherford and Quintin Reeve who were both up for a new idea at a particular point in time, and we formed it enough on the back of a beer coaster to be able to talk to Steve Tucker, and we we're all in the same boat at the same time. And hence the origins of Koda were formed.

I think the piece of magic that the catalyst that we understood was post the GFC something had changed, and it was the clients and the clients' expectations had changed. Pre the GFC I think client will look at a [bridge 00:14:07] sprawling organisation and get some sense of comfort and security. Post the GFC, that big sprawling organisation I think caused doubt in the client's minds, whose interests are really being served here? So we sensed that there had been a shift in client thinking post the GFC, and we really then thought, okay, if you were going to create a company today to serve the new client paradigm that was evolving, what would it look like?

And that was really the thinking that came there. From that point on, it came organically, and then enough people said, yeah, let's do it. And we got together. The official birth date of Koda is about October 2013, when we applied for the licences. Set up the company.

MH: Same time as FOFA was launched.

PH: No, FOFA was well and truly ... Actually, do you know what? It might've been being implemented by that stage. That's right. We knew it was coming. It was being put in place. We set up a company to apply for the licences, set up the infrastructure and our core thinking across the back end of first half of 2014 back into 2014, and we opened the doors in 2015. And it's been fun, that whole journey, Matt, and fun ever since. And we hope we keep having fun along the way.

MH: It was really interesting, your point about the Global Financial Crisis. I think a lot of people look at the root cause of all the changes happening in the industry and people tend to have forgotten that it was actually the GFC that started at all. Growing from the GFC was significant distress from consumers, obviously a real focus on fees and everything else going on. It would have been quite challenging to rewrite the business model at that time given that you were looking at creating a purely independent business, no product margin or sharing. Did that take you a little while? We're obviously at a point now where the whole industry is grappling with that and trying to reinvent themselves rapidly. Was the blank canvas actually a real advantage?

PH: The blank canvas was undoubtedly an advantage. There were times when starting a business from scratch creates stress and anxiety that you just so wish you had a starting point with a revenue line.

MH: And the temptation to fall back into old habits must've been immense.

PH: The temptation to go after money because you need money was really tough. And again, the calibre of the people that were on the journey ... We put together a board very quickly, and that was a really important discipline that we had. And there were a whole bunch of challenges and we can talk, Matt, about the challenges in setting up the business. The great opportunity we had was a blank sheet of paper, because then you could say ... If you were building a business for the next 15 years, what would it look like? And it would look different. And I think that there are three things about it that we understood were going to be different and we framed it up in that context.

Independence is really important because if you want to build trusted relationships, if you want to be the trusted advisor, you can't have conflicts of interest. Full-stop, end of story. So you had to start the business in that framework.

The second thing is if you are going to build a business that was going to be profitable on advice margins, you had to change the traditional cost structure.

MH: And that's where the tension comes in.

PH: Okay. And so, the truth is what had evolved over that period of time is a lot of the things that you need today are now available on a more outsourced model. And Netwealth is a great example of that. You don't need to own your own platform today to be an advice business. You don't need to own your own technology. You don't need to have in-house HR specialists or legal specialists. You can really change that around, change the cost structure, and allow you to be profitable on that basis.

And then, I think the third thing that becomes really important is that if you want to really create sustainability, I think a partner model where your staff all own equity in the firm and they're all aligned that way. One of the really cool things about Koda is probably less well known because it's an internal thing. Independence is wonderful to face the market, and so we're free of conflicts of interest.

MH: Just on that, obviously it's very challenging to call yourself independent these days. You operate, I believe, under the Independence Charter. Is that correct?

PH: Well, I can tell you that we are section 923A of the Corporations Act compliant with the title of independence. So the only fees that we receive are paid for by our clients. If we receive any form of commission, we rebate that directly through to the client. And we work very, very hard to make sure that we have no conflicts of interest.

MH: Which I imagine might actually be quite challenging just because of the current structure of the industry where there is so much payment baked into the various products and services.

PH: It adds a complexity around what you do. It's hard sometimes to avoid a commission being paid. It's not that hard to say, "We're not going to accept that. We're going to rebate it to the client in a clear and transparent way." And that makes the difference. It adds a little bit of complexity to what we do.

But just going back to the structure of Koda. One of the really cool things is the advisors are free of conflicts. It's actually quite hard for them to do anything but the right thing by the client. Two, if they're aligned longterm through equity ownership in the firm, they'll make smart decisions about the right thing to do over the longterm. Start by making the client happy, but make sure it aligns up with the objectives of the business over the long term. And what you can then do is you can delegate enormous decision rights to those advisors. And if the decisions about what needs to happen day to day in the firm are being made by people who speak to clients, you'll create a client-centric firm.

So that was one of the really cool things. You can't do that if you don't start with a blank sheet of paper. But we're able to put all those pieces of the puzzle together and end up with a model that we had high levels of confidence was not only going to be relevant to what clients we're looking for over the next 15 years, but was going to be able to be profitable in the context that we were setting up.

Now, not everyone believed us at the time, and it's not true to say ... It would be true to say that confidence wasn't tested regularly. But we look back now and things are playing out in the manner that we thought that they would. So starting with our blank sheet of paper turned out to be a great blessing. There were times when we thought it was a curse, but it really did allow us to shape the business almost precisely to what we thought the client needed and the client wanted, and to me that's the great challenge for the industry today. There's a huge wealth advice industry that's configured to deliver something different than what the client wants.

MH: And that was really going to be my next question. You're fortunate and you've been very focused on that high net worth segment who can clearly pay for advice and value advice. Do you think that model is sustainable and can work for the mass affluent?

PH: Yeah, I do. And I A, get angry when people in the industry say, "The regulator is pricing advice out of the hands of the client," because ... I A, get angry. But B, I always default to great optimism about the entrepreneurial nature of people in financial services. But Matt, to be successful, you have to be able to meet the client where they are.

Now, if a client doesn't value what you do, then they're not going to pay for that. So you need to find out what it is the client values and what it is they're prepared to pay for, and can you deliver a service to match that need? And I feel at the moment there's a lot of resistance in the industry to the necessary change because there's a lot of vested interest. This is what I do, but the client won't pay me enough for it to make it profitable. Well, perhaps you need to change what you do to make it valuable enough that the client will pay for it, or that you can deliver it at a price point where the client values it.

I just totally believe in the market will sort this out, but the market has to deliver what the client needs, where they are, and we're not there yet and it's going to take some time to figure that out. But if you can meet a genuine client need, the client will pay for it. And if you can then deliver that need at a price point that makes it profitable, that's a sustainable business. And that's what the industry I think needs to figure out. Rather than complain about where we are ... It's a bit like ... I'd argue it's a bit like Qantas complaining about gravity. It is what it is. How are you going to be able to deliver what the client needs at the price point the client's prepared to pay? And I think that someone will figure that out.

MH: Well I think they have to now, and that's what we're seeing. It's quite exciting with a deadline on rebates and a deadline on conflicted [inaudible 00:22:38], people know that they need to do something otherwise they will be out of business. So there is a lot of activity and it's great to see some of these new business models actually evolve.

PH: Absolutely. It's the innovator's dilemma. It's incredibly hard to innovate a way out of redundancy if you're an existing business model, and so that doesn't mean it's necessarily the evolution is going to come out of the existing institutions. There's no doubt in my mind that the innovation will flow through. So perhaps Koda delivers a service at a high net worth level at a price point that might not be relevant, but I fundamentally believe the principles of ... We set out to meet a client need where the client was, and that meant we had to reconfigure our business in order to do that. That principle applies to anybody who's in the wealth advice space, at least in my view.

MH: And a big part of that also comes down to culture. And so, if we just focus on your partnership model for a moment, obviously you want to bring in people that fit the family portrait. What's your recruitment process? How do you go about finding those people that fit the Koda mould?

PH: Yeah. So the first thing that surprised us ... Lots and lots and lots of things, Matt, about Koda didn't go to plan. And one of them was where we were going to find our advisors from. I naturally went into this thinking that there was lots of people at JB Weir that would go ... It's actually not the way that it's necessarily worked out. One of the wonderful things about Koda is that we've recruited very broadly across the firm ... Across the marketplace. I'm sorry. We've got people from Morgan Stanley, the old GBS, JB Weir, credit Swiss.

This has turned out to be one of the most wonderful things, because everybody comes in with different perspectives about a business model and how it works. It's certainly added complexity to our business because over the course of our life, people come in and they bring in an existing business, but then slowly it starts to rhyme with the Koda business and we need to manage that through time. But I think one of the things that surprised us is the wonderful diversity of experience and how if we can bring that together.

But what we do all have in common is we're bounded around a very simple set of principles and values, and what I'll tell you just a little bit about that. Our mission is to deliver our clients financial peace of mind. What we've felt is that ... Our whole idea ... I'm going to keep coming back to this theme, this pool of money represents my life's work. It represents my hopes and aspirations for my kids. And I want to be at peace with all of that.

Well, what does that look like? It means that you've structured well and you've got the right assets in the right location. You have a good estate plan. The money's invested appropriately. If your money is going to last multiple generations, then you should be investing with a 30 and 40 year time horizon. It means you're giving back into the communities in which you've become successful. Most of our clients have some level of philanthropic motive, and it means that the family are bound around something that's ... This money's going to bring the family together and not tear the family apart. So those four ideas sit behind the core service offering of Koda, and they're designed to deliver financial peace of mind. That's what our goal and objective is for the client.

We then said, "Okay, well, if we're going to do that, what are the things we're going to value?" And I think one of the really important things in setting culture is to truly understand what you're going to value. There are lots of organisations that say, "This is what we value," but they actually don't. They value our stuff. We've got three very simple values; quality, courage, and integrity, and on each one of those we've got a handful of behaviours.

Quality is all about doing great work and respecting each other in the way we work together to do that work. Courage is about having the courage to challenge the status quo, the courage to say it the way it is and be open to feedback. And integrity is all about doing things the right way, both in the way we engage with our clients, our colleagues, and the communities in which we operate. And we've got a very simple set of things. We pay a lot of attention to this.

The other thing, Matt, is that we pay a lot of attention as symbols. If you walk into a Koda office anywhere, all the rooms are full of elephants, and the principle here is it's a symbol for our courage. The whole idea is we say, "This is the only elephant that's allowed in this room, and everything else we're going to talk about." Well, look, the elephants have taken off. People bring elephants from overseas, clients give us elephants. We've in fact got more elephants that we've got rooms to put them in. But what then happens is it becomes a symbol and the culture becomes real and you can link the symbol to the behaviour to the value, and you embed that in.

We pay a lot of attention to that because if we get the cultural settings right and if we recruit the right people who believe in that, and then we give them great freedoms and they'll take great responsibilities under our decentralised decision making model, you'll end up with fantastic client outcomes. So we also have this principle. A great culture, great people, freedom and responsibility delivers extraordinary client outcomes. And those are the ways we frame up our culture and the way we all work together to deliver that for clients.

MH: And so, when you're recruiting, how do you try and test for some of those, I guess, core values? Do you bring other partners into the recruitment process? How do you actually go about it?

PH: So the recruitment process at Koda is long and arduous for everybody. Typically, if someone's coming to join the firm at a partner level ... We don't use partner as a term of hierarchy. Partner describes your responsibility to work together with other partners to deliver a client outcome, so we have a lot of partners. But if you were coming in at a partner level, typically you will meet with at least the founders of the firm. Typically, you'll meet with at least four to five other partners who you would be expected to work with. Typically, you will meet with members of the board, and this is a mutual due diligence process.

We want to understand this person. We want to understand where they're coming from. We want to understand their motives for wanting to leave where they are and come, because people don't leave their jobs. Most of our people at Koda, they love their work, they just didn't like the context that they were doing that work in. So we want to understand all of that, and we want the person who's coming to Koda to have a clear idea about who they're going to be working with and what we're motivated by. And if you get to the end of that, any one of our partners has the right of veto. Anyone can say along the way, "I don't think this person should be a partner here," and we'll stop the process.

But if you get through to the end of it, you get two things that happen. One is there's a real alignment through that. But more importantly, when that person joins Koda, there's at least a dozen partners who are invested in their success. And so, recruitment is difficult. We take a lot of time about it. Lots of people don't choose us as much as we don't choose people. We've done hundreds of interviews to get to the small number of partners that we've got, but it's core to what we do because your quality of your people goes to the quality of your culture, and the quality of the culture goes to the outcomes you're going to be able to deliver the clients.

 

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MH: So you talked about the concept of a partnership quite a lot. Now, I think if you look forward over the next 6, 12, 18 months, we're going to see a huge amount of consolidation in the industry. We've got certain principles that are looking at stepping out or taking on more of an ambassador role, and this idea of giving away equity or bringing equity partners in ... It's very hard to point to a great model that's worked really well in the industry, but the partnership is an interesting evolution of that. What other models did you look at? What did you like? What didn't you like? And, why did you land where you did?

PH: We were always thoughtful about the idea that they're already exists professional services models that are highly profitable based off advice fees. It's the legal profession. It's the accounting profession. And so, when you look at the way that those have evolved, at its core there's a sense of partnership and the idea that the key staff participate in the economics of the organisation as much as they participate in the outcomes of their own endeavours.

MH: And are they buying in to the partnership, or how does that actually work?

PH: So in Koda, we very deliberately set a significant chunk of the equity in the firm aside. Nearly half the equity in the firm. We said, "We're going to give that to the partners who come on board and help us build this company." And eventually that equity will be used up and then we'll move to a system of trading equity where you buy in, which is the more traditional model that we would use.

So we were very deliberate when we set it up. We could see professional services firms and the way that they used a partnership model, the way that they grew organically. Probably that's changed of late with lateral hiring, but often these legal firms, they're built up over time. JB Weir used to grow organically, invest in the longterm in people who would come up embedded in the culture and believing in the culture. So that was the idea that we had in mind as we set it up.

But the principle of partnership fits in a couple of different ways. One, the partners are empowered with the decision making rights to make the firm a client-centric firm. That's one of the real principles that's important. The partner participates in the economics of the organisation at a serious level so that they're incentivized to make longterm decisions, absolutely starting with what the client needs, but lining up the organisation behind them. And then the third one is a sense of team, that we're all in this together and that the success of one partner depends entirely on the collective work of all the partners.

MH: And is everyone an equal partner, or is it based on relative business contribution?

PH: All sorts of different things. And equity ownership with encoder partly is depending on the contributions. Some of them might be ... Some of our partners are revenue producing partner advisors. Some of our partners develop the investment portfolios that sit behind that. Some of those partners deal with our operations side of it. And what we do is we look at the relativities and make sure that the equity ownership is meaningful and relative to the contributions that people are making.

And the other thing we try to do within the business, Matt, is try not to have too many stratas around that. The idea that by and large, people are traded relatively equally for where they are and the contributions in the organisation. We're not perfect on that, but that's the goal and that makes it easier to run and fairer over the longterm. And I think if people come to work every day feeling it's fair, they're being well-rewarded for the work they do. They do good work. They've been well-rewarded and it's fair across the board relative to others. You'll create as harmonious a workplaces as perhaps you can find.

And so, we're by no means perfect, but there's a slightly broader agenda here. If Koda is successful, and I think that we're now proving that up, well here in lies a path to a profession for the industry. Free of conflicts. Partnership-based model. Proper education standards. You're on your way. And I think that once we can truly be a partnership ... Sorry. Truly be a profession, then we can start to go back to those original aspirations I talked about at the very top of the podcast.

We're privileged when a client comes in to see us, that they've got this pool of money that's so precious to them, reflects their life's works, their hopes and aspirations for their kids. And why wouldn't we want to handle that with the utmost care and professionalism that it deserves? So there's a slightly bigger game here too, Matt, in Koda that hopefully over time we can perhaps help shape an industry, and that's a pretty cool idea as well.

MH: It's ambitious and I like it. So you talked again about, I guess, investing for the longterm, and I've heard you in the past talk about investing like an endowment fund. You guys are doing something quite different to, I guess, many of the other firms out there. What sits behind your investment philosophy and what you bring to clients?

PH: Yeah, sure. Well, we wanted to ... When we put together the investment strategy team with Bridget [Lakey 00:34:52] and Jason [Coggins 00:34:53], we sat down and we said, "There are again a couple of principles that we'd really like to put in place. Let's invest the client money the way that we would." And what we would always look to do is to try and find the best and most appropriate ideas that we could do.

The second thing is we said, "Let's not let hard get in the way of that." And Matt, you know with the work that we do with Netwealth, we will find strategies that are difficult because they might be call structures or they might be aggregated structures or they might have performance fees, but what we do know is that they are world-class in terms of the outcomes they can deliver for clients, both in the way that they not only work in absolute terms, but the way they work with the other investments that we have in the portfolio.

And so, we spend a lot of time ... Our investment strategy team goes overseas four times a year. We spend a lot of time thinking about where markets are positioned, and what are the most appropriate ways to build portfolios for clients? We look a lot for what I call idiosyncratic risk, returns that aren't necessarily driven by interest rates or by economic outcomes, but might be driven by weather patterns or by water trading rights, catastrophe re-insurance. We do all that stuff.

It creates complexity in our business, which is why it's important that this isn't for every client. We look after a particular client segment that works, but we didn't want to let what was convenient for us get in the way of delivering the outcomes for clients. And so we're really proud of what we do from an investment strategy point of view. As I said, it creates challenges for us in the way we administer it. I know it creates challenges for Netwealth in the way that you do it. But again, we think about that meeting the client where they are becomes really important. And if you can do that, then I think you'll deliver what the client's looking for, and that's a great spot for a business model at least to start.

MH: Paul, there's many topics that we could continue to talk about for many more hours, I'm sure. Thank you for being so honest. Congratulations on building a great business to date, and all the best for the future.

PH: Thank you very much, and thank you for the support that you give to our business, and it's just been a wonderful pleasure to be on this show. Thanks, Matt.

MH: Thanks, Paul.

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