Tassie firm takes on the mainland

Taking a business nationally is a big step in a business’ development and one that reflects upon the level of home grown success it has achieved.

However, such a venture is destined to fail if the business model is not robust enough to handle the change in circumstances that each new location will thrust upon the business.

The announcement late last month by Tasmanian stockbroking and financial planning firm Shadforths of its intentions to take its business model national, is an acceptance of these two factors.

Yet over the past four years in particular, Shadforths has worked hard to prepare itself for such a challenge.

“We have grown aggressively over the past three years because we have seen the need to grow or to get out. To survive as an independent, you have to be a certain size. You need critical mass,” Shadforths chief executive officer Nick Bedding says.

The first steps towards the national presence has already been taken with the acquisition of RC & A Financial Services in Melbourne made at the end of May.

Bedding says he expects Shadforths to make up to four acquisitions over the next four years, with a presence in Queensland and New South Wales the next targets.

“We do feel that we have a model that has the potential to grow on the mainland,” he says.

The main impetus in transforming the business from a home grown entity to a national business has its roots in Shadforths’ repurchase four years ago of the 50 per cent holding HSBC Securities held in the company.

This represented an opportunity to fulfil Shadforths’ ambition to become a truly independent integrated financial planning and stockbroking business.

Established in 1924, Shadforths remained exclusively a stockbroking business until the early 1980s. Financial planning services were then introduced to the business and the lines between financial planning and broking have been blurred ever since.

Bedding says part of the success of Shadforths’ model derives from the fact that the firm does not differentiate between the business done by the stockbrokers and that of the financial planners.

“We have gone out of our way to have brokers understand and embrace financial planning concepts. Our financial planners do a lot of direct equities work and certainly nearly all our financial planners do provide equities advice.”

According to Bedding, while over the past few years a number of stockbrokers have attempted to enter the financial planning market, most have failed because they are not prepared to adapt their stockbroking culture.

Shadforths is now at a point where the revenue from financial planning business has surpassed stockbroking, with 52 per cent of funds under management deriving from financial planning and 48 per cent from stockbroking revenue.

However, Bedding says just because they can provide the stockbroking service, there is no bias to equities investing.

He says equities investing is only used when appropriate for those clients with a more active interest in their investments and who have large dollar amounts to invest.

“Our clients appreciate that we are able to give advice on the total situation,” he says.

Of the $2 billion total funds under administration, $1.2 billion is invested in direct equities portfolios and the other $800 million is invested in managed funds.

Shadforths does not conduct its own investment research, rather it integrates third party investment research into its own research committee and research department that then use this to form the house view.

Bedding says the remuneration of its brokers is now moving more towards a funds under administration model, where brokers receive a percentage of the equities portfolio rather than a fee on transactions.

Advisers are paid a fee for service and a trailing fee irrespective of what investment products the client opts for.

In July last year, Shadforths established a separate company to run its cash management trust and wrap service, and will ultimately be responsible for a margin lending facility.

Known as Financial Acuity, this separate business was established in response to client demand for a wrap service. While there is an increasing proportion of Shadforths’ business running through its wrap facility, Bedding says the firm does have a legacy from the 1980s of a large number of investments in retail funds.

One of the key aspects of Shadforths’ philosophy is independence of ownership, taking its origin from the breakaway from HSBC some four years ago.

“The business is fiercely independent in ensuring no links with fund managers,” Bedding says.

However, ethics is probably the overriding philosophy of the business and this relates to the core values of the business, including the quality of service and advice, maintaining client interest as paramount, client confidentiality, trustworthiness and reliability.

Bedding says these values have been particularly important in a small market such as Tasmania.

“You need to be absolutely ruthless in looking after your clients. If you make an error, everyone knows about it.”

He says the ethical and educational standards of Shadforths have been recognised in the number of awards given to his staff over the past few years.

The accolades include two Shadforths advisers who topped Australia in their Diploma of Financial Planning studies, with another two advisers named byPersonalInvestor’sMasterclass 2002 in the top 50 certified financial planners in the country.

“We have won many national awards over the years and this has resulted in the company being regarded as a leading firm in the industry throughout Australia,” Bedding says.

He says this commitment to high educational standards has its history in the firm’s original culture, where employees were recruited mostly from the accounting profession.

Today, the minimum educational standard at Shadforths is a Certified Financial Planning qualification, with every employee typically having an undergraduate degree.

The business has also established a three-year trainee structure for graduates, and currently has 12 paraplanners and trainee advisers that are viewed as the future of the business.

An associate program was introduced two years ago, enabling senior staff to buy shares in the company, with some 12 staff participating in the first share issue.

Uncharacteristically for many planning offices, Shadforths retains its staff for long periods of time. Currently it has 15 staff who have been with the business for longer than 10 years.

While Bedding attributes this partly to the lack of opportunities available in Tasmania, he says the business has worked hard to retain its staff.

“We have put definite structures in place. Three years ago we introduced a profit-share scheme, where we split the profit share equally among employees,” he says.

While Shadforths has put itself in a strong position locally before going national, Bedding says the market space it has filled in the Tasmanian market will not be so easy to replicate in other states.

“We are relatively large compared to the size of the market [in Tasmania]. We haven’t had to differentiate as much as on the mainland.”

Shadforths target market in Tasmania has been slanted towards the older end of the market, the 45-year-plus age group. In terms of net worth, the firm has predominantly targeted the mid to high-end of the market.

Bedding says incorporating this mid-end market means Shadforths has been able to capture opportunities that other planning offices only focusing on high-net-worth clients may have been missing.