An adviser called in for a meeting. He is from interstate and was literally staying around the corner enjoying our beautiful Black Rock beach summer environment. He did not have an appointment, but we were happy to see him and went for a coffee at a nearby café.

He works from home and has been in practice for just one year, which was wonderfully punctuated by the arrival of a baby girl, who is now 6 months old.

The adviser is only 32, and has a youngish client base. Recurring income is up to about $15,000, and first year income grossed about $40,000. So it was not a brilliant year. But the potential is there. It was not a bad start, all things considered, and the recurring income of $15,000 was great. Do that every year and you will be a success.

His net wealth increased over the period. He ran up about $20,000 of debt during the year, but his practice is worth at least $45,000 (conservatively, using a very low multiple of 3 times recurring income).

Nevertheless, he went backwards on a net cash flow basis. He now has three mouths to feed so he needs to lift his game, build his practice and feed that family. If he does nothing nothing will happen. So he has to do something.

Some ideas include:

  1. move to more appropriate business premises that separate his professional life from his family life and allows him to focus on business development when he is in the office and allows him to focus on family when he is at home. It’s hard to be focused when the office and the home are the same place
  2. diversify away from a risk insurance based business:
    1. the 1 July 2018 LIF reforms means it’s going to be a very hard game, and we estimate the future value of a risk insurance practice’s gross income will fall by 40% on that day
    2. he has a very young client base and they simply do not need large sums insured, at least in foreseeable future
    3. it has not worked that well so far
  3. use Dover’s unique and free RODO SOA preparation software to reduce the time and cost of preparing a risk based and/or super based SOAs and the time needed for Dover’s compliance team and MLA Lawyers to review the advice
  4. use Dover’s Adviser Client Engagement System, to present as being the leader of a large well qualified and experienced team, with diverse skills including property, SMSFs and investing skills, a well-resourced website, monthly newsletters and weekly blog articles designed to get new clients in his door (and sent to 500 potential business clients in his area)
  5. appreciate that Dover ACES only costs $5,200 a year, and this is on 365 days credit. This means he can claim a tax deduction and GST credit before he actually pays for the service. Its cash flow positive in year one
  6. appreciate that Dover ACES means practice value builds. If Dover ACES increases annual fees by say $1,500 (a very conservative estimate) this means the practice’s CGT free goodwill increases by at least $54,000 a year, being an extra $18,000 EBITDA times a multiple of 3)
  7. train as a SMSF adviser and offer free SMSF set ups and low cost SMSF admin setting up SMSFs and transferring their existing super balances into the SMSF space. This means:
    1. he is excluding/reducing future direct competition from retail super advisers
    2. he gets the profit from the client, not a financial institution. The first step in creating a fee for service environment is to actually provide services, not refer your client to someone else
    3. SMSFs can be set up for amounts less than ASIC’s preferred $200,000 minimum provided the SMSF has a simple investment strategy and consequentially commensurately low admin fees, so the advice remains appropriate and in the client’s best interests
    4. Dover Legal E Docs sets up SMSFs for free for Dover advisers, and he should use this advantage to make sure clients are not scared off by high set up fees
    5. he can charge the SMSF for:
      • regular insurance advice
      • regular investment advice
      • recurring administration fees, while Dover SMSF provides a low cost SMSF admin service including everything needed to comply with the superannuation law. This is detailed here: The financial planner as a super adviser
      • develop skills as a property consultant, and market these skills to his young home-ownership-anxious client base. He can charge a fee for researching and assisting with property selection, organizing other professionals (eg conveyancer, pre-purchase experts, finance etc) and generally advising on home ownership strategies. He can coach his clients through the purchase negotiation process including holding their hand at an auction or a private treaty negotiation and making sure they do not pay too much or they buy the wrong property. This is detailed here: The financial planner as a property adviser.

Appendix A: sample e-mail to a young client offering property services

Hi Name

I hope all is well.

Last week I helped a client in circumstances like yours buy a new investment town house in name of suburb for $amount. We met, identified owning a smaller rental property as a manageable and sensible first step to home ownership and then confirmed lending capability with a NAB bank manager I have worked with on other client matters.

We looked at the tax benefits, including deductions for depreciation and building allowance, computed she could afford up to about $500,000. This seemed a bit scary but I was able to convince her it was a good move: Australian property has averaged more than 12% over the last twenty years (source: Russell ASX Long Term Investing Report) and will probably do the same over the next twenty years.

I helped her identify an appropriate property, got a pre-purchase architect’s report, and coached her through the (very stressful) purchase negotiations. Once she signed the sale contract I arranged the finance and for an accountant experienced in negative gearing to handle her tax returns.

It occurs to me you should be doing this too.

I am concerned if you do not you will miss the boat and the ultimate goal of owning your own home will recede even further away.

I will call you to arrange a meeting. There is no fee. It’s part of the service.

Best wishes 

Name of adviser

Appendix B: sample e-mail to a young client offering SMSF services

Dear Name

Let’s talk about whether a self-managed super fund makes sense

SMSFs are the fastest growing form of superannuation. It’s all to do with control, knowing where your money is and minimizing your set up and administration costs.

SMSFs are a long term strategy, best viewed over decades, not years. The idea is you set up a SMSF now, transfer your existing super benefits in, arrange for your existing contributions to be paid in, and then go the extra mile and arrange for some extra contributions to be paid in.

We set the SMSF up for you for free. Our AFSL, Dover Financial Advisers, is one of Australia’s largest SMSF operators and will set the SMSF up for you for no fee. And there is no obligation to use me as the service provider. There are no administration costs until about 9 months after the end of the first full or part financial year. For example, if you set up a SMSF on 1 July you do not face admin fees until nearly 21 months later, in the March of the year following the next 30 June.

If you keep the investment strategy simple, with a very long term buy and hold philosophy, and we recommend you do, then the cost will be surprisingly low, almost certainly no more than 1% of the fund’s balance at 30 June, which is great.

Can I suggest we make a time to see me to discuss whether a SMSF is appropriate to you and in your best interests? I will call you do to do this. There is no fee. It’s part of the service.

Best wishes

Name of adviser