The Road to Independence

For over 14 years, ifa magazine has been the trusted source of information for Australia’s financial planning sector. Our own Joe Stephan was recently interviewed for a feature article where he discussed how he and his brother James, developed Stephan Strategic to be one of the few practices that can call itself truly independent. Here is a copy of the article.

Ask Joe Stephan how he got into financial planning, and he will tell you that providing financial advice is in his “blood”.

In fact, his father was not only a financial planner, but was also the foundation partner of non-aligned licensee Integrity Financial Planners – his former licensee.

It was while working with his father’s small group of clients that Mr Stephan’s career in financial planning started off. He then went on to work across a number of other financial planning businesses but, after a short time away, Mr Stephan found himself coming back to his father’s practice. Eventually, he would develop it, working alongside his brother James.

“James and I have been in business together now for ten years and it has been great to work with my brother,” Mr Stephan recalls.

Taking over their father’s practice marked the beginning of an era for the two brothers. They would find themselves not just looking to grow as advisers, but also to take the business to new heights.

After a few years working on the business, says Mr Stephan, both he and James decided that they needed to get the business “fundamentally operating” in the way they thought it should be.

It was this decision that would put the pair on the path to becoming completely Corporations Act independent.

Changing the business
The first place they started was by addressing the remuneration model in the business.

“The percentage-based fees on assets under management was something that we couldn’t reconcile within our mind,” Mr Stephan recounts.

“We didn’t like the idea that you would have a $3 million client, which you would charge 1 per cent, while at the same time charging the same fee to a $300,000 client. We couldn’t reconcile such a disparity in fees between one and the other,” he says.

On reviewing the way in which they charged clients for advice, Mr Stephan says, they decided to move to a fee-for-service model.

They also started looking at how other areas of the business operated and what they could change to get everything operating in the way they thought it should be.

“We asked ourselves: ‘What are the types of things that we need to put in place? What would we want to see if we were clients of this business?'” he says.

“So, we went from engagement straight through to review and pretty much altered the whole business.”

In reshaping their business and even the way in which they were remunerated, Mr Stephan says both he and his brother started to realise that they had actually started to create an independent advice business, similar to that promoted by the IFAAA.

“We started investigating and looking at the rules. We thought some of them were a bit onerous and in some ways a little bit impractical,” he says.

“But we thought, why not go for it? Effectively, every decision that we have made has been in line with our culture and our values as a family and as a business. We felt that being independent was that step forward towards aligning the way the business actually looks with how we feel about what we do.”

He explains what happened next. “We had a look into it. The majority of our business and our revenue was generated from fee-for-service retainers. There was a group of legacy business from our late father’s days, though. Most of those clients would have been put on an investment where they had a trail component.

“That didn’t represent a huge part of our business but it represented a significant amount to think about when it came to how would we be able to transition into this new environment.”

They had to address the legacy remuneration issues they had within the business. However, Mr Stephan remembers that it was also their licensee, Integrity Financial Planners, which was preventing them from being able to be completely independent.

“The group itself was very much working in financial planning in a way that we thought financial planning should work. It was very professional, with a concept of giving great advice,” Mr Stephan explains.

“Of course, in dealer groups there are many different ways that businesses can be remunerated. I suppose that other businesses within our group were being remunerated in ways that were rendering us unable to call ourselves independent.”

With that in mind, and determined to transition their business to become completely independent, the brothers applied and were given their own AFSL in August 2015.

After having gone through the whole process of changing their business, Mr Stephan says that anyone else who is considering doing the same for their business needs to think about what benefits it will bring them. They shouldn’t just think of it from a marketing point of view, he says.

“I don’t think this is something that you want to do just because you want to position yourself differently in order to attract new customers or clients. My view is that you need to make the change based on what you feel is right for your business,” he says.

“The major benefit that we saw in our business was not necessarily from the referrals or the leads that we got because they were seeking independent advice. I think the point was that our existing clients saw the light in our eyes when we were talking about our plans to do this and why.”

Looking to grow
Now, ten months on from having transitioned to be an independent financial planning practice, Mr Stephan says both he and his brother have future aspirations for growing the business.

“We have always wanted to be one of the leading financial planning firms in our locality,” he says.

“We have never wanted to be in the yellow pages. We always wanted to be word of mouth, where we deal with complex affairs and help a select group of clients that really get our offering and make it a pleasure to rock up to work every day.

“In terms of what we are doing at the moment – we have been really successful so far. If we can continue on our trajectory, it won’t be long before we build a sizeable team and we are able to roll out the Stephan ideals about how a financial planning practice should actually work and how a client should receive financial planning advice.”

Mr Stephan adds that he also currently teaches at university in financial planning. He sees this as his way of showing new, up and coming advisers how to do things.

“It would be great if the actual practice itself would be able to teach the next generation of financial planners about how to give advice,” he says. “I think that’s the legacy that we can bring in our small way. It’s what we can add into the profession.”

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