Episode 24: Catherine Williams
Catherine Williams
Head of Practice Management at Dimensional Fund Advisors
You can also listen to the episode on Apple Podcasts & Spotify.
In this episode:
Abraham and Catherine have an insightful discussion about:
How Catherine got into the industry and what led her to joining Dimensional
The background on the DFA’s Global Adviser Survey
Key trends in tech adoption from the 2021 adviser study
What the top firms look like in terms of revenue, profitability and AUM
The contrast between the UK vs US in terms of AUM and revenue per advisers, and the rationale for the differences
The trends and key characteristics being seen in the faster growing adviser firms
Catherine’s approach to saving for retirement
Guest profile
Catherine Williams is Head of Practice Management at Dimensional. Based in the Charlotte office, Catherine delivers benchmarking and practice management insights to advisors.
Prior to joining Dimensional, she spent more than 20 years in the investment industry, including serving as chief operating officer for a large RIA. Most recently, Catherine offered strategic and executive coaching to investment advisors as an executive business coach with the Carson Group and as vice president of practice management and consulting with Fidelity Investments.
Catherine studied broadcast journalism and has focused her professional learning on leadership development, which includes coursework through Babson Executive Education. She has served as an advisory board member for the Center for Investment and Wealth Management at the UCI Paul Merage School of Business, and as a coach/mentor for the G2 Leadership Institute. Catherine hosts the Dimensional podcast series Managing Your Practice, which was created to provide insights that help advisors with all aspects of their businesses.
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Featuring Abraham Okusanya (Host), Catherine Williams (Guest) and Hana Dickinson (Producer).
Hana:
Welcome to Retirementals a podcast that dives headfirst into the issues facing the financial sector, at the intersection of investment technology and financial advice. Hosted by Abraham Okusanya you can expect raw honesty, critical analysis, and energetic interviews. Here is your host, Abraham Okusanya.
Abraham:
Hi folks, welcome to Retirementals. I am really excited about my guest today and the conversation that we are about to have. Catherine Williams is vice president and head of adviser practice management at Dimensional and the host of Managing Your Practice podcast. So, Catherine, welcome to Retirementals.
Catherine:
Hi Abraham, it's great to be here, thanks for having me.
Abraham:
So, as I was saying to you before the call or before we went live, I am a big fan of your podcast I have binged um you know all the episodes this year and I’m looking forward to what you've got in store. I really want to have a conversation with you today about some of the great work that you've been doing with financial advisers in the US and the latest studies, the Dimensional benchmarking studies that you've recently published.
But before we dive into all of that, do you want to give us a little bit of a background you know, about yourself how you got into the industry and the work that you do today with Dimensional.
Catherine:
I'd be happy to and by the time I'm done you'll get a sense of how old I am. I've been doing this for a while but you know I really sort of stumbled into the industry which I think a lot of people maybe say here and there. I was a broadcast journalism major and needed, I know the irony right. I needed to pay some bills and so I took a job at a small cap value stock picking shop which you know if you know anything about Dimensional’s investment discipline the irony is there for sure, but it was a great place, really interesting place to sort of cut my teeth on the industry here in the US. You know living and dying by your performance really it reveals I think a lot about your own internal character and fortitude if you will. But very quickly after that I moved to an investment advisory firm in the Seattle area. I was there nearly 15 years and that firm during my time there grew from about 300 million to over a billion and we did that both organically as well as through acquisition. So again, rapid learning a huge huge learning curve there and I was COO there for a handful of years, so just you know I always have such an appreciation for how advisers are navigating their businesses today and what that takes. So that was that was certainly an incredibly informative experience.
The last several years I have been primarily focused on coaching and consulting with advisers, really around the world and you know certainly here predominantly in the US, and you know that that ultimately led me here to Dimensional. And you know as a consultant to advisers, when you can lean into the conversation from a place of data, from a place of understanding, from a metric standpoint, not only what's going on in the adviser's business but how they look against their peers and against that larger industry that really can help, that informs the conversation and certainly here at Dimensional data is in our DNA. We have a very academic approach to investing and we take a similar methodology here in the practice management team when it comes to running two large global studies that is really the primary conduit for some of the data we're going to talk about today and how we spend our time with advisers.
Abraham:
Brilliant stuff! Thank you for that introduction. That's a great Segway into the global adviser and global investor studies. So, give us a little bit of a background to these benchmarking studies you've been doing.
Catherine:
So, the global adviser study is all about the adviser's business and it was created, it started first here in the United States. This is our 11th year here in the United States we began it a few years after that in the broader international community, so we now run this study in the US, EMEA, Canada and Australia. And it's all about helping advisers understand what's going on across their business so certainly we're heavily invested relative to the investment platform that an advisor has but we recognise and we believe wholeheartedly that to have a long-term, healthy viable business you really do need to look at all areas of the business and we wanted to think about how could we be a resource.
So that study was created, we gather all kinds of business metrics and we ask questions around how you're growing, how you're developing, hiring and developing people, your technology is a big one, that's been a big one for quite some time and then we produce that, we play those results if you will, back to the participants in the study and in 20 for the 2021 study which actually just officially wrapped with Australia. We had nearly a thousand advisers in this study this year, so really nice sampling if you will, a great cut of advisers. It is only available to advisors that currently work with Dimensional, but you know some great insights are gained from that. I know we're going to talk a little bit about that today.
The global investor study is not quite as old, it's about five years old I would say and it's all about the end client. So it's a fully sort of white labelled vehicle if you will, for advisors to gain understanding, get feedback, client satisfaction and what is top of mind for them. We love nothing more than when an adviser participates in both those studies, you know I often I was actually meeting with a group of COO’s yesterday and I said to them, “You know this might come as a surprise to you, but you don't always know exactly what your clients are thinking.” You know we think we do right, we think we know that asking clients gathering their insights, gathering their feedback we have an MPS, a NET promoter, score functionality in that study and last year we had nearly 17 000 end clients participate in that study. So, you can definitely get a little bit of insight as to what your clients value, what's top of mind for them, how do they really want to engage with you um long term in in that adviser client relationship.
Abraham:
That's brilliant, the global adviser survey will be very relevant to a lot of advisers listening to this podcast right, and many of whom use our time service, Betafolio which is very heavily Dimensional. So, give us a picture in terms of you know what you're seeing in the studies in terms of the revenue, you know AUM, and the key metrics you know for advisers.
Catherine:
So a couple of things there and I’ll kind of I think I’ll answer the question in terms of how we you know we analyse the data in a lot of different ways but one of the ways that we look at the data each year is this idea of if you think about just based on a percentage of revenue growth. So take AUM out for a moment and think about revenue growth, what are top quartile or faster growing firms doing, versus slower growing firms you know. I always want to qualify this and say that growth does not have to mean you want to be ten times where you are today.
Abraham:
Right um.
Catherine:
You know a highly valued advisory business, one that is just growing at a nice steady pace, that is amazing, that's fantastic and quite honestly as we look at the M&A mergers and acquisition environment, those are well sought after. Those are highly valuable businesses, so I always want to give advisers, anyone who's listening, anyone that joins any of our presentations, I want to give them permission so to speak, to not think about this as ‘wow I must be growing lights out’ in order to be successful long term. So with that said, our top quartile firms on average had an average growth revenue growth rate of around 25/26% last year -so incredibly healthy. About 10% of that was merger and acquisition activity, so certainly here in the US that is really top of mind. The bigger firms are looking at that as a true channel of growth, so I always want to make sure we put that in there. The slower growing firms were in the just you know positive, a couple of percent so you can see quite a difference quite a delta if you will between that.
So from there what do we see what are these firms doing, that are creating healthy vibrant growing businesses and we continue to see some strong characteristics around the growth channels. Client referrals is the number one growth in Acro around the world for advisers, but we see with top quartile firms that they're doing a couple of things. One they don't just rely on client referrals, they're thinking about COI’s, they're deploying digital marketing, they're of course as I mentioned pursuing M&A. But even with the client referral piece, we find that they tend to have a way to sort of lean into that conversation with clients about (especially with the clients they would like to replicate, right we probably). Raise your hand if you have clients, you do not want to replicate. So you're not necessarily asking for referrals, in fact you don't ask for referrals that's a poor way to phrase that but they're leaning into that conversation and they're getting purposeful about, you know creating a referral experience client your clients want to refer and then helping them know how to do that so we continue to see those characteristics really come forth with those with clients.
From a business development standpoint top quartile firms have taken the time to develop their value prop and it's not just something that a few people in the organization can speak to, everyone in the organization understands the value proposition, they can articulate it and it informs the decisions they make in their business each day. They've taken the time to identify their ideal target client profile, who they most want to work with. So these firms have gotten really systematic about that and as we're going to talk about today, when you start then adding in people and technology, and setting goals right like you have to have a plan, and not just a plan that's running around in one person's head you know, it's pen to paper you've really mapped this out we continue to see that.
Operating profits do tend to be a little, the profit margin actually tends to be a little bit lower for faster growing
Firms. They're reinvesting in the business, slower growing firms tend to you know kind of be in that 26 to 27 percent operating margin, profit margin. Whereas the faster growing might be 22 to 23 percent. So it's not a huge difference but they do continue to have a lower operating profit and so, and we have continued we've seen that sort of inverse relationship between revenue growth and operating profit margin for a number of years. That when you really, in that fast growth mode when you're really dialling up that growth mechanism, that muscle if you will in the in the business, your operating margin might be a little bit lower than you might see in a slower growing firm. So those are some of the things that we definitely see from the study.
Abraham:
Fascinating stuff, there are a lot of questions in my mind around this and I’m trying to sort of decide where I focus on. So I’m just going to say so let's go let so give us a flavour of what those faster growing firms look like, in terms of I don't know AUM, you know size of the firm, is there any correlations uh correlation there that you can draw in terms of between, amongst those firms those faster growing firms?
Catherine:
So from an AUM standpoint, it actually runs the gamut and we have firms that are you know, small what we call sole proprietor firms and then we work with you know billions and firms that are in the billions and billions of dollars and that's one reason why we picked the revenue swim lane so to speak versus the AUM. So obviously head count things like that.
So what does that mean then? we have to as you're you know I think you know as you're as you're asking like what do. We ultimately get to create what are some of the metrics we look at to really help firms understand and certainly one of them that we, a long-time area focus this helps advisers for firms think about capacity. Certainly their productivity, their revenue and that is what we call that revenue per full-time employee metric and again you know because we're not you know and we do we slice the data a lot, we geek out on it all year long and so with that said um when we look at that revenue per full-time employee number in on average across our study that number has sat right around let's say 312000 to 315000 and I’m just using American dollars here pretty consistently and that that shows up you know as well for the unique EMEA and UK adviser audience. The faster growing firms, they tend to be, they tend to run you know a little bit leaner. Their teams are a little bit leaner, part of that is they have dialled in around the technology piece. They would I don't know any of them that would say they've perfected it, and they're and we see a lot of focus in the study this year around profitability. So even these faster growing firms who have great pipeline, great people, great technology, they're still wrestling with ‘are we really getting everything out of the business that we possibly could?’. So that revenue per full-time employee, revenue per senior adviser which is you know in our study a senior adviser versus a service adviser, is someone who has that rain making responsibility, right? They're bringing revenue into the organization and that you know again those numbers have been you know fairly consistent, year over year but those are some of the areas that we look at to help sort of level out if you will some of the metrics in the study. Does that answer your question?
Abraham:
Yeah, absolutely! Thank you and is there a difference between the UK advisers and say the US advisers?
Catherine:
I do in some cases but you know to sort of, you know make a little bit of a joke about, at the end of the day, we you know we all put our pants on the same way, like at the end of the day I say that you know because and absolutely when I meet with US advisers, they're like surely we're different than everyone else in the world and you know UK, Australia all that and there are, there can be some nuances. I mean I would say for the EMEA and UK firms from you know we talked about those top quartile, bottom quartile from a growth metrics you know that number is a little a little narrower if you will within the UK the numbers not quite as high for top quartile not quite as low it's a little more focused. I would say certainly from a you know what are what are some of the challenges in the business if you will, um you know everyone talks about we want to improve workflow processes, we're thinking about developing our people. I see a little bit more with the UK and EMEA around you know hiring and developing, that definitely really kicks up just a little bit um it's on the radar for everyone particularly, even after the last 18 months we've been living in. But we do see a little, we do see some differences in our study each year, we do ask you know what are top initiatives that you're focused on and that's one that might tick up a little bit higher if you will um in the UK. So how you're going about solving that, it can be a little bit differently but it's one that's definitely top of mind,
Abraham:
So you talked about these fast-growing firms investing more, spending more in technology and clearly you can attribute you know it's a degree of their success to that. So, talk a little bit about that point.
Catherine:
So actually it's really, it's interesting it's maybe even a little bit of groundhog day where I think every each year we're going to go into the study and the number will be dramatically different but the reality is when it comes to uh the percentage of revenue that firms spend on technology and I’m not talking about human capital right we're going to take that out of the equation. We gather income statement information and comp is a separate section, but when you're talking about the hardware, the software, the you know the sort of the deployment, the training of technology, we actually don't see a ton of movement from one year to the next. And more importantly as a spend as a percentage of revenue, we don't see top quartile firms necessarily spending more on technology than we do slower growing.
Now how they spend those dollars, we do start seeing some differences for sure but here in the US it's been about four percent annually is the spend on technology. Again you might have a firm here or there maybe they're deploying a brand-new piece of technology, things like that might be a little bit of an uptick, but for the most part it's sat in that three and a half to four percent range here in the US. In the UK that number has been uh right around three and a half percent, so just a little bit lower and it's hung out there for a few years now. So why is that important, I think first of all, the idea that you must be spending a ton of dollars on technology to be a top quartile firm is a misnomer, that's obviously not the case. Now with that said as firms get bigger we do see an uptick in the human capital side of that, so they may go from having a complete outsourced situation with regard to technology and support to maybe hiring an IT administrator and then of course you know you get bigger and more robust and we'll see a full you know chief technology officer that sort of thing. So that certainly when you lump that in can raise that number over time, but when you think about actual spend of dollars on technology it's actually been very consistent um across the board.
Abraham:
And in terms of human capital, I assume that then dovetails into this conversation about compensation. Again, anything we can learn from you know some of the faster growing firms do differently than the slower growing firms?
Catherine:
In terms of technology?
Abraham:
Sorry in terms of people, the team and compensation
Catherine:
So, yes. Top quartile firms consistently spend more on compensation…
Abraham:
Right.
Catherine:
…for their people overall than slower growing firms. This is not to say anyone listening that they must immediately go back. Maybe they need to, I’m you know that's not for me to say, but we do see that and so instead of it being 46/47% of that as a percentage it's more like 50/51% like, it's a pretty healthy number. Absolutely there's what you pay and there's how you pay it, and that is another difference with top quartile firms. They not only have taken the time to develop, and by comprehensive I don't mean complex, but they've built out a compensation plan, they have a compensation philosophy statement. Right, they're really dialled in about what they want their comp to say, the behaviours that they're trying to drive, the behaviours they want to reward and so if they're in growth mode we often see, you know business development incentives. If you're on sort of the, we'll call it the house side of the business, maybe more behind the scenes operations, technology, all of those team members have some sort of variable comp and it's not going to be as much as you would see perhaps in a senior adviser role but everyone has an opportunity to move forward from an and capture compensation that is variable, maybe it's tied to the firm, hitting a certain profit level, or individual performance. So we see that year after year with the top quartile firms very consistent.
From a structural standpoint we also see with top quartile firms when it comes to their people and I always say this because compensation you can have the best compensation plan in the world, but if you don't have an organizational structure, if you don't have role clarity which can be hard to do when you're you know just growing rapidly or trying to catch up each day, you know a comp plan is not going to do it. It's not going to be enough to keep people, it's not going to be enough to really measure the success of your business over time. So thinking about team structure our top quartile firms when it comes to that client-facing team, clients are not just working with one person, they're working with at least two or three, again depending on the size of your firm.
Abraham:
Right um.
Catherine:
But then on the operational side of the business, you do see in fact when we asked about some hiring trends if you will for 2021, they were predominantly in that on that operational side. Firms I think you know, we saw a swing the last few years maybe, really dialling up the client-facing side. A lot of the acquisitions that are happening was to acquire that adviser talent or that adviser team but we're now seeing where and this you know I think could be because there's greater deployment of technology, we're all working in this virtual environment more than ever, whether we want to or not. So you've got to have people that can really support that and keep that engine running if you will, and quite honestly create capacity for the adviser teams to be able to go out and bring in new business so that's definitely kicking up across our study.
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Abraham:
I guess an extension of this is around compensation and you know talent retention. Is what you're seeing with things like succession planning, and you know equity ownership within financial planning business. Again, if we're drawing comparison between the faster you know, faster growing firms and the slower growing firms is there anything they're doing in terms of bringing in um you know the next generation of talents and leaders for the business and using or not using equity as a way to incentivize around that?
Catherine:
So, a couple of things there and I’ll start with sharing what we saw last year for the for the first time in a in a few years, around why firms what the reason that firms reported they lost clients. Which seems like a weird place to start but bear with me for a moment, so traditionally historically death was the number one reason why advisers lost clients.
Abraham:
Right.
Catherine:
Last year and we saw it again this year, it was the movement the loss of an adviser or you know and certainly that competing adviser as well, played a role. So we see talent moving and boy talk about a double whammy when you lose an adviser, and they take clients with them right. That's, I mean that's like the ultimate sort of pain point.
So these top quartile firms are actively focused on how do we keep the talent we work so hard to get and we've developed um and when it comes to compensation a piece of that that we often see kicking in at that, for those senior advisors is equity in the organization. So it starts often as a way to really keep your talent, reward that top talent but as I just mentioned, now you've got equity moving deeper into the organization, which is a path one of the you know a succession path if you will it's a way for the founders of the firm to begin stepping away from the business. We know statistically from our study that advisers would prefer, in what we call an internal succession right, they would prefer to sell the business but we absolutely know that that's not happening to the degree that they would like it to. That's where that M&A piece will kick in, you'll see firms come together to provide a succession solution for that founder or founders that are ready to monetize or exit the business at some point. So top quartile firms that are active on the M&A side are coming to the table and being able, and presenting if you will they're able to present solutions to sellers that do need a succession plan of some kind and in some cases it's hey we're gonna sign a piece of paper that says in five, seven, ten years we pull the trigger. In a lot of cases, they pull the trigger right away and they're off and running. So as I mentioned you know this is this inorganic growth muscle if you will is one that's pretty well built for the faster growing firms. It's not across all of them, and I often say M&A is not for the faint of heart.
Abraham:
Right.
Catherine:
It's really hard to do and certainly here in the US valuations are crazy right now. It's you know as Dave Martin said it's frothy, so it's just a little like it's crazy.
Abraham:
Is there, I don't know is there a rule of thumb, in terms of what the valuation is? You know multiple of revenue, percentage of AUM, I’ve seen all sorts. Can we glean any insights around that or not?
Catherine:
Well from the study we can, I’ll pull from last year's study because we conducted a specific M&A module if you will around that. So in terms of valuation, we do see you know it's based on a couple of different ways.
Discounted cash flow right and then EBITDA is certainly a common one, you know back of the napkin, which I often say look if everyone's on the same page and they're okay like that's all right but you know, you might consider a more formal evaluation at some point. And certainly, when you're looking at and whether you're the buyer or the seller there's two key components one is the valuation, and the other is the deal right, the deal structure and then you know you've got multiple levers across both of those.
What we're seeing right now is absolutely organizations businesses selling for you know in the double-digit kind of multiples and I’m not going to name any numbers because they're crazy, they're a little bit crazy if you will. But certainly that deal structure is really critical particularly, if you are an organization or if you're an owner that says look you know I want to continue to grow actually I’m not necessarily looking to exit the business but I know I need a partner, right. They're at a tipping point in the business that says I even need to buy it, build it or partner with someone to do it and so that's driving a lot of this activity which is actually pretty terrific because you know advisers, you know we often say look you didn't necessarily get into this business to have, to you know deal with technology, or manage people, or think about bricks and mortar, right. You take care of clients, you bring in new clients, like that's your resting place so to speak and so for a lot of advisors it's about getting someone, getting partnering with an organization that can help them solve that. So you know it's definitely something that continues to be a mechanism for a lot of organisations.
Abraham:
Talk about this, just a comment on this back of the envelope valuation method. There's a firm here in the UK that's pretty, sort of relatively aggressive around (aggressive is the wrong word) but they do quite a bit of you know M&A with firms. And perhaps one of the more thoughtful approach that I have seen, is where they go um you know into a process with the firm they're buying, usually small solo adviser firms and they work out what this advisor needs, you know in terms of their financial plan to work and that informs the valuation of the business. I think it's fascinating but anyway I want to come back to the investment process because Dimensional obviously is an investment house, so we want to see if there's any insight that we can lend there but before I do…I'm just doing the maths in my head. I may be completely wrong, where you know you said firms are averaging around 20-25% in profit, they are spending about 50% on people, about 7% on tech. So I’m assuming the difference, right then the rest in the middle is something around what marketing? Maybe some around operations, I just particularly on marketing is there anything that the faster growing firms are doing different or better than the others?
Catherine:
Relative to the, on the investment portfolio side?
Abraham:
Relative to their spending. Are they spending more on marketing and if so what is it that they're spending it on,if you know from the research?
Catherine:
I do, and you're going to kind of hate my answer I think a little bit too. Because the other area that we do, so we know there's differences in comp, to round out the income statement. We will see differences for example in you know, we have custodial referral network programs here in the US that feed leads, there's a cost to being at that. So we'll see some variables there, the copper quartile tends to be a little more active in those kinds of programs. When it comes to business development and marketing that is the other area of the income statement where we tend to see a very consistent number between both top quartile and bottom quartile firms.
So just like with technology we don't see a big difference in that percentage of spend, it sits right around 3-3.5% and it's been there for a number of years. But again, where how they're spending those dollars we do see some differences. So on paper it looks like they're you know kind of hand in hand if you will, top quartile versus bottom quartile, but when we look at top quartile firms they are deploying dollars into those multiple channels I talked about, the digital marketing piece which of course has a technology, can have a technology spend to it but it's really on the marketing and business development side it's sort of you know any resources they're deploying to produce content that goes out into their digital, either their digital storefront or their digital landscape. We'll see additional dollars being spent there, they're certainly doing even in the last 18 months um we still see events happening that a lot of them were virtual or even hybrid in nature. We just had an event here where we had a whole group of clients on site and so we're all learning, we're relearning how to engage in person once again but spending dollars in those ways, where the bottom quartile firms uh maybe do you know one or two events possibly, they spend the dollars perhaps maybe on some branding but they're not necessarily dialling in around search engine optimization, lead generation, some of these different areas that we see a little bit more innovation happening with the top quartile firms.
Abraham:
Good stuff, thank you very much for that Catherine. So then investment, right this is Dimensional bread and butter. and we know all the firms you're solving are Dimensional firms. They use dimensional in some shape or form but again anything that we can glean from how firms are doing things around that side of things?
Catherine:
A little bit, fortunately for everyone I sit over and I get to talk about everything else with clients.
Abraham:
Right.
Catherine:
And don't necessarily have to delve in on the on the event. We have amazing people here that do that much more purposely but certainly within the study we do ask a few questions a couple, a question anyway each year around the investment piece. Some years we dial that up, in other years not so much.
What we do tend to see with the top quartile firms is you know a continued approach to broad diversification. We know from our global investor study that end clients, while you might start or lead with financial planning, they do care about the investments right. They want to know that you have the acumen to deliver on the investment side, they want to see you know a broad investment platform if you will, and certainly for our larger firms, our firms that are working with ultra-high net worth or even family office sort of scenarios. We often see market neutral and alternatives and tangibles and some of those things really kick in for those, those types of firms and that definitely shows up in in our study.
What I would offer is that, when we look at the underlying team structure and the vehicles for delivering that out to clients, we tend to see a much more simplistic approach with top quartile firms. Meaning they don't have dozens and dozens of models, they've got a you know concentration within the organization about trading and portfolio management, they've really structured the organisation to be as efficient as possible. And it's not because, as I just said it's not because their clients don't care about that and they want to be over focusing on financial planning, right? That is absolutely not the case but from a business efficiency and productivity standpoint, they know they need to have a broad investment platform, they know that some of that may be, you know they've got outside managers they may or may not want to pull from, but how do they make that as efficient as possible?
And the last comment I’ll make, we do ask about what percentage of clients receive certain services in the business and certainly on the investment side, for the most part it's about a hundred percent.
Abraham:
Right.
Catherine:
Of course, there are some that lean in more with the financial planning piece but the top quartile firms are very dialled up on both those areas. And they're also then delving into some of those alternatives, some of those other areas of an investment offering, that just you know create ample, you know additional opportunity to capture greater share of wallet with clients we know that for a fact with top quartile firms. They have a greater share of wallet because they can meet the investment needs, they're not necessarily having to, the client doesn't have to leave you know a million dollars sitting elsewhere because the adviser can't introduce or you know manage a portion of that. So, we do see that greater share of wallet kick in as well too.
Abraham:
Good and this is a great segway into you know the global investor study, right. But before we go into that, on the client side so again is there a difference in terms of the size of assets, the level of fees that the faster growing firms are you know charging than the others?
Catherine:
Yeah, it's actually it's pretty consistent in terms of the level of fees that are being charged. We might see a slightly higher fee with the smaller firms.
Abraham:
Right.
Catherine:
…or the slower growing is probably the right way to phrase that. But for the most part it's actually quite, in terms of the actual sort of percentage if you will, of what revenue uh or how you know the fee structure if you will that advisers are deploying. With that said, excuse me with the with the actual fee percentage, that they're deploying. Fee structure we do start seeing some differences, so top quartile firms are more likely to have hybrid pricing. So maybe they're charging based as a percentage of assets under management, but they've got perhaps a flat fee, a quarterly fee of some kind, a retainer fee they might be layering on to you know focus around financial planning for example. We do see some organizations, this is particularly um a little bit high in Australia the subscription pricing, so think about Netflix right. We're all living in a in a world of you know subscription pricing, and so that's actually starting to kick up a little bit and we saw that globally in our study go from about 22/23% last year to about 26%. So it continues to kind of creep up a little bit, the reason for firms you know introducing, if you will this hybrid pricing is to more a few reasons. One, to more closely align the services that they're providing, with the you know with the fee that they need to charge again. That eventually heard me mention, that profitability piece kicking in for a lot of organisations, they may be going after a younger, newer, different segment of clients and it makes sense to have different kinds of pricing to meet those clients where they're at. We often think naturally of the accumulators you know, those HENRY’s right, high earners not rich yet folks and you know having subscription pricing, retainer pricing, those kinds of things to get your arms around them. And when they're in accumulation mode, and then when they're the kind of you know, the sort of that target client over time, you might shift that a little bit.
So those are some of the reasons that we see that kicking in for organisations.
Abraham:
Yeah it's interesting that, that fee models is creeping up in Australia in particular. I wondered if that's got anything to do with their regulation um, kind of you know this thing, where they've they're separating advice out from investment management a little bit.
But anyway, moving to the global investor study then, again just give us the highlights. You know what can we learn from that story?
Catherine:
So, maybe not surprisingly, I don't think it's surprising. When we look at the NET promoter score in our study, you know we have amazing advisers so it's a really high number, and if you're not familiar with that structure we won't necessarily get into it today. But you know it's a form of essentially measuring client satisfaction and in particular it's based on a single question of ‘Would you refer?’ period. Like would you refer your adviser and how they answer that question denotes where they land on that scoring side. So, we absolutely see in general a high score there, from there we measure and we can cut this across lots of different demographics and insights we gain from the clients themselves. What we do overall tend to see is, that when it comes to measuring the attributes of their adviser relationship and of their adviser, the things that they value the most, you don't see for the promoters, you don't see words like fees and pricing you don't see words like ‘performance’, you see words like ‘peace of mind’, ‘sense of security’, ‘trust’. And you know, all I know come to work each day with clients hoping that is how they feel but don't discount if they you know that, don't take it for granted that they're always going to feel that way and that absolutely shows up with those top firms. And as a result when we look at the characteristic and again we're splitting hairs here because that MPS, the NET promoter score is high in general but when we look at the super high, those top top top firms and we look at how they're running their business. Again, this is that relationship between the two studies, those firms they've got super high MPS, their clients are really engaged, they're evangelical about what they do. We see a higher propensity, high appetite in general to refer but we tend to see a little bit more of those clients actually referring. You know when I’m presenting into a room of advisers and they look at these numbers around their clients saying, ‘I absolutely would refer my adviser’ and they're looking around the firm room thinking well it says here that you know 37 of my clients would you know refer in a heartbeat. I didn't get a third of my clients referring last year right, so what's happening there and that's often a full a different discussion but we definitely see that kick up as well and those top top firms are typically providing some additional services. They really have a nice service offering to their clients again this doesn't mean you need to immediately start offering things like, bill pay or account aggregation per se, but they've they are figuring out ways to really meet clients where they're at and think about the fact that if they're not getting something from me, they're going to go down the street potentially to get it.
Abraham:
Right.
Catherine:
The last comment we do see with those high promoters in our study, this is going to sound a little bit funny to say this out loud because of the sheer breadth and depth of everything that advisers do for clients. But we see for those top top firms and the client feedback, that adviser responsiveness is something that they really put a lot of treasure on, and again I’m sort of laughing because it's like well first of all it's like well of course, but they really do put a premium on that and they appreciate it. We were talking last night at dinner, I had you know a couple of advisers sitting there, I’m gonna be there, they’re in their late 50s early 60s and they're frustrated because they've got young adviser professionals, they're like ‘no no I turn my phone off on Friday and I’ll turn it back on Monday morning’ right. And that's okay, I mean we should probably take a few notes about work-life balance from them but it's like wait a second you know, but if clients are really valuing and you know we can have a whole you and I can have a whole different discussion about how to navigate all of that but it's kind of funny, like it's great. And we've had advisers that see that result and really it's a visceral reaction, like they really do think about, okay what are we doing particularly over these last 18 months where you couldn't go and sit across the table from that client as a form of responsiveness, right? Like you really had to think about how do I get back to these clients and make sure that they're not feeling nervous, they've got that peace of mind, sense of security very much kicked in. So there you go.
Abraham:
The thing that um sort of interests me or amazes me about you know, when I’m looking at this investor study. Is that you asked a question about the value of advice, how people value advice. You know how they measure the value that they receive from their advisor and most people (40%) say something like the sense of security, you know peace of mind which we know. If the other 20% says knowledge about my financial situation, I think there's another 20% that says progress towards my goal right - all that's great. And then you say well, you know which are the top attributes that you consider most important in the relationship, and you know on the top at the top was experience with clients like me, second was investment returns you know.
So is this a conflict between what clients say they value and the attributes they look for in their financial advice? Again, I’m asking this in the context of, you know everything we talk about the rise of financial planning you know. Let's focus clients away from investment returns, and to their goals but every time you ask them these questions investment returns, pretty strong.
Catherine:
It is and I love that you asked this question and specifically you know, is there a conflict there. Because yeah you could look at that on the surface and I certainly have a number of advisers that have said, well wait a second like, we you know that's not even where we start from right. We are focused on financial planning, like why would they be such a high area or area of importance if you will, and it goes back to what I said earlier. They do want to know that you've got the acumen, that you have the resources, you've got the ability, the investment accounts of course and your investment platform is the vehicle to achieving your financial goals.
Abraham:
Right.
Catherine:
And so a lot of advisers will say, well it's all it sort of gets meshed together, but that's why and they do want to see that. And for what it's worth, we ran this study a couple of years ago across three different fielding periods, so both of these studies have single fielding periods where we capture the data if you will. Usually for Global Adviser, it's in the spring and then we're actually just right now about a week and a half out from closing the global investor study for this year. So they're two different fielding periods, but when we ran it a couple years ago across three fielding periods we did that to see if there was any seasonality, there was any market play, right? If you surveyed your clients in January versus in November. You know like the market could be up, the markets could be down right? there we didn't see, they still want to see that even you know and maybe when the market sits up it's a little bit of fear of missing out. On stuff like there can be different motivators but clients still put a great deal of emphasis on that, but how they feel about the relationship, what ultimately galvanizes them and adheres you to them -as a between a you know an adviser and a client - is how they feel as a result of that, how they feel about the services you provide. They walk out, we know for example widows, they have you know according to our study they have a, there's a strong fear there of you know a life event of some kind which obviously it was a life event that caused them to be to become a widow. So that very much stays with them, the what they most want to feel after they engage with their adviser is educated. They want to understand what's going on and in many cases it's starting from scratch, depending on how engaged they were prior to becoming a widow but certainly even ongoing and then, they're also more likely to open up emails from you a little faster than women who are married or um you know in a relationship. And it's not that married women don't care or want to know, but when you know that about the clients you're working with and we have advisers here that are laser focused in around women in wealth, widows you know what what's going, you know what's happening, how they approach money. When you know just those kinds of things right, how they want to be communicated with, is it an email versus a hard copy? Do they want an email versus a newsletter? Those kinds of things you can get into with our study, and it can absolutely inform the client experience, reinforce the great things you're doing, but also inform when you want those are the clients you want to replicate. And it's an anonymous survey, so you don't specifically know but this is why these demographics are so important but if that's an area of pursuit for you, maybe that's a niche client, for example, you want to go after.
Now you've got some great insights about what they value and you can put that out there in your prospecting process, your you know the next set of clients you bring in the door and that's really where we see kind of the rubber hit the road with that study.
Abraham:
Wow Catherine, there is just incredible amount of insight in in all of that. So thank you very much for the work that you do, for the insight that you bring to the table. And to wrap this up I always like to ask my guests how they approach their retirement. Now don't take that as an insult, yours you look to me like you're in your 30s which you are I’m sure but just looking at how does Catherine Williams, Head of you know Practice
Management at Dimensional approaches, how does she approach her own retirement planning?
Catherine:
Well, uh first of all you can edit out that part about looking like I’m in my 30s, it's very nice of you to say that. That's not the case, I have two grown children and I’ve been doing this for a little bit of time.
So you know my approach to retirement has, it's been a process, you know um often people say well you've been in the financial industry for years so surely you must know exactly what to do, and how to go about you know thinking about your retirement. And the reality is I need an adviser just like everyone else um, and so that's you know that's critical right to get that, to find that advice, find that person those people who can understand your situation meet you where you're at and that's been that's absolutely been the case with me. In particular because you know I’ve had life events uh you know whether it's moving, raising kids, divorce all those kinds of things, not to get too personal but they can impact you financially, they can also impact uh your confidence level about being ready for retirement. We talk about this a lot particularly with women and how we view finances and how what happened as children even that inform that. So for me I actually I mean I would say I’m behind the curve a little bit, like I’m really I wish I was further along and so having an adviser that not only says well you're not as bad as you feel like you are, um but here's what we need to do to kind of get you moving forward and certainly you know taking full advantage of an incredible 401k program here, getting access to Dimensional funds I would say is a really really critical piece of that. And then just being mindful of do I want something now that will create some short-term satisfaction, versus if I put it away it'll be there when I’m ready to retire and I have a longer-term outlook. And you know I live life to the fullest, I love to travel, I love to do all kinds of things and so continuing to strike that balance. That's a conscious decision that I have to make all the time because you know, because I’d much rather like go do something really fun right now, so I have to, having that discipline of asking myself what would be instant gratification versus if I put it away it'll serve me down the road and that's something that I definitely am still mastering.
Maybe there's some people listening that can put their hand in the air and agree with that but…
Abraham:
No, thank you! It actually makes, the you know, the rest of us feel much much better, you know if you know your humble um approach to the old thing. It makes us feel better because we realise that actually you know we're not the only one uh you know, I’m not the only one struggling with you know figuring out how much you save for retirement versus spending the now. So thank you for that!
Now for advisers who are listening to us your podcast is a great one to find. It's on iTunes, Apple Podcast ‘Managing Your Practice’ by Dimensional. Where else can we find you? Um you know catch up with your, with your work.
Catherine:
Well thank you, very much and I will say as an android user you can also find me, find us on Spotify and all the usual platforms um so I always I get a lot of flak for not being an apple user. Um but you know certainly if you're if you're an adviser, that's currently working with Dimensional uh we have just a I would say an incredible catalogue of resources. So much you know, virtually all of it is initially informed by the data we gather in these two studies that I mentioned but then it shows up if you will for advisers in terms of tools, resources, additional videos, all kinds of things that you know if you if there's a particular topic or area of the business that you are focusing on, we know as we headed you know we're in the fourth quarter of 2021. I'm not sure exactly how that happened but as you start thinking about your planning for 2022, you know some great resources that can help inform different areas of your business um if you're working with Dimensional. Beyond that certainly you know I’m out and about in the investment community, different conferences things like that, so um you can follow me on LinkedIn that can be a good place to kind of keep up on what I’m doing. But um yeah it's great, it's great to be here and absolutely uh excited to share some of our insights with you today.
Abraham:
Thank you Catherine and if you're ever in London you know, if you ever come this way let me know um and we can you know we can get some advisers together and you know give you a bit of, I’m sure you've been to London before, but you know give you perhaps a flavour of London that you haven't had before.
Catherine, thank you very much for your time and for your wisdom and keep up the good work.
Catherine:
Thank you, you as well. Great to speak with you.
[Music & Abraham outro]