Article 2 in a series of 5 Articles
Friday September 7, 2012 was hot for a day in early spring. A day never to forget. The day the Crocodile Company aka Elders Financial Planning* and hereafter known as EFP – launched their physical assault upon our business. (*Not to be confused with Elders Insurance and Elders Rural) Their representatives backed a lorry up to the front door and began to remove all client files from our office on Richardson Road North Rockhampton.
The physical files not only represented hundreds of hours work on behalf of our clients but were symbols of our strong relationship with these people. For EFP the client files represented income dollars and were signs of ownership.
To John Mackenzie and I, EFP on that day appeared more as termites gnawing away at a valuable house without knowing what they were actually doing, concentrating upon glutting their appetite, feeding upon what they believed they owned.
As they tore away at our business, intent upon breaking down our relationship with clients, the words of a mentor came back to me from an entirely different context, that of the destruction of Philippine democracy under the Martial Law of President Marcos in the mid-1980s. At that time mentor Bren quoted:
What may seem to be the breaking down of civilization may simply be the breaking up of old forms by life itself.
I rephrased this statement in applying it to our situation:
What may seem to be the breaking down of a Financial Planning Business of Integrity may simply be the breaking up of a Dinosaur Business of Deception by people who refuse to succumb
The people in this case being not only John and myself, but our staff and our clients. We defined Financial Planning as a Relationship.
On that particular Friday, as EFP tore at the physical evidence of our business – the client files and the computer system – we were already in process of re-building our business as Clear Waters Financial Planning (CWFP) and had Peter from a local technology firm installing new computer systems. I noted to John how hot it was in the building. Lo and behold, he had turned off the air-conditioning to make the termites (sic) sweat. He also informed them the kitchen and bathrooms were off limits. However, he had cool clear water and a damp towel available for Peter.
John and I began our careers as financial planners in the early 90s under the auspices of TFS Lifestyle Planners. By the year 2007 we had accumulated significant experience and while employed as financial planners, had considerable consolidating roles within the business. Thus, when the owners chose to retire and sell the business it was a natural transition for the business to pass to our care. The problem was finance. TFS was a strong business with a high value, too high for John and I to purchase. Or closer to the truth, the bank did not trust us and our ability to develop a sustainable business.
The owners chose to sell to Elders Financial Planning who would contract us to run the business under a franchise arrangement. Our pet name for this business was – obviously – The Crocodile Company.
It was almost a month before disagreements arose. They became progressively worse. We battled with EFP or five years until that hot day in September when John turned off the air-conditioning while they removed all client files and computer system from the office. That was the beginning of the end of the matter.
Looking back, the franchisee contract with EFP was never going to work.
Firstly, the mindset of the two parties was poles apart. The priority for EFP was to increase income which they understood as coming from new business written, firstly insurance business with high commissions and entry fees for investment/superannuation business. Further there was the non-disclosed “trailing commission” on both insurance and investment products. This was a business model we had moved away from many years prior while working with TFS. The CWFP priority was wealth management for long-standing clients whose relationship with us was primary.
TFS Lifestyle Planners had long eschewed entry fees and hidden ongoing commissions within investment/superannuation products and replaced them with transparently reported adviser services fees. The financial stability of our business as CWFP therefore was the ongoing service fees on a growing amount of investments under management.
Secondly, the financial arrangements between the two parties soon unravelled. Under the franchise we were to receive 60% of the income – less GST payable – while paying all office costs. The financial viability of this arrangement depended upon various subsidies from the CC. These subsidies were dependant upon us reaching new business targets and were never guaranteed. Our business spreadsheet had no semblance to the spreadsheet provided to us pre-contract, a spreadsheet which showed subsidies increasing at 10%pa.
Our franchisee business was soon running at a loss as we consistently sought rectification from EFP. To no avail. At our consequent court hearing in 2013 we alleged subsidies not paid at $700,000 over five years based on the spreadsheet provided by EFP pre-contract.
A seemingly unrelated event was the Global Financial Crisis which began to unfold at the same time that we contracted with EFP. By January 2009 investment accounts of our clients has contracted on average by 33%. Likewise our bread-and-butter income – adviser services fees – had contracted by 33%. EFP had no appreciation whatsoever of our predicament at that time. Their instruction was to:
- Reduce staff to a minimum. Then re-employ them when the crisis passed.
- Decease the practice – fundamental to our business – of holding personal individual reviews with clients. Rather provide updates to groups of clients on a quarterly basis.
- Concentrate on selling insurance. In other words, flog products.
The attitude of EFP to staff and clients appalled us. We were furious. Contrary to their instruction we doubled the number of personal individual reviews as a way to assist clients weather the financial storm. At a later time these clients would repay us with their loyalty.
Thirdly, we had to raise a debt equivalent to 40% of the value to the business. The undertaking to us pre-contract was this ensured our 40% ownership of the business. In our fifth year of contract we sought clarification of how such ownership was to be achieved. We were advised to seek our own legal advice on this matter, at our own cost.
So it was that prior to our court hearing in 2013 the presiding Judge expressed considerable surprise that seemingly we could increase the value of the business over a number of years and yet receive no benefit from this.
Within those five years to September 2012 we continually sought meetings, wrote letters, cajoled, demanded answers from EFP. Nothing changed. We approached ASIC who informed us our situation was not their concern. We went through a process of formal mediation with EFP conducted by the Office of the Franchising Mediation Adviser (OFMA). The end result of this meeting facilitated by the supposedly independent OFMA was pressure upon us to accept $10,00 and walk away from the business. How does that work?
We refused to walk away and our barking became more strident. In response, John had his license to advise suspended by EFP in May 2012. The reason presented was John’s audit failures. This was a blatant sham and in effect an effort to break our business. In a final mediation meeting prior to September 2012 we were informed by the legal representative of EFP that he would make sure we would never be able to provide financial advice again.
In this context we were being pressured to apply for a renewal of our franchise contract for another five years. We refused. Instead we chose to set our own sail upon the financial planning sea. We set up Clear Waters Financial Planning in August 2012.
A court injunction was served upon us, preventing us from having any contact with any clients.
That is why that big lorry backed up to the doors of our office on September 7. The men inside the lorry began the work of termites.
To be continued ….
