Breaking the Mould

It was a full circle moment Heath and Tucker – Heath now running the business that Tucker, in his role as chief executive of MLC and group executive of NAB Wealth, had acquired.

As their careers intersected, Heath and Tucker reflected on the challenges of running an advice business inside a vertically integrated organisation set up around product sales.

“… I was trying to drive a change from a stockbroking culture to a wealth management culture. Steve was trying to drive a product sales culture into an advice culture,” he says.

Tucker exited in early 2013, and Heath followed soon after. Both unemployed, they spent some time contemplating what the advice firm of the future should look like.

Heath and Tucker sketched out three concepts they believed would be fundamental to the development of a firm capable of achieving lasting success in the high-net-worth market.

“The first one was independence, conflict-free advice… We wanted to make sure that there were no conflicts of interest, genuine advice, separation of the advice process from the platform and administration process, from the product manufacturing process,” he says.

Principle number two was that the business would be owned by the people who work there every day. Currently, over 98% of the firm’s voting stock is held by its employees.

“At the time when we set Koda up…the vast bulk of advisers were held by the big four banks, AMP, and IOOF. Vertical integration was perhaps at its zenith. We came out and said no; the model of the future is independent advice delivered by people who own the firm,” he says.

The last piece of the puzzle was ensuring Koda could be large enough to tap into the best investment opportunities worldwide while being small enough to maintain a family feel.

Koda manages approximately $15 billion in funds under management and is home to 130 staff, including 50 partners. However, Heath notes that compared to some larger organisations, Koda is “really small,” adding “we don’t aspire to be the biggest, we aspire to be the best.”

Koda has always remained true to its founding principles, Heath says, but one of the most “wonderful things” about the business is something he never expected.

“Because I’d come out of JBWere and Steve had come out of MLC, we naturally assumed the adviser teams would be from JBWere and MLC, but that’s not been the case at all,” he says.

“Koda has recruited from almost every major institution that provides wealth management in the country. Ultimately, we’ve become this melting pot of best practice.

“We’ve taken advantage of the [wealth industry’s] turmoil, not by wholesale, looking to buy other businesses, but by finding like-minded people who want to belong to our idea.”

Looking ahead, Heath says Koda will still rely on finding like-minded lateral hires. But what excites him most is the organic growth of the next generation of advisers coming through.

“No question, the clients, who are typically older, would like to know there’s someone there with a bit of grey hair, but they also take enormous comfort from the idea that their adviser team cannot just look after them today, but can look after their kids when they’re gone,” he says.

Heath extends the notion of nurturing the next generation by putting particular emphasis on gender diversity, particularly since changing the existing mix of advisers is difficult.

“The wealth management industry has a problem because it’s been male dominated for a long period of time. But that’s not what the client base is going to look like 20 years from now – it’s going to be much more gender diverse,” he says.

“I think the attraction of our partnership model, the idea of a partner at the firm, is nurturing the next generation that idea of a career pathway, particularly for young female advisers coming through. We’re trying to make sure we’ve got all the settings right for that.”

So, aside from its economic strategy – growing revenue lines, managing costs, and building strategies or services relevant to clients – Koda has been deliberate about its culture, wanting to build a sense of ownership, creating a collegiate and respectful environment.

“We want people to be courageous enough to say it the way it is, to speak to truth and be open to feedback. In every Koda room, you’ll find an elephant, some of them are very small, some of them are large, but the whole idea is that’s the only elephant allowed in the room,” he says.

“We have symbols and rituals around the culture to create the environment that we want.”

Heath recalls how, in his early years, wealth management firms followed a well-worn playbook: maximise EBITDA, court a big institutional buyer, and cash out, all with minimal regard for nurturing new talent. But Koda hasn’t been built to sell, he says.

To build a program of investing in young people requires more than motive, but also a willingness to make a trade-off between short-term profitability and long-term sustainable growth.

“… the advantage of being staff-owned is that, as a group of partners, we can get together and authentically make that trade-off between the short and the long term,” he says.

“That model lends itself well to replenishing adviser numbers, which is what the industry absolutely needs. There’s a supply-and-demand imbalance today between the demand for advice services and the number of advisers. It’s not going to get better by itself.”