The industry needed a cleanup, but as you’d imagine with anything, The “Big Guys” MPA and BCA (I’ve shuffled the letters) suffered temporary pain and then resumed “business as usual”.
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry introduced several regulatory changes.
This meant increased operational/ compliance costs, additional screening/ audits, and higher-level minimum educational standards. All positive things.
The negative? Increased cost and time that it takes to provide advice.
The goal of the business has always been to provide approachable, accessible, and affordable advice. Because of the changes, we now could not assist clients in repaying their bad debts, managing their cash flow, assisting with simple strategies such as the FHSSS, or consolidating super funds with balances under $120,000 for what I believe was an affordable cost.
An example;
Bad debt research, strategy, advice, and implementation carry a business cost of at least $1200. As a rule of thumb, a business should make at least 2-3x its cost…
I’d much rather a client put those funds towards their debt. But, the client still needs assistance and often, someone to keep them accountable. So, we kept taking on the work with a decision to run a loss.
Why?
I saw it as an investment into the client.
Our long-term hold.
The client pays off the debt (loss).
Creates a savings buffer (loss).
Begins investing (break-even).
Then builds further wealth ie. buys a home (profit).
Running the numbers, the average term for a return has been 3.5 years.
Take on 100 clients in debt. That’s a minimum $120,000 upfront loss per year.
Which, if you look at our numbers, is fairly accurate for that side of our client book.
Was it worth it? Yes. Emotionally.
But, we couldn’t keep doing it. 100 clients turned into 120 then 150, at one stage we were doing 8 bad debt SoA’s a week. You do the math.
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