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How Barry Lambert beat the banks at their own game

Introduction. Lawrence Lam focusses on companies which are founder-led, due to the passion and expertise of their leader. Here, he interviews a founder who followed his own path in wealth management with great success, and exited the business with perfect timing.

***

Barry Lambert founded Count Financial in 1980, self-funding the business and running it whilst juggling a full-time job at CBA. What started as a “necessity to pay for three kids and a big mortgage” was sold to CBA for $373 million 31 years later. I interviewed Barry to understand how he built the business from the ground up, without external capital for many years.

Barry’s lessons apply not only to business but to life and are an insight into the behavioural differences which make founder-led companies a special hunting ground for investors.

For those looking to find the next Barry, the clues are sprinkled in his recollections. Behavioural tendencies permeated through Count Financial’s culture and sound business decision-making demonstrate the unrelenting heartbeat of a founder.

The heart behind a founder’s business

After Hours Tax Services. That was the name first given to Count when it was born in 1980. Nothing flashy in the name, more Barry’s pragmatism and straight talk. He started working on tax returns as a side hustle. He sought approval from his employer, CBA, noting there was no conflict of interest, since he was working at head office and had no direct contact with customers. He was approved, and the next day he placed an ad in the Yellow Pages.

The response from the ad was strong. As he was busy with his day job and couldn’t travel to service all the customers, he started outsourcing the work to other accountants, taking a skim for referral.

As the network and customer base grew, after a few years, Barry’s side gig was making him four times the salary of his full-time job, so he quit his banking career after 18 years at CBA. He also felt his own business better reflected the core of Barry’s philosophy - do what’s right for the client. And he didn’t see this philosophy at CBA. Incentive frameworks were designed to push clients into low-yielding products called Non-Interest-Bearing Accounts (NIBA) and with high inflation in the 1980s, clients’ wealth was being eroded. The promotion of NIBAs didn’t sit well with him.

Barry believes the concept of ‘doing the right thing by the client’ proved a winning formula not only for Count’s corporate identity, but because it was a genuine commercial advantage that won market share. Clients listened to technical experts, the accountants, rather than salespeople with vested interests.

Speed of improvement

Barry’s matter-of-fact approach to business rubbed off on the way Count was run. If improvements made sense, they would be done quickly without bureaucratic red tape. Count was an early adopter of Australian Financial Services (AFS) Licensing for its financial advisers, to remain ahead of regulations, rather than on the back foot. Some of Count’s competitors were outright complacent. Barry recalls how he raised the need for licencing at a lunch with a Big 4 bank and was told, “Licencing is for people like you; we don’t need to be licenced”.

Improvement is a necessity of business, and Count maintained a relatively flat hierarchy. All major decisions went through him, there were no committees and steering groups to contend with. If the strategy made sense, it could be executed much faster than the competition. For example, Count converted into a paperless operation over a few weeks and was an early adopter of emails. They lost seven accounting firms in the transition, but Barry says it was necessary improve the efficiency of the business.

Barry points out the subtle difference between speed of execution versus speed of decision-making. Executing quickly doesn’t mean decisions are rushed and ill-considered. Quite the contrary. He often took his time with decisions. “The solution often doesn’t come to you straight away, you usually have to sit on it a bit”, he told me.

There were two main criteria Barry used to make big decisions:

  1. solve the problem from first principles rather than copying others, as benchmarking is a flawed concept, and
  2. the answer should be simple to manage and not too stressful to implement.

The move into financial advice and wealth management

With this framework, Count morphed from an accounting network into wealth management. In the 1980’s, there were no other hybrid accountant/financial planner firms. As with all great ideas, it seems obvious in hindsight. There was no one better placed to provide finance advice than accountants who knew the financial position of their clients intimately.

The solution came because Barry’s accountants started receiving requests from wealth advisers who wanted referrals from Count’s network. However, Barry felt these financial advisers were more like salespeople motivated by selling investment products, not providing the right advice for clients. Barry believed clients deserve to receive financial advice from professionals and not salespeople. Count applied for a financial advisory licence and started the new service the following year.

Barry created a first mover advantage because Count was independent and relied on accountants providing tailored financial advice. The philosophy and strategy underpinning the business allowed Count Financial to morph into advice using the long-term relationships accountant have with their clients. They understood their financial goals and had the technical background to provide advice.

But back then, most accountants weren’t interested in offering investment advice. It involved opening a new business line with more licencing and compliance obligations, something they didn’t have appetite to do on their own as single accounting firms. But therein lay the opportunity for someone like Count Financial. They had a network business that had already had scale.

As Barry recalls, he saw the opportunity to transition into an investments business and execute the strategy ahead of others because he was the founder and didn’t have the multiple layers of bureaucracy that prevented many others from pursuing bold untested business models.

The idea was to obtain investment licencing and offer training to his accounting network, provide all the know-how and investment knowledge to help facilitate them providing investment advice to their clients. In return, Count would take a percentage of all the investment revenues generated.

Barry had no interest in servicing individual clients but saw a greater opportunity to instead target accountants and to “leverage their client base” generated revenues as a percentage of total Funds Under Advice across the network.

Growth was scaled across multiple dimensions, exponential not linear:

  1. By the number of accounting firms in the network
  2. By the number of clients within each accounting firm
  3. By the needs and investment portfolio of each client which would contribute to Count’s bottom line.

When I quizzed Barry about how this model was so successful, he attributed it to the ‘multiplier effect’ - the ability for the business to scale revenues by more than one factor in a differentiated service.

Elevation through differentiation

“One advantage companies that are still run by their founders have over other companies is that founders have the confidence to be unconventional. Employees worry they'll get in trouble if they do things differently. Founders don't.” - Paul Graham (Founder of Y Combinator)

Barry told me a made-up word: ‘sur-petition’. It’s the name of a book written by Edward De Bono and its concepts stuck with him for decades, and a key ingredient of how he differentiated Count from its competitors. For Barry to compete with the incumbents in their arena would be like driving into a traffic jam. He said, “The concept of sur-petition is you have to elevate yourself to another level so your competitors don’t come looking for you – you’re operating on a different plane altogether."

Barry aimed to add a new service each year. He started with his network of accountants, offering investment licensing and training, then progressively expanding into superannuation, savings, leasing and asset finance. He launched software to aid in the efficiency of his network of accountants. At one point Count had the goal of moving into mortgage broking.

The pace at which new services were being launched was fast. The quicker Count could help its network of accountants entangle their customers, the more entrenched they could become in their financial lives. 

A recipe for longevity

The pursuit of growth for any business requires capital expenditure, funded either with internal cashflows or externally through the use of debt or additional equity. Under Barry’s leadership, Count always chose internal cashflows, not debt. Barry recalled in the late 1980s, he took out a $200,000 working capital facility and discovered the interest rate was 20.5% (in those days interest rates weren’t shown on statements so he had to call the bank to discover that surprise). Barry paid off the loan and decided he would never take out another loan for the business again.

And Count never had to. It was profitable and able to use internal cashflows to fund its growth strategies. Unlike his competitors, Barry had a conservative approach to expenses. Competitors would come and go, often bursting onto the scene with big marketing budgets that eventually fizzled out. Barry tells me there was one competitor backed by a large corporate who muscled in with a $2 million marketing budget over 1-2 years. They didn’t last in the end.

A debt-free capital structure makes sense in some environments, but not necessarily in others. Count could use its strong financial foundation as a weapon to outlast its competitors. The strategy proved effective in the financial services environment at the time.

And the rest is history. In a piece of exquisite timing in 2011, Barry sold Count Financial to CBA for $373 million, before the onset of the Future of Financial Advice (FoFA) regulations which permanently changed the incentive structure of the industry. Banks exited wealth management as the vertically-integrated models no longer worked, and CBA sold Count Financial in 2019 for $2.5 million.

 

Lawrence Lam is Managing Director and Founder of Lumenary Investment Management, a firm that specialises in founder-led companies globally. For more articles and information, visit https://lumenaryinvest.com. The material in this article is general information only and does not consider any individual’s investment objectives.

 

3 Comments
Rick
June 17, 2022

I have worked in three businesses that were taken over, and in every case the company doing the taking over lost substantial amounts of money. Obviously these companies will claim they did due diligence but my experience is that a few well chosen phone calls to people that actually worked (or used to work) there would have been far more enlightening than trusting a bunch of number crunchers making 'courageous' profit assumptions.

Denial
June 16, 2022

Whilst he found a sucker a world class sucker in CBA (and those involved in the decision to make Barry rich include a current CEO of of a major ISA) all the advice provided by Count advisers were also subsequently put under to microscope. Show me the incentive and I'll show you the dollars. The industry and all those involved are "renters of other peoples money" and justify their less than seller reputation

Kevin
June 16, 2022

I haven't read the story but I remember Barry.I think he was doing the roadshow to eventually list Count financial.Perhaps around 1997.Did you need 500 investors or so to get the ball rolling ? A small room in a hotel in Perth,perhaps 10 or a dozen people turned up.Barry dressed as you would expect an accountant to be dressed.A chalk striped suit if my memory is correct.If Chrysler 300C cars had been around then there may have been one of them parked in the car park,with a violin case on the back seat. The meeting was basically a small number of people having a chat.At first I was wary.Barry explaining what he thought or hoped would happen.Listening further I thought this guy has a lot of honesty and integrity.No high pressure sales tactics or hype.He would like people to join him on the journey.I was very impressed. At the time there were a lot of spruikers and con men around,I'll make you rich in 1 year etc.My computer box and software will predict the future with astonishing accuracy. Paulonia trees,pine plantations,olive groves,ostriches,grape vines etc etc.These things cannot fail,the returns will be huge. Look at the tax deductions you would be able to claim,isn't it wonderful.Look at all the wonderful charts that head to the moon.Walk out of there hoping nobody will fall for the con. That put doubts about Barry in my mind..Have I met a con man that is one of the best.That didn't last long and I was back to an honest man with a lot of integrity,you can trust him. Of course I didn't join for the journey.Then Count financial caught my eye as a listed company,around $1.50 a share,I don't remember the year ,another chance I spurned,but very glad he got it off the ground. A small filler in the paper Count financial services taken over by CBA.Had he ran into trouble or was he being rewarded for hard work ,honesty and integrity? Then 4 or 5 years ago the name Barry Lambert appears at the back of the CBA annual report in the shareholder information section.I was so glad my first impressions had been proved correct.All those years to be an overnight success. He deserves everything and proves how really important honesty and integrity are Well done Barry and a big thumbs up

 

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