New Zealand’s world best practice is a generational gap-filler

Systems, processes, platforms… NZ boutique planning firm Harmer Parr has some of the world’s best and that’s not just the opinion of its two principals, Stephen Parr and Philip Holland.

‘World famous in New Zealand’ goes the punchline. The joke might reveal something about the sense of isolation many New Zealanders feel but it also reflects a common attitude among Kiwis that they consider themselves equals on the international stage – even if the rest of the world doesn’t know or care. In May this year local financial planning firm Harmer Parr, however, received independent confirmation its operation based in Tauranga (small city, south-east of Auckland for those unfamiliar with New Zealand geography) was more than meeting global best practice. After an intensive investigation by management audit firm Telarc, Harmer Parr received its ISO (International Standards Organisation) 9001:2000 certification – a world’s first for a New Zealand financial planning business. In English, the ISO 9001:2000 means achieving international best practice in ‘The design and supply of financial planning and investment advice services’. For the two principals of the business, Stephen Parr and Philip Holland, the ISO rating was confirmation the hard work they had put into laying down the ground rules for their business was paying off. At last month’s Institute of Financial Advisers (or IFA – the NZ version of the FPA) annual conference, Parr and Holland explained how they had built their practice to such a high standard. Parr, who established the business with two other partners in 1987 (just one month before markets imploded), told the audience it was only when he began to seriously consider his succession plan that the business really took shape. Having seen his two other founding partners leave the business – one retired and the other was forced to leave suddenly after a serious illness – Parr was left alone to run a profitable, if ultimately unsustainable business. It was at this point he began to ask “how do I do it on my own”, Parr told the IFA delegates. “I didn’t want another partnership pulling in different directions.” In 1998 Philip Holland was a finance graduate looking to break into the financial advice business. Armed with his degree but no experience Holland went on a letter-writing spree to relevant Tauranga businesses but it was only Parr who saw the potential and the answer to his succession-planning woes. This was not a natural partnership: as well as the obvious age and generational attitude differences Harmer and Parr were almost opposite personalities. But it was the formal manner in which they mapped out their future which has made this unlikely pairing a formidable and solid financial planning practice. Firstly, soon after Holland joined, the two sat down and devised their ‘Grand plan’. The ‘Grand plan’ was a professional and personal wish-list for Holland and Parr – big picture stuff. Next the two nutted out how the company would help them achieve their life goals and set budgets and targets. Holland was placed in charge of monitoring how these practical measures were meeting their idealised plans. Holland’s growth through the business was also carefully structured and over the years since 1998 he has quickly climbed ‘The Ladder’ from apprentice to full involvement in the business. Parr realised it was necessary for Holland to take on more responsibility (and also more rewards) if the succession plan had any chance of working. A very important part of this process was the decision to structure Harmer Parr as a trading trust, against legal advice, which enabled them to share profits and transfer ownership efficiently. Once the trading trust was established the two drew up a vesting agreement that determined how Parr would transfer some equity to Holland. As part of the agreement Holland has been able to use excess profits of the business to build up an 18 per cent shareholding in Harmer Parr already. As well, admittedly on their second attempt, the partners drew up a buy/sell agreement – an essential component of any business partnership. The result has been the creation of a boutique financial advice business with the engine of a large corporate. Parr told the IFA conference a corporate structure was necessary for both partners to share and commit equally to the business. “The company owns the client. Only then can both parties head in the same direction because both are going to benefit,” he said. Holland was also instrumental in bringing technology into the firm, including becoming one of the first clients of the Aegis wrap – a platform owned by one of the CBA’s New Zealand subsidiary, Sovereign. But the level of detail Holland and Parr added to their grand corporate plan is illuminating. For one, Parr has capped his salary as he slides slowly into retirement. While he will still benefit from the “super profits” the firm is making his salary will dwindle away as he reduces his time in the business. Holland, on the other hand, is on a salary growth path that will eventually reach the same cap. At the same time he will be able to use his share of the profits from the practice (which has seen its FUM increase an average 30 per cent each year since 1998) to gradually buy the rest of the business from Parr. When they started their partnership neither Holland or Parr knew exactly what to expect and both have been surprised with the outcome. “The surprise is how well it’s actually worked,” Parr told an attentive IFA conference audience.