by Greg Bright
Frontier Advisors has turned 25. Its history is important for the super industry as a whole and, therefore, the majority of Australian workers. According to the firm’s marketing folk, Frontier is the last remaining non-conflicted institutional-grade advisory business in Australia. And it has a plan to stay that way.
What started out in July 1994 as the investment consulting unit of Industry Fund Services, the brain child of Garry Weaven, subsequently became an independent and separately capitalised company, owned by a group of profit-to-members super funds, and now, after JANA Investment Advisers, the second-largest firm of its type in the Asia-Pacific region.
Frontier has more than $320 billion under advice, 70-odd staff and 35 clients, not all of which are super funds thanks to a diversification process which started a few years ago. This is a key to the survival of quality asset consulting in an era whereby big super funds are internalising a lot of their investments and merging with each other to attain more scale. Whether or not that is a good thing for Australia’s working population is a different story. But it’s a fact of life for the likes of Frontier.
Fiona Trafford-Walker, who has been the heart and soul of Frontier for most of the past 25 years, recalls that the transition, from one of the first operating businesses of IFS into a standalone advisory company, was not easy. Garry Weaven, the most influential person in the development of the profit-to-members super sector, had big plans for IFS as it turned out. His vision was always for the industry funds to control their own destiny.
He said in an interview earlier this year, following his move into semi-retirement, that Frontier was “well capitalised” for its task when it spun out of IFS. Fiona, unsurprisingly, felt the firm could have always done with some more money.
Weaven recruited Ray King, an experienced consultant, from the former Towers Perrin to start the business within IFS in 1994. Ray recruited Fiona, with whom he had worked previously, as his right-hand person. Ray and Fiona worked together in those early years to build the business, attracting a number of clients who remain with Frontier today.
In those early days, IFS did pretty much everything that the super funds wanted them to do, including helping with the day-to-day running of the fund. “HESTA became a client in 1995 and I remember going over there to see John Lloyd (then the ‘plan secretary’) as he was about to go on Christmas holidays to Europe and he handed me a pile of letterhead so I could run the fund in his absence,” she says. “I sent all the instructions, letters and faxes to keep the fund moving and then gave him back a big pile of paper when he returned. Thankfully, governance has come a long way since then!”
Ray also worked across the wider IFS business and, so, from October 1997, Fiona took responsibility for the investment consulting division. Ray later moved on, eventually forming his own successful alternatives advisory business. In 1999, the IFS board made the decision to spin out the asset consulting business and, in July 2000, Frontier Investment Consulting was born.
“It was a difficult time,” she says. “We had to renegotiate all of our contracts. But the period made us stronger. We definitely weren’t as well capitalised as Garry thought!” To his credit, though, Garry Weaven thought that an asset consulting firm should not be a part of a diversified financial services business, as IFS morphed into. IFS owned what became the much-more-profitable IFM Investors, as well as overseeing an administration business, SuperPartners, and became the de-facto owner of a bank, ME Bank.
After renegotiating almost every client contract, Fiona says that the firm’s focus became to try to do just one thing: get the clients to perform as best as possible. “I felt that if you focus on that one thing, everything else would follow,” she says. “You have to keep a cool head and always come back to basic investing principles. You also have to remember why you do the job you do, and for us, it was to do everything we could so that the members in our client funds (they were all superannuation funds back then) could retire as well as possible.”
One of the people Fiona had admired at that time was the late Patty Dunn, then the chief executive of Barclays Global Investors (now a part of Blackrock). “Patty would visit Australia and I remember her saying to me that I should surround myself with smart people. If you do that, everything will be fine. And we have had some very smart people come through here and our ability to develop high quality ideas has been a testament to that hiring model and to the fact we collaborated with each other really well,” she says.
One of those smart people was Kristian Fok, who became the deputy managing director at Frontier. He was one of the first in the recent trend to migrate from asset consulting into a super fund – Cbus – so he could get closer to the management of the money. Over time, no fewer than nine ‘Frontierians’, as they call themselves, have moved into CIO-level roles at industry funds, which has presented the firm with yet-another challenge.
“When Kristian told me [he was leaving], it’s one of the few times I’ve cried at work,” she says. “But business is business and it’s about the cycle of life and it was an amazing opportunity for him just like it has been for others who have gone on to do other things outside the firm.” This probably also says something about the quality of people Fiona, and Frontier more broadly, has developed.
In terms of the structure and direction of Frontier, things changed dramatically in 2006, fortuitously ahead of the global financial crisis. The firm had a staff equity trust which was used as part of its remuneration system and decided to sell this back to the super fund owners. This enabled Frontier to re-set its client relationships and put the firm on a more commercial footing. It also accelerated its knowledge base and advice with respect to infrastructure investing and other real assets, leading the curve and giving its clients a performance edge for several years, and which continues to this day. Thanks at least in part to Frontier, industry funds have been able to comfortably advertise “compare the pair” with respect to their retail fund competitors.
“Our clients, over time, have performed really well and that is the thing I am most proud of,” Fiona says. “I think that local knowledge also goes a long way in this market.” Another factor which became a defining moment for Frontier was the decision to invest heavily, after the dust had settled from the GFC, in a new technology platform and the development of a global network of like-minded advisory firms. This has given Frontier a new revenue stream and allowed it to maintain its stance of not offering funds management product, such as “implemented consulting” or “outsourced CIO”. Damian Moloney, who became CEO in 2011, allowed Fiona to concentrate on investment advice, while he championed these tech and global moves. After seeing the firm double its client count, he left the firm in March last year to head up a new investment unit for AustralianSuper in Europe.
Andrew Polson, the new CEO, says of the potential conflict of interests for consultants which also sell product, that it is as much internal as external. He believes this model impacts on the culture and is difficult to translate for clients.
“There’s a significant challenge going forward for asset consulting firms,” he says. “But there are a number of ways we can adjust. Since about 2014 we have been diversifying into new market segments and geographical segments. We are doing more with our research partners overseas and with our technology platform. We have made ground with insurance companies, government pools of money, endowments, charities and more latterly, the high-net-worth market.”
And, he says, there is a huge amount still to be done in governance-related consulting and in the retirement market. “All those areas will grow and continue to change. Superannuation, as a framework, is still relatively immature and is likely to have to continue to change to keep up with the growth in the size of the industry and the heavyweight funds. For example, it is possible that more capital may be required to help funds navigate operational, legal, regulatory and investment risks as they grow.”
Polson says that Frontier has been exploring opportunities in Asia and is seeing early interest from investors in the northern hemisphere who are looking for new partners. “From my perspective, the key is to offer high-quality institutional advice for asset owners. We have to find ways to deliver that advice to new sectors to empower a range of clients to advance prosperity.”