6 July 2020
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Rickard - The Great Disruptor

Peter Switzer
3 June 2016

Groucho Marx once observed that “No one is completely unhappy at the failure of his best friend”. And while the founder of CommSec, former CEO and Chairman, Paul Rickard, isn’t my best friend (yet!), he is a good friend, so I’m more than happy telling his story, which, arguably, is the greatest Australian disruption business story ‘never’ told.

Paul is hardly a disruptive type but I guess the Silicon Valley IT nerds aren’t Arnold Schwarzenegger or Sylvester Stallone act-alikes. Ironically though, Paul’s nickname at CommSec — the company he founded for the Commonwealth Bank — was “Rambo.”

He has told me that he believes it was a more ironic tag but others say it was more linked to Paul’s sometimes vocal refusal to accept second-rateness.

My fascination with his story — apart from the fact he is a business partner in our financial planning and publishing operation — is that in an age when we’re told to beware the disruption of business ahead, with the likes of Uber and Airbnb just the tip of the iceberg, Paul was disrupting and redefining stockbroking decades ago!

However, when CommSec was unleashed on a stodgy stockbroking community in 1992, it was a dramatic disruption to life for brokers, as they knew it. Meanwhile, consumers were set for a price discounting they never imagined.

Nowadays, CommSec can be characterized by having more than a million customers, the largest retail stockbroker with around 800 staff bringing in around $338 million of income in financial year 2015. Arguably, this is the most profitable brokerage in the country.

That’s not a bad business for something that started with a team of just over 20 people. 

“It was built on a shoestring with less than $2m to build it, of which $0.6m went to the ASX for membership fees,” Paul recalled. “Although it had Commonwealth Bank board support and the personal backing of MD David Murray, there were very low expectations. We were virtually off the bank’s radar.”

At the time, there were already two discount rivals – Pont Securities and Rivkin Croll Smith – but they were really not well known outside the active traders.

CommSec arrived in 1994 into a very traditional industry sector made up of 83 stockbroking firms with very limited product and service differentiation. 

“Banks had been spectacularly unsuccessful in owning stockbrokers,” Paul explained. “Each of the majors had tried it and failed, so we knew we needed to do something quite different – totally differentiated from the other 83 firms – very unbank.”

They learnt from the model of US broking giant Charles Schwab, although Paul says none of his team ever visited or talked to a Charles Schwab executive!

Initially, his rivals ignored the new kid on the block and there was an amusement factor because they didn’t think a bank could run a brokerage.

And they contributed to the cynicism with some early mistakes.

“We started with a price too high  — a minimum of $75 per trade – yes, $75 per trade! — because we didn’t want to cause waves,” Paul confessed. “Not long after, we cut it to a minimum of $29 per trade and that’s when the industry started to take notice.”

This price appeal was helped by an enlightened marketing strategy, which has helped make CommSec a household name.

“There was a dual strategy leveraging the bank’s internal strengths — CBA shareholders, staff and higher net worth customers and that’s where David Murray was very helpful,” Paul said. “And externally, we used the press, mainly the AFR, The Australian, SMH, The Age, Shares magazine, etc., all the investor and ASX seminars, direct marketing and lots of PR through radio and TV.”

The public relations strategy, where CommSec provided commentary, was a media brainwave, which gave the new CBA offshoot a quick brand-growing asset.

And the marketing message was simple.

“It was a very clear value proposition — an easy, low cost access to the stock market for all Australians — and we stuck to these attributes like glue.”

And by the way, this was all before the Internet had become the disruptive game changer.

“We actually started as a phone business, being the first to have a call centre open 8.00am to 8.00pm, that’s outside market hours,” he pointed out.

In fact, Paul says he came to the internet almost by accident.

“By 1997, we worked out clients needed a reason to use the Internet and the clear breakthrough was offering free live stock prices,” he said. “This was the single biggest factor in the customer’s adoption of our service — up until then, anyone else providing prices had done so on a 20 minute delay or made the client pay.

“After that, we offered a lower price for trading online than by phone and it just took off.”

The rest is history but I asked Paul if the CommSec innovation was a big deal for the bank to try something so disruptive and entrepreneurial.

“In the end yes, but not initially,” he admitted. “There was no thought to be entrepreneurial or disruptive, although David did like sticking it to the stockbroking community. 

“It was really only after four to five years that the bank came to embrace CommSec and this happened when the brand research identified that the CommSec brand was rating so much higher than the Bank’s brand and that the CommSec brand was actually helping raise the Bank’s brand 

“In other words, CommSec was helping to raise the standing of the Bank. After that, everyone wanted to own CommSec – and saw the value of being entrepreneurial.”

And while it all seems like it was an easy business success story, Paul says there were challenges. 

“Unquestionably, managing growth was the big one, he said. “More people, more premises, more scaling of technology — hardware and software — everyone had to work, harder.”

(However he probably found it easier than most businesses to get money out of the bank for his expansion plans!)

He also remembers independence issues. “CommSec had worked because it had leveraged the good things that the CBA had to offer, like brand strength, customer base, risk expertise and so on but we had our own general ledger, HR systems and processes, own staff, own culture. And as we became more successful, people in the bank wanted to bring us back into the fold.”

Clearly, this was a sensational success story but did it surprise its founder?

“Absolutely, never in my wildest dream did I expect it to grow so quickly, and be so successful,” Paul conceded. “I have to be honest and say that we were very lucky in our timing: a bull market, government privatizations generating thousands of first time shareholders, adoption of the internet and so on.”

So what did he learn from his CommSec experience that other business-builders should take on board?

“If you have an idea and it works – go hard at it – time is of the essence,” he advised. “Be brave. Cut losers and go harder at things working. 

“It is a lot more fun managing the challenges of growth than the pain of cutting back – but don’t underestimate the challenge in doing the former.” 

On the hard work of managing people when growing a business, his uncompromising side showed through: “Teams like winning but two B-graders will never make up for one A-grader – always hire the best.”

One thing Paul didn’t talk about to explain his good fortune in creating CommSec, was his own hard work ethic.

As the great golfer Gary Player once observed: “The harder you work, the luckier you get.”

Rickard on the weekend 

Read: After the Switzer Super Report and Weekend Switzer, it’s the Weekend Australian.

Eat: Hard to go past a rare rump steak, preferably on the BBQ.

Sport: Tennis with my mates on Saturday morning, followed by coffee.

Getaway: Noosa.

Indulgence: I’m just not the indulgent type — some cashews with a good red wine.

Postscript irony 

Like all disruptors, the CommSec concept threatened the incomes of TV and radio business personalities like yours truly, as Commsec did for nothing what we charged for! Fortunately for me, along came Qantas and the Talking Business inflight programme that I created with a company called Stellar Inflight, which I did for 10 years until the Sky Business TV programme came along. However, it was the threat of Paul Rickard and CommSec that pushed us into our digital properties of www.switzer.com.au, The Switzer Super Report, www.growyourbusiness.com.au and others. The irony was that Paul later bought into our business, which he helped create by being a genuine pain-in-the-neck threat via CommSec! In the wild, weird world of business, sometimes an ‘enemy’ can do you more favours than friends.

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