Centric chairman Philip Kelly spoke with Lucinda Beaman about the industry and his plans for 2010.
Changes taking place in the financial services industry have the potential to drive many of the smaller, non-institutionally-owned dealer groups into the arms of product providers. Centric Wealth, while acknowledging the power of scale, is one group determined to remain independent.
In a statement made at the time of his appointment, incoming Centric chief executive John McMurdo said he would be focused on strengthening Centric’s position as a market leader in the "professional advice sector".
Last month the advice group argued for a clear delineation of commissions paid to "sales agents" and payments to financial planners who provide ongoing advice. In a submission to the Cooper Review, Centric argued there had been a failure to distinguish between the arrangements.
Centric executive chairman Philip Kelly believes the group is well positioned for possible regulatory changes arising from the current Government reviews of both the financial advice and superannuation sectors.
He said the group’s "transparent" fee structure and avoidance of real or perceived conflicts of interest were to a standard that meets the community expectations reflected in the Ripoll report. He added the group was not financially reliant on payments such as volume rebates from fund managers for its survival.
But Kelly is cognisant of the need to create scale. McMurdo will be charged with expanding the business through organic growth as well as mergers and acquisitions, with the goal of listing in the medium term.
Centric has long had its sights set on becoming a publicly listed company but has been hampered by debt woes in recent years. Those issues were resolved when private equity firm CHAMP took an $80 million 75 per cent stake in the business early in 2009.
Centric turned around its financial fortunes last fiscal year, posting a $10.4 million profit following a $2.6 million loss in 2007-08. The group recorded an impairment of more than $8.2 million to its financial planning, lending and insurance operations for the year ending June 30, 2009.
Kelly, who has been acting as chief executive of the group since Michael Pillemer’s departure last September, said CHAMP’s equity injection had allowed the group to be "reconstructed" during 2009. This included a significant investment in improving the group’s investment technology to allow for greater scale.
Kelly and McMurdo will look to other groups in the non-institutionally-owned space to further their ambition. Kelly said he is looking to dramatically increase the number of the group’s representatives across all specialisations via recruitment of individuals, acquisition of practices or tuck-in acquisitions of existing firms.
The group has an $11 million acquisition facility in place and offers a mix of cash and shares in various proportions for acquisitions.
Kelly said the group is also open to large-scale mergers in the non-aligned dealer group space.
"Inevitably I think there’s going to be one or two decent-sized mergers in the institutionally-non aligned sector over the next few years," he said.
"Everybody talks to each other all the time. You just don’t know who the dance partners are going to be."
CHAMP is willing to invest further in the business to achieve scale, Kelly said.
In his previous role as managing director of AMP-owned Hillross Financial Services, McMurdo was responsible for more than 300 advisers.
Of Centric’s approximately 60 advisers, about 40 specialise in financial planning while the remainder are risk, mortgage broking or general insurance specialists. Centric says it has 4,000 clients with $5 billion in assets, or an average of $1.25 million per client.
The group also has extra accountancy practitioners.
Kelly said a focus of Centric’s reconstruction was creating the investment infrastructure required for growth. This included development of Centric’s propriety software, including a wrap account and individually-managed account (IMA) platform.
Personnel changes have also occurred in the group’s upper ranks, Kelly said, with a number of key individuals retiring in recent years. One of those changes took place in the group’s investment research area, and the group has since changed its portfolio construction process.
Centric has rationalised its various investment committees under its previous structure to just two. One is concerned with portfolio construction, and the other is responsible for the group’s approved investment list. Kelly pointed to exchange-traded funds as one example of new investment products being used by the group.
Centric will spend the next six months completing its roll out of Xplan — which its SMA operates from — to its advisers. Almost all of the group’s advisers work out of a central office in one of four locations — Sydney, Melbourne, Brisbane and Canberra.
As well as growing its adviser ranks, Kelly wants to see the number of accountants, mortgage and insurance specialists increase. Kelly said the balance of financial advisers to other financial specialists might change in the coming years.
"The balance will probably change, but it’s hard to predict how. It’s partly opportunistic," Kelly said, referring to the group’s acquisition model.
"I’d expect to see a significant contribution from all those business lines."
Kelly pointed to McMurdo’s experience across those business lines as one of the reasons for his hiring. Kelly said McMurdo is skilled in marketing and growing businesses as well as having operational experience across financial planning, insurance and lending.
McMurdo’s experience also spans product management and distribution, corporate strategy and commercial banking at AMP, National Australia Bank and the Bank of New Zealand.
AMP is now looking for a replacement for McMurdo, with Ray Djani, Hillross head of growth and mergers and acquisitions, acting as interim managing director.
