Licensees’ bid for survival with minority stakes

WT Financial Group lifespan Count Financial Wealth Data AFSL Sequoia

13 February 2024
| By Laura Dew |
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Large licensees are looking to take minority stakes in smaller ones as a way to retain a presence in the industry, but the smaller party needs to ensure it doesn’t create a conflict of interest.

Sequoia Financial Group has invested 20 per cent in Euree Asset Management and has announced plans to boost adviser numbers to 500 by acquiring subscale licensees

The firm said it is seeking to embark on this growth strategy at the current time because of commercial tailwinds from improved industry dynamics, enhanced leadership capability to drive earnings growth and a capital management program supported by strong balance sheet and compelling valuations. 

Count acquired Affinia from TAL last year and is in the process of acquiring Diverger as well as taking smaller stakes of up to 40 per cent in firms such as Bruce Edmunds & Associates. Some of these stakes have then gone onto take their own stakes, with Bruce Edmunds acquiring an accounting client book for $1.4 million last week.

Meanwhile, others such as Insignia and AMP have pointed to providing support services for self-authorised firms as a way to boost their bottom line. AMP offers Jigsaw Advice Solutions, while Insignia announced a new advice services partnership ownership model for its self-employed licensees.

Kon Costas, managing director at The Principals Community, said: “The licensees are trying to throw their arms around as many practices as possible for survival sake, some are investing in them and others are acting as service providers. It’s about finding a way to protect themselves and their footprint.”

But taking a minority stake is not the favoured option for all. Eugene Ardino, chief executive of Lifespan, said the firm has taken stakes in the past but it is “not something we are pursuing as a core strategy”. 

Keith Cullen, chief executive of WT Financial, said: “Our preference is to have a revenue share rather than take a stake in them. This allows them to keep their independence but aligns them with the licensee in terms of sharing resources; you could call it a quasi-equity stake.

“All firms are different and run in different ways, and anything we offer to one, we would want to be able to offer to our other firms as well.”

It was also pointed out that by going back to a large licensee, even if it was via a minority stake rather than rejoining it, could lead to conflicts of interest that would need to be managed by the smaller entity.

Wealth Data founder, Colin Williams, said: “If they are investing in a large sum, then they will likely want to make sure the business is run well, and that can cause conflicts. The larger firm may well be demanding certain things and certain processes, and that can go against what the self-licensed adviser wants to do and how they envisaged running their business.”

He flagged it could also cause potential conflict with clients who may have signed up with an adviser in the first place on the basis of them not being affiliated with a particular licensee.

“When you set up on your own, you can pick what platform you use and what you invest in, and then if you take a stake with a big firm, then the dynamic changes and you have to explain that to your clients,” Collin said.

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