What drove HUB24's pragmatic exit from full Paragem ownership

The relationships and combinations of assets between platforms and financial planning firms has taken yet another turn via HUB24’s trio of transactions announced this week.

The nature of the transaction and its substantial exit from Paragem means that it is at once picking up platform capability via its acquisition of Xplore Wealth and Ord Minnett’s non-custody portfolio administration and reporting service, while picking up further reach into financial planning via Easton Investment Limited’s acquisition of Paragem.

The increased financial planning reach comes via Easton’s existing ownership of or shareholdings in Merit Wealth, GPS Wealth and First Financial. In short, HUB24 will not own Paragem but it will own 40% of Easton.

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In terms of platform reach and capability, the nature of the acquisition of the publicly-listed Xplore Wealth appears to represent good value for Xplore shareholders because it is valued at $60 million and delivers a combination of cash and scrip at a considerable premium on the company’s closing share price on 27 October.

HUB24 told investors it believed the Xplore acquisition would add material scale to the platform business with a further $23 billion in funds under advice while delivering access to new capabilities including global and domestic bonds,  international domiciled managed funds and additional scale in international listed securities and foreign currency.

The Paragem transaction needs to be regarded as more tactical because it takes the licensee off HUB24’s balance sheet while delivering the company a 40% shareholding in Easton with HUB 24 acknowledging that it delivers it access to a leading service provider to financial advisers and licensees while securing an anchor client for the expansion of HUB24’s data and technology services.

Importantly, in terms of the adviser landscape, the Paragem transaction will see Easton having approximately 250 full-service advisers, together with 510 limited service advisers and $8.3 billion in funds under advice (FUA).

In many respects, the HUB24 announcement needs to be viewed against the background of other acquisitions in the Australian market this year including Morningstar’s acquisition of AdviserLogic and the ongoing Iress acquisition of OneVue both of which have the potential to substantially increase capability and reach in the planning and platforms space.

It further exemplifies the manner in which the Australian wealth management market is reshaping and consolidating in the wake of the exit of the major banks, with pragmatic boards recognising the imperative of scale.

This was reflected in the comments of the chairman of Xplore Wealth, Alex Hutchison, who pointed to the changing face of the wealth management industry and the need to recognise the evolving nature of the market.

“The HUB24 transaction is an opportunity for Xplore shareholders to receive a highly attractive takeover premium and to retain an exposure to the investment platform industry via receive HUB24 shares,” he said. “For Xplore staff, the transaction underlines a critical point – a growing business sees strong value in our highly experienced staff.”

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This is about HUB24 becoming a vertically integrated institution rather than a platform company. AMP lite.

Yes, even Morningstar are doing this. It's hard to see where to find impartial advice, the lines are now even more blurred in my view than before.

WealthO2 is about all that’s left! The market is ripe for a lower fee, unlisted wrap provider to swoop in and hoover up market share. Perhaps Vanguard will do it, but they’ll be fighting hard to get active managers supporting index investment backed fintech.

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