There is expected to be increased merger activity in adviser businesses within the sub-$500,000 revenue sector, according to Forte Asset Solutions.
In a report on the adviser landscape, Forte said there was high demand from sellers but low volumes of advisers looking to sell up, despite the reported adviser exodus which had seen adviser numbers fall below 17,000.
There was also a reluctance to grow the business, not helped by advisers’ mental health struggles, and those businesses which were in the mindset to grow their businesses were Gen-X owners who were willing to invest in technology and simplify processes.
It said: “There is a need for size and scale to maintain or grow profitability. The largest sector of our profession is the sub-$500,000 revenue business and they do not have the balance sheet to absorb the cost increases and often reluctant to pass on costs to their clients. We expect to see a lot more M&A activity in this sector”.
Forte gave several reasons for the low supply:
- An incorrect assumption of oversupply from the adviser exodus and therefore a significant reduction of value;
- Waiting to be confident that clients and revenue were secure following a long period of regulatory and business upheaval;
- Businesses were still in transition regarding annual renewal fees for platforms;
- Many businesses were rebuilding revenue streams from the cessation of grandfathered revenue;
- Principals were not in the right headspace to contemplate a sale and had deferred their retirement; and
- Businesses felt unable to take on high volumes of new clients as they were too busy , meaning they were unable to demonstrate growth to a seller.
“Mega industry funds are being created but the advice industry is now circa 60% independent with committed professionals representing and directing the course of our future. The sausage factories of homogenous large-scale advice have been shut down and we now see the rise of super boutiques ($1 billion+), open approved product lists (APLs), better client engagement tools, rising consumer demand and the consumers’ best interest front and centre in all decision making.”
