WT's Cullen on challenging UK and US advice players
WT Financial’s Keith Cullen is eager for its Hubco initiative to see advice firms under its licence trade at multiples which are catching up to those UK and US financial advice firms.
The firm announced its second Hubco offering last week formed with Select Advice Group and Newleaf Tailored Financial Solutions. This followed one in April with Titan Financial Planning, Darwin Financial & Retirement Services, and Wealth Connect Financial Services which has now been successfully incorporated as Titan Advice Group (TAG) and is making its own acquisitions, starting with the acquisition of Rushby Financial in Queensland.
Hubcos are described as firms where Investco – a joint venture between WT Financial and Merchant Wealth Partners – takes a non-controlling interest and offers “patient capital” to those with whom it partners.
On a results call, managing director Keith Cullen said he could envisage Investco having around 10 Hubcos in the future and described the potential opportunity as “enormous” for the licensee.
One particular way Cullen believes it will help is by bringing the multiples for Australian financial advice practices more in line with UK and US players. Those in the UK are trading at around 10–14x, while US ones are around 10–18x, which is why offshore firms are now seeking cheaper opportunities in Australia.
He said: “We are currently a network of 400 practices, and there is about $500 million of underlying capital value there. The average practice is doing about 40 per cent EBIT margin and those smaller practices are trading at 5–6x EBIT, that gets you to $500 million worth of asset value.
“Investco is about helping those advisers get to $800–900 million. That same amount of opportunity sits there without even needing to grow the revenue, just by getting organised and more efficient, you can get that uplift.
“Our best practices are doing 65 per cent EBIT margin. A well-run scaled practice can get to 50 per cent which is very achievable. Then you aren’t trading at 5–6x EBIT multiples anymore, you’re trading at 8–9x.
“That’s where the exciting opportunity is, not just for us but for the advisers because why would they retire and sell the business when they can be involved in something that builds intergenerational wealth.”
Cullen also touched on how the environment has changed when it comes to how advice firms are looking to grow via organic growth.
“Organic growth for us is helping advisers grow their top and bottom line, and that delivers money to our bottom line. Organic growth from pinching advisers from each other is not what it’s about for us. What it’s about is delivering growth for the practices by improving their topline. Many are still short-selling themselves on their pricing, and deploying capital to help drive consolidation in the underlying practices.”
AUTHOR
Laura Dew
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