Advice businesses need benefits of scale
The banks’ exit has created space for consolidation and the emergence of the new mid-tier advice market as the businesses need the benefits of scale, Easton’s managing director, Nathan Jacobsen, has told Money Management.
Scale, he said, was something that advice businesses needed in particular right now, given the overall rising costs and the ever-growing complexity of compliance consuming their time, as this would enable significant investments in essential technology’s upgrades.
“One of the challenges for the industry is the technology infrastructure [advisers] rely on is out of date and is inefficient and we need to adopt a real transformation and modernisation of licensees businesses whether it will be machine learning, robotic process automation, [the technology] needs to become central to services businesses like mine and adviser businesses we support,” Jacobsen said.
“But that requires capital and capital comes from scale. I think the benefits of scale give you the capacity to invest, particularly for technology.”
Speaking of the future business models of advice businesses and the void left by the banks’ exit, Jacobsen stressed all the business models actually had a future and would be there to stay.
That would include large salaried adviser businesses and large dealer group service businesses and a number of different hybrids of these models.
“Easton is growing and we do want to become one of the leading firms in the market and we see the future both in terms of taking equity stake in advice practices to help them accelerate their growth as well as providing a flexible, open architecture service business that [advisers] can rely on, and provide the industrial scale that advisers can get on and service their clients,” he said.
The recent few months saw a number of mergers and acquisitions across the mid-tier advice business segment, which included the Centrepoint’s announcement to acquire Clearview’s advice business or the earlier announcement from WT Financial Group acquiring Sentry Group.
Jacobsen stressed that the exit of banks started a deconsolidation of advisers out to mid-tier licensees, in search for more scale and size in order to remain sustainable, but also saw a lot of licensees within 50 to 100 adviser mark who were more challenged as far as their financial performance was concerned and they would be as well looking for the opportunities to join a larger organisation, he said.
“I do think there is a consolidation phase among service providers that will play out in the next two to three years and the other big theme is advice businesses themselves are also consolidating and growing into bigger firms,” he said.
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