The listed advice group’s former CEO Angus Benbow told ifa there needed to be “a round of consolidation” in the non-aligned licensee space, and that Centrepoint was “well-placed” to participate in a deal with another mid-sized group.
“The pathway forward, be it the likes of Centrepoint or the other larger non-aligned big 6 advice groups is that there needs to be a round of consolidation,” Mr Benbow said.
“Centrepoint is well-placed to participate in a merger, be an acquirer or being acquired. At that end of the market it doesn’t matter who is taking over who, it’s about bringing the scale of larger businesses or dealer groups.”
Mr Benbow – who has landed at digital fitness start-up Wimp2Warrior as its CEO after departing Centrepoint in May for personal reasons – said while the non-aligned sector was ripe for M&A activity, takeover offers were unlikely to come from private equity groups whose medium-term exit pathway from advice businesses was unclear.
“The conversations I’ve had prior to my involvement with Centrepoint was that private equity has struggled to look at if there’s an advice consolidation how do they get out, because they have a five to seven year horizon,” he said.
“If you look at Quadrant [Private Equity]’s investment in Fitzpatricks, those kind of piggyback deals into advice haven’t gone to plan.
“It makes sense for private equity players to go into platforms through CFS, and depending what happens with BT and AMP/North – that’s a deal they would do well out of, but in advice it’s a disaggregated market which is difficult to monetise.”
Mr Benbow said he was proud of his achievements in his three years as Centrepoint’s CEO, but that there was “more to do” for the group to reach the scale needed given the costs of doing business in the advice industry.
“Essentially I found a business that wasn’t in the best shape but I stayed committed to turn it around financially – certainly there was more to do in terms of consolidating with other companies, but in the end my focus wasn’t in it,” he said.
“At the half-year announcement in February I flagged that [Centrepoint was] well positioned to participate in consolidation, and strategically that is a path forward for the group and the industry.
“You can’t have hundreds of mid-tier licensees because there are certain fixed costs in running a licence and for 100-150 advisers, it’s a lot of work to make sure everyone is doing the right thing.
“From a Centrepoint perspective, it’s got a healthy balance sheet and it’s a clean business now with good strategic capabilities that would be very attractive to scale up to other groups.”
I have to say I have trouble understanding what he is saying. What do many of those words mean?
Hub24 giddy up…Platforms love to brainwash advisers into selling product and there are plenty of advisers willing to cut a few business costs, sellout to the devil to get a better deal. Selling to a Platform, setting up a JV or some other venture has been historically the thing to do.
Centrepoint is a well run licensee, but they are so reliant on rebates that the forward prospects cant’ be good unless they double ARs. Where will they come from? How on earth can anyone think the business is worth more than it’s current market cap.. Only those with a product agenda will see value in overpaying for distribution businesses.
If you just aggregate a whole bunch of poor performing businesses together (like most mid-tier licensees) the odds are stacked against you, that you end up with a great business.
It’s not CAFs fault, it’s just the model is broken.. their shareholders should be realistic.
Points well made.just don’t know how the listed licensees are going to convince their shareholders that their prospects are doomed if they don’t accept consolidation offers. Product balance sheets are the only played with the capital to make this happen
Surely the biggest risk for private equity investors or a trade sale, is that dealer groups become redundant. The whole concept of professional advisers being licensed via a conflicted middleman company, rather than directly by the regulators, is a historical oddity which is not sustainable.
They would survive as service providers and could be much more profitable with the regulatory risk reduced or removed.
Agreed that most dealer groups could survive as service providers, however their profitability is likely to diminish without the leverage over advisers that comes with being a licensee. The profitability of most dealer groups is underpinned by inhouse product revenue, including white labelling, SMAs and SMSF admin services. As a licensee they can generate more revenue for these products through artifice such as narrow APLs and “product risk management”, as well as weaponising compliance to punish those advisers who don’t recommend enough inhouse product. Without these licensee control tools, much of the profit derived by dealer groups from inhouse products will disappear.
This is why dealer group heads like Rowe, Ardino, and Younger are lobbying so strongly against the FPA’s proposal for individual rather than licensee based adviser regulation.