US private equity outfit Focus Financial Partners will continue to undertake mergers and acquisitions in the Australian advice market, but its activity will be confined to the non-aligned sector.
Speaking exclusively to ifa, New York-based Rajini Kodialam, Focus’s co-founder and managing director, said the firm intends to make more acquisitions like the “hub and spoke” play of MW Lomax and Brisbane’s Westwood Group, but would not entertain offers from businesses licensed by the major institutions.
“I would look at a firm aligned to a big bank, but we would require them to get their own AFSL or join the licence of one of our partners,” Ms Kodialam said. “We don’t want to be affiliated with some product manufacturing or technology owning entity. This is a people business.”
A former McKinsey & Co management consultant, Ms Kodialam said the value Focus brings to their acquisitions is understanding of independent, non-conflicted advice provision and how to make it more profitable – a specialisation she says is wasted on aligned firms.
The strategy differs greatly from that of AZ NGA, the Italian fund manager-backed M&A operation run by former ANZ executive Paul Barrett, which has made a number of strategic acquisitions of firms licensed by bank-aligned dealers such as Financial Wisdom and Eureka Whittaker Macnaught.
Ms Kodialam said she believes Australia is on the cusp of a “great journey” whereby the independent advice movement will flourish as part of a global transition away from institutionally-owned arrangements in financial services.
“This is a baby industry, even in the US it only really began in the '40s, and this is really the first major transition it has gone through, from institutional ownership to private non-conflicted ownership that is in the clients’ best interests,” she said.
“The GFC caused a firm line in the minds of the industry and consumers. We think Australia was impacted more than some others. Pretty much every country is undergoing this trend in financial services. Australia may possibly have the second largest non-aligned movement [outside the US] if you don’t count Lichtenstein.”
While there has been a fragmentation, with wealth management firms and executives splitting off from the major institutions, Ms Kodialam also said there is now a “thirst for consolidation” among the non-aligned players, meaning that the market is ripe for an injection of private capital.
Focus Financial Partners will be establishing a more permanent Australian presence to undertake its growth plan, and is on the hunt for executives and managers with strong knowledge of the wealth management landscape.
M&A consultant Steve Prendeville will be talking about the significance of foreign capital entering the Australian market on the next episode of The ifa Show podcast.
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