Eureka Whittaker McNaught, part of Commonwealth Bank-owned AFS licensee Financial Wisdom, has become the first practice to join Paul Barrett’s Next Generation Advisory (NGA). The $9.6 million deal is due to be completed in the next few weeks, with NGA taking a 51 per cent stake and EWM retaining 49 per cent*.

Under the first-of-its-kind venture within the Australian financial planning space, the Australian Financial Services licensing arrangements of EWM will continue to be provided by Financial Wisdom. This approach is a defining characteristic of Barrett’s business model.

“There are some acquisition opportunities we’re actively looking at, a partnership with AZ NGA means there will be more opportunities to select from and it will be easier to complete those.

In addition to the increased scale and funding benefits it brings, Greg Cook, chief executive officer of EWM, says the acquisition enables the business to expand its service offering to clients. As examples, he refers to plans to increase its portfolio construction capability, in addition to boosting its provision of aged care and life insurance advice.

Barrett explains NGA’s business model approach of acquiring a large equity stake without taking over licensee control, saying he has no ambitions of NGA becoming a financial planning dealer group.

“The old adage is that the closer you are to the client, the more valuable you are. My view has always been that financial planners play the most important role in wealth management.

“Our strategy is about buying financial planning firms, it’s not about buying licensees or dealer groups. It’s because we see value in financial planning firms, which don’t have to be a means to an end, they are an end in themselves,” Barrett says.

Why now?

He says there seems to be a general evolution, with considerable consolidation in the sector as licensees merge, shift and even disappear. “Some of the dealer group acquisitions have probably been a little disappointing to some of the people who’ve made them, and they are probably revisiting their strategy. But for us, financial planning is the main game.”

Unable to point to any specific market or regulatory conditions influencing his business model, Barrett says it is a confluence of events including the GFC’s impact of creating consolidation in the global wealth sector.

For individual financial planning business, he says a major benefit his model offers is to de-risk succession planning, with clear timeframes and business valuation methodologies.

He says many financial planning principals want to ensure their business continues to exist long ahead of their departure, and at the same time, NGA has to monetise its investment. “If you’re not thinking of that as a 40-something year old planner, especially as a large successful business, you become a price-taker 10 years later.”

“Greg and Andrew now know exactly what timeframes we’re dealing with, what valuation methodologies we’re dealing with, and it’s backed by a large player who is well-capitalised.”

In recent days, NGA’s Italian parent Azimut – valued at around $650 million – announced record quarterly profits of $180 million and forecast annual profits of between $280 – $425 million.

“Azimut saw Australia as a well regulated, high growth, large scale market and one which is growing from $2.3 trillion to $7 trillion over the next 10 or 12 years – that’s a market that you want to be in,” Barrett says.

In terms of external factors influencing AZ NGA’s approach, Barrett says the timing has in some ways been a happy coincidence. However, he points to other deals with similar attributes, which “in many ways validates the strategy we’re talking about…it’s obviously a viable strategy.”

“Successful financial planning firms who are running fee-for-service, professional businesses…have built a very valuable asset, in my opinion more valuable than many other parts of our industry and certainly more valuable than dealer groups,” Barrett says.

Both Barrett and Cook explain that before the deal could go ahead, there was a considerable amount of work to be done in preparing the groundwork. “But we were interested in EWM because of what they were already doing. They are a well organised firm that has since 2005 had a very tightly segmented service offering to their clients, that had already been moving to that fee-for-service journey well before it was being debated in industry editorials,” Barrett says.

More targets on the horizon

Barrett says he has a shortlist of other firms he is considering as acquisition targets to grow the AZ NGA operation. Without naming any individual businesses, he says he will stick with those he knows well. “Most if not all of the firms we’re talking to, I personally know. I can vouch for their culture because I’ve spent lots of time with their people.”

Barrett says the underlying organisational culture of the business is a key consideration. This is combined with a balanced scorecard approach spanning financials, processes and people.

Because the NGA model precludes AFS licensing, he says the existing licensee needs to be extremely robust, whether part of a major institution or not. Barrett says he has no particular preference for institutionally-owned over non-aligned or independent licensees.

*These percentages have been corrected to show a 51 per cent stake owned by AZ NGA and 49 per cent owned by EWM, not the wrong figures published previously. 

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