Oreana leads licensee-as-investor model

Licensees will turn to equity stakes in stable and profitable advice businesses in the future, and away from revenue streams that could be seen as conflicted, according to the general manager at Oreana Financial Services.

The shift is a smart one, according to Jonathan Christie, because there is no better vantage point to view the viability and profitability of an advice firm than that of the firm’s licensee.

“Once they’re in your license you have a really good understanding of who they are and what they do,” Christie tells Professional Planner. “That allows us a level of due diligence to test whether we want to participate for certain businesses in the market.”

Oreana represents a concept gaining traction in the wake of the Hayne royal commission; as conflicted remuneration is being phased out of the industry licensees are turning away from the distribution models that facilitate them and are looking for cleaner, more sustainable ways to operate. Instead, licensees like Oreana are taking equity positions in advice businesses they oversee.

“It’s taking off because everyone’s realised that while licensees used to make money out of product, they can’t do it anymore,” Christie says. “My view has always been that the value is in the profitability of the advice practice, not the profitability of the product.”

He says the old way of licensing involved making money “via products, rebates and shelf fees,” but those avenues of revenue are slowly being removed.

“Licensees used to make money from product distribution but in the new world they need to make it elsewhere. If it’s a good sound business that can be a solid revenue stream,” he continues.

The licensee viewpoint has a few clear advantages over other prospective investors, according to Tom Reddacliff, chief executive of Encore Advisory Group.

“The licensee provides a ticket to trade, so that so it puts them in a unique position. In discharging the obligations of the licensee – being efficient, fair and honest – you have to be really close to the business and understand their risk management, compliance systems, financial stability, operations, people and culture,” Reddacliff explains.

“In doing that licensee job it lays a platform to invest in the profitability upside of the practice,” he continues. “You’re going to see more of it.”

‘Up to our shoulders’

Christie says full business ownership isn’t what Oreana is after. Much like listed advice network and investment company Countplus, the licensee looks for up to 40 per cent equity in firms, with the rest shared by the principals.

“We don’t want to run the businesses,” Christie says. “Up to about 40 per cent and we’re up to our shoulders.”

CountPlus, with their recent acquisition of licensee Count Financial, is another example of an aggregator laying their bets on the licensee vantage point. The models are different, as is the scale, but the premise is the same.

As a licensee, Christie says the plan is to build the license out to 40 practices, of which there is “a good portion” Oreana will invest in. Oreana wants to retain a sense of uniqueness, he says, where it can be nimble but also manage risk.

“It’s quite easy to shove advisers in to your license to grow the numbers and get scale, but that’s not our proposition,” he states.

He reveals that Oreana has picked up “three or four practices” during the exodus of advisers from Westpac, which he calls a good result. “We’re still a bit of an unknown entity to certain channels,” he says.

Oreana has a specific type of practice that it’s interested in, he explains. It prefers fee-for-service firms but appreciates that not all clients want a fee for service model. Oreana does insurance, Christie says, but it’s not core to its proposition.

“We’re basically looking at businesses that are in that pre-retirement space and have a strategy for wealth accumulation and the ability to acquire businesses and tuck them into their existing structures,” he says.

He refuses to take a cookie-cutter approach, however.

“There’s lots of models out there… but its only when you actually when you see the particular challenges of the business you actually see what is required to structure those deals.”