Paul Barrett speaking at the 2019 Professional Planner Licensee Summitt

Despite a torrid 24 months involving a reconfiguration of educational standards, a calamitous royal commission and the emergence of a global pandemic that has eviscerated portfolios and emptied offices, AZ NGA’s Paul Barrett is seeing value investing in advice.

On Monday the group closed a deal to acquire specialist risk advisory Certe Wealth Protection which has 11 staff in Sydney and Brisbane and $16 million of in-force premium. As part of the deal AZ NGA will purchase 51 per cent of Certe initially and then acquire the remaining equity over a number of years.

The challenges the industry is facing actually make its prospects more “future proof” and investment in advice more attractive, Barrett notes.

“The broader impact of Covid-19 may in fact be positive,” Barrett tells Professional Planner. “Advisers are using a wider array of technological tools now and are deepening their relationships with clients, plus you might see much cheaper rental expenses down the line.”

Barrett believes the pandemic it’s forcing advisers to become more digitally savvy will have a lasting long-term effect. Newer businesses may struggle to gain momentum, he concedes, but the adjustments most advice practices are making today to their operations and workflow will be a lot more habit-forming than we realise.

“We might look back on COVID-19 and say there was some short-term negativity but then long-term benefits,” he says.

As part of the latest deal, the Italian investment firm-backed AZ NGA will purchase 51 per cent of Certe initially and then acquire the remaining equity over a number of years. Barrett explains that AZ NGA’s business model is to then “recycle” that equity into the hands of the next generation of advice principals as they develop. The Cert deal is AZ NGA’s 15th since 2019 and 64th in Australia in total.

“It’s a succession transfer over an agreed period of time,” Barrett explains. “It enables us to ensure our firms are always owned and operated by the entrepreneurs.”

Tricky valuations

Despite the headwinds battering the industry, Barrett says gauging the worth of a business in the current environment is the same as it’s always been.

“You want to understand the underlying future sustainable earnings of these firms,” Barrett explains. “You don’t throw out last years’ P&L, you use it as a starting point. Then you look at revenue lines, how people deal with clients, the cost to serve etc., and you come up with what we call ‘Future Ready Revenue’. It’s not an overly difficult exercise to come up with an accurate view of future earnings.”

There are pockets of risk in the industry, he acknowledges, but those risks are mitigated considerably if you buy into the right kinds of businesses.

“We know which revenues are sustainable and what aren’t,” he says.

The Certe purchase involves one of those risks; the government will review insurance commissions in 2021, a move finance minister Mathias Cormann said was necessary to address “systemic failures” in the industry at the Conexus Risk Advice Summit in September. Barrett admits the regulatory uncertainty here presents a “question mark”.