When former head of Paragem Nathan Jacobson started having conversations with advice networks to find a merger partner, it wasn’t in his plan to become the MD of an ASX listed company.
“During the process with Easton I was asked to lead the company, which was a good surprise,” Jacobson says during an interview with Professional Planner.
Platform provider HUB24’s deal in October last year involved selling its wholly-owned licensee business Paragem to the ASX-listed Easton Investments for $4 million as well as completing a proportional takeover of the company for $14 million. The deal coincided with HUB24’s acquisition of Xplore Wealth and Ord Minnett’s non-custody platform.
It was mid-way through 2019 when Jacobson started the process of looking outside HUB24 to explore a new direction for the licensee. Easton had begun its own separate search for a merger partner following a strategic review it ran around the same time.
“The message to the board then was that Paragem had to do something different if it was going to generate profit and grow,” Jacobson says, acknowledging the identity crisis licensees have been going through since and leading up the Hayne royal commission shake out.
“[Paragem] is not small, but it is not 200 or 300 advisers with scale able to create margin. We are a close intimate boutique and all we do is provide licensing, so at that size and scale it’s hard to create margin,” he says.
Paragem has around 80 representatives and in the last year and has become known as the new home for some 13 former Westpac advice practices following the bank’s wealth exit.
Licensees around the country have in recent years needed to adjust their business models as advice distribution has changed in light of the end of grandfathered commissions and the renegotiation of client arrangements as part of changes to ongoing service agreements and the overall detachment of product sales from advice.
Partner over control
HUB24 originally bought Paragem in 2014 from founders Charlie Haynes and Ian Knox (formerly Lonsec executive and non-executive directors, respectively). Paragem was a ‘new world’ fee-for-service advice group acquired by a then fledgling platform provider trying to eek out a foothold in an advice market dominated by banks with advice dealer groups and established technology platforms.
The purpose of Paragem remains more-or-less the same as when it was first originated: a licensee and a partner for advice practices seeking wholesale services with an open architecture approach, Jacobson describes.
The ‘I have control’ mechanism licensees have to date have pushed on advisers will give way to more of a partnership and service provider approach, Jacobson predicts.
Open architecture will be a feature of the new look Easton, which now has the ability to build out capabilities and potentially scale via acquisitions drawing on a debt facility, free cash flow and public market capital if needed, Jacobson says. The group is already exploring potential new acquisitions including investing equity in advice practices – a path Paragem has considered in the past but not yet gone down, Jacobson says.
“The fastest growing part of the market is two to six adviser licensees, which is labelled as a ‘self licensing trend’ but is actually a consolidation trend – smaller one and two man band licensees consolidating into each other,” he says.
“They are the ones buying services,” he adds, before predicting that at least half of the advice industry will be privately licensed [not licensed by an institution] by 2025 and looking to plug in to services.
Jacobson points to Knowledge Shop, the Easton-owned subscription service for accountant training, technical services and helpdesk provider as an example of the kind of model that could be rolled out for advice practices seeking guidance and prepping for exams.
Also within Easton, it’s Merit Wealth licensee brand specialises in accounting referral relationships and GPS caters to smaller and newer advice practices and principals entering the industry.
Easton’s existing SMSF Expert brand and purpose is likely to change in light of FASEA’s standards which has caused many accountants to hand in their licenses, Jacobson acknowledges.
Overall, Jacobson says the future of the licensee model is as a flexible service provider with access to technology and capital able to partner with advice practices at different stages of their professional lifecycles in addition to offering licensing.
The terms of the deal late last year with Easton ensures HUB24 has the option to implement its data-driven platform solutions into the group’s respective advice businesses.
“We are facing the reinvention of how this industry works and we needed capital to make that happen,” Jacobson says.
“To solve some of these challenges it’s going to take a lot of money. Easton can’t do it by themselves, most other players can’t either. But with the backing and shareholders we might have a chance,” he says.
