Paul Barrett (left) and Keith Cullen

Dealing with razor-thin margins, licensees are faced with the need to improve profitability, but how this is done is a matter for debate.

Paul Barrett, the CEO of advice practice aggregator AZ NGA, tells Professional Planner while scale has been suggested as an antidote, he believes that will not solve the profitability issue licensees are finding.

“If you look at the larger scale licensees, they’re not making money either,” Barrett says, alluding to AMP and Insignia who are still on the path to seeing their licensee business becoming financially self-sustainable.

“If business models stay the same, [licensees] will cease to exist. Licensee models as we know them – the future outlook for profitability is in decline.”

Barrett says licensees will need to offer profitable services for advisers – which he says advice practices are already willing to pay for – and for licensees to be product and service providers.

By “product provider”, Barrett notes this doesn’t mean vertically integrated product, but rather what he dubs “horizontal integration” via acquiring outsourced services, pointing to AZ NGA’s acquisition of Virtual Business Partners last year.

“That acquisition was a key element in trying to continue margin expansion in our model and we have more of those sort of acquisitions planned,” Barrett says.

WT Financial Group have put their money where the mouth is by expanding the licensees it owns over the last decade, including the recent acquisition of Syncron last year.

The group’s CEO Keith Cullen says the firm wouldn’t have invested so much money over the past few years if it didn’t believe in the future of the licensee service.

“Our push, as the industry has rotated towards being a profession, is to keep working with our practices to show them how to continue to professionalise,” Cullen says.