Five years after its acquisition of ANZ’s unwanted licensees, and two years after its blockbuster takeover of MLC Wealth from NAB, Insignia Financial is seemingly throwing in the towel on the traditional institutionally owned dealer group model.
The wealth manager formerly known as IOOF on Thursday told the market it would create a new umbrella company, initially to be called Adviser Services Co, to house three of its licensee groups: RI Advice (ex-ANZ), Consultum (ex-IOOF) and TenFifty (ex-NAB).
Over time, it aims to sell down its equity in this business to aligned practices, at some point becoming a minority shareholder, retaining a stake somewhere between 49 per cent and zero. That means majority ownership of the entity – and therefore the liability attached to the licences and advice provided under them – would transfer to self-employed advice practices.
Separately, Insignia will sell the storied former NAB dealer group Godfrey Pembroke to its members in a long-touted management buyout. It will also put the former ANZ licensee Millennium3, once run by former Association of Financial Advisers CEO turned Kiwi financial services lobbyist Richard Klipin, up for sale.
Insignia chief executive Renato Mota insists this is not a sign of bearishness on advice. The company will keep its employed advice channel, now operating under the Bridges banner; its Shadforth private wealth business; and IOOF Alliances, a service provider to self-licensed boutiques.
He also reiterates the company’s commitment to “financial wellness”, which he says is broader than advice. The subtext is that we can expect Insignia to be a player in a new mass-market model of general advice or financial information/coaching when the QAR process finally concludes.
But Mota can’t (and doesn’t) deny Insignia will have a vastly diminished footprint in the traditional business of licensing third-party self-employed advisers. It’s telling that one of the only well-capitalised, listed financial institutions committed to wealth management seemingly could not make the model work.
For Insignia, the move makes sense. The economics of traditional licensing have long been questionable, with the reward hardly making up for the risks associated. The model only ever stacked up because of the gains on offer through cross-selling financial products via the advisers operating under the licence – a practice that the industry’s remaining institutions, including Insignia, swear was ended by the Hayne royal commission. And the company would continue to be a technology and investment service provider to these practices, with diminished legal liability for their conduct.
In hindsight, he offered a glimpse of his thinking at last month’s Professional Planner Licensee Summit. “The advice economics are attractive because it’s an attractive industry,” Mota said. “The issue for licensees is what portion of that is being shared with the licensee.”
Investment thesis unclear
But for the practice principals within the RI Advice, Consultum and TenFifty networks, the upside is less clear. Mota says these authorised representatives will simply be invited to take equity in the new entity, not compelled to under their licence terms.
He expects many will take up the offer anyway.
But in the scheme of all the ventures that advice practices could invest in to turbocharge their own growth, it seems dubious that a slice of a loss-making licensing enterprise would be top of the list.
Asked that question, Mota says he expects ASC to be profitable within 12 months. And the broader advice business is on track to break even by FY24, he says. Thereafter, the practices would become shareholders in a profitable and sustainable partnership.
Plus, unless they want to switch licences, they are obviously incentivised to ensure this umbrella company remains in good health. Some may be attracted to the promise of more say in the running of the company that holds their licence.
Indeed, Mota says in time ASC will resemble any other quality IFA business (albeit with capital backing from a large listed corporate).
Nonetheless, the move spells a historic moment in the unwinding of the once-dominant institutional dealer group model.
Some might argue it died long ago, with the retreat of the major banks from the sector. Others may well say “good riddance”, given the damning conclusions of the royal commission and reputation damage they inflicted on the broader profession.
But as long as Insignia remained committed to it, there was a glimmer of hope it could be resurrected. The decision puts a big dark cloud over the business model of that other remaining institutional dealer, AMP, as well as a string of mid-tier and non-institutional licensees.
A more independent licensing landscape, in which practices have sovereignty over their own affairs, may yet be a silver lining.
