Insignia Financial will deploy a partnership model for its self-employed licensees, offloading equity in the troubled business to aligned advisers over time.
In an update to the ASX on Thursday morning, Insignia said the reformed structure would “reset” its financial advice operating model.
The new partnership model will affect three of its self-employed licensees: RI Advice Group, Consultum Financial Advisers and the amalgamation of MLC Wealth licensees known as TenFifty.
The identity of the new company is yet to be officially established and is currently under the working name of Advice Services Co, or ASC.
However, the ownership of Godfrey Pembroke is expected to directly be returned to the licensed advisers with Insignia retaining a minority stake, in a kind of management buyout that had long been considered even before then-IOOF took control of the former NAB subsidiary
Additionally, Insignia is “in discussions” with interest parties regarding the sale of former ANZ licensee Millennium3, while the closure of Lonsdale is almost complete with several advisers transitioning to Consultum or moving to their own AFSLs via the IOOF Alliances consulting business.
Insignia will initially hold 100 per cent of ASC, which it aims to sell off to authorised representatives of the two licences held by the business.
While Insignia CEO Renato Mota says there isn’t a specific target, the aim is to hold under 50 per cent of ASC and become a minority holder.
“It’s not lost on us [that] it’s a dense announcement,” he tells Professional Planner.
Mota said Insignia was interested in “a smaller slice of a bigger pie”, meaning the company’s footprint in licensing would reduce, but its appetite for providing services to advisers, and advice directly to consumers, would grow
“This is us wanting to share in the continued growth of our business but recognising the value that comes from partnerships,” Mota says.
Advisers in the network won’t be required to buy a stake in ASC and can continue to operate under their existing licensees even if they don’t buy in.
“They will be invited [to take an equity stake] and made an offer, some advisers may not accept that,” Mota says.
“We’re confident many will, but some may not. This is not forcing a change onto advisers. If advisers want to continue to leverage the licensee but not necessarily be exposed to the equity ownership or not interested in the alignment that comes from equity ownership, that’s fine.”
Additionally, it is expected management personnel will be able to take equity stakes, not just advice practices.
A cost and operating model review was undertaken which found ASC should be profitable a year after it is established.
A new start
ASC will be led by Insignia head of advice Darren Whereat who has been appointed CEO of the new group, while RI Advice Group CEO Peter Ornsby and TenFifty general manager Brendan Johnson are expected to retain their roles, reporting to Whereat.
The new structure involves a holding company placed above the three licensees that will have an independent board in the future.
“Until it gets to that point in time, it will continue to have full support of [Insignia],” Mota says. “There is a capital contribution to create this new structure to ensure that viability.”
Included in that capital contribution will be a capped indemnity to the new entity for any historical remediation relating to conduct under Insignia ownership, which the company declined to disclose publicly.
“[Insignia] will have a smaller proportion of ownership, i.e. less than 100 per cent – it will be less than 50 per cent,” Mota says.
“We expect to this to operate with an independent mindset, we expect the management team to have some equity and we expect advisers to have something equity, but certainly our stake will be less than 50 per cent.”
The change comes amid the final year of a three-year transition plan to integrate the MLC Wealth licensee businesses it acquired from NAB which were due to be breakeven this financial year.
“We’re on track and have always said we’re on track for this enterprise to be sustainable,” Mota says.
“Our commitment was always on a run rate by FY24. Even prior to these announcements we were on track for that. This entity will be – and has to be – sustainable.”
Flowing with the tide
The announcement comes as licensees across the sector have struggled to establish profitable business models, compared to other parts of the advice value chain, including practices and platforms.
ASC is designed to be a partnership model with advice professionals, however unlike other partnerships where licensees buy a stake in advice businesses, the practices are instead buying an equity stake in the licensee.
Reflecting on the company’s approach in asset management, Mota says it’s similar to the partnerships it had with boutique asset managers.
“This is using a similar philosophy in the advice space, creating an environment with an alignment of interest where they have greater collective ownership and influence over the direction of this business and that allows the business to compete really effectively in what is in a dynamic marketplace.”
Whereat says the evolution of the licence model hasn’t kept up with the evolution of the industry into a profession. “We challenged ourselves to look at the benefits of the licence model.”
On the institutional side, he noted the benefits of capital security and the investment in technology, while the boutique side had the benefits of control and ownership.
“If you marry both those together with the peer groups around professional development, we think we’re creating something that is different,” Whereat says.
“With the shared ownership and aligned interest we think we’re taking the best of the licensee model.”
