Count CEO Hugh Humphrey has backed the benefits of revenue-based licensees fees as the company’s wealth segment posts revenue growth outside of its equity stakes.
Posting its FY23 results to the ASX on Wednesday morning, Count reported a 17 per cent increase in its wealth division revenue to $18 million and earnings before interest, taxes, and amortisation (EBITDA) increased 24 per cent to $2.6 million.
“That’s fully loaded revenue from the AFSLs, costs associated from running the AFSL and profits generated from the AFSLs,” Humphrey tells Professional Planner.
“That’s a standout result, across the industry. I doubt that you’d have seen anyone produce a better result.”
The results come as the largest players, AMP and Insignia, struggle to get their licensee businesses to profitability, posting $25 million and $36 million losses, respectively, in their advice divisions.
Count’s overall net profit after tax was $7.49 million, up from $7.37 million in FY22.
Count holds equity stakes in accounting and advice practices, but reports its equity stake profits in its accounting division, which means the wealth division financials strictly cover revenue and profit of its AFSLs.
“To keep it simple, accounting is our equity partnerships, but strictly speaking it does include contributions from our equity in our financial businesses there; and wealth is just the AFSL,” Humphrey says.
The advice network, acquired from Commonwealth Bank, had to transition to a model that isn’t dependent on grandfathered revenue.
“Unlike a lot of competitors in the industry that might have an advisory business associated to a larger platform and product manufacturing organisation, we’re not, so that business needs to operate profitably on a standalone basis,” Humphrey says.
Count’s licensee fees work on a base fee plus revenue-share model, which Humphrey says keeps the growth interests of the practices aligned with the licensee and is heavily utilised by other AFSLs.
Count doubled its market share of financial advisers in FY23, largely due to the acquisition of Affinia Financial Advisers from TAL which added 115 advisers, increasing numbers from 278 to 379.
The number of clients served grew from 16,716 to 17,721, accounting for $16.8 billion in funds under advice.
Driving a hard bargain
Count brought in its “owner, driver, partner” model in 2018 during the Matthew Rowe era to take equity stakes in accounting and advice practices.
The organisation has largely invested in accounting firms that have a financial advice arm, but Humphrey says the plan is to take equity stakes in more advice practices.
“Historically we’ve always known we can invest in firms and meet our return target, which is a 15 per cent return on equity, but in the AFSL space the challenges have been can businesses operate AFSLs profitably at scale?” Humphrey says.
Humphrey noted the addition of Rockhampton-based TISLife which joined from Millennium3 which was announced this week along with a former Fitzpatricks-licensed firm in Melbourne.
“These are large successful businesses that are choosing to partner with us,” Humphrey says.
“As we support our firms to grow and they’re growing their revenue and improving their profitability our licensee model benefits from that and rightfully too because the partnership we have is multi-faceted to ensure they operate really successfully.”
Booster for life
In a similar move to WT Financial Group’s acquisition of Synchron or Morrow Private Wealth’s partnership with Bombora, Count is leveraging the acquisition of Affinia to expand its risk advice services.
“I’ve always held a view that advice is and should be holistic and needs to consider all elements of people’s lives,” Humphrey says.
While acknowledging it has become harder to for adviser to give risk advice, Humphrey adds there’s a re-emergence of the concept of specialist risk advisers.
“Based on what I’m seeing it’s actually quite challenging to hold all the complexities of risk,” Humphrey says.
“We’ve seen some terrific advisers, particularly advisers that have come out of Affinia, but also within our own group, that do specialise or have specialists within their group for risk advice, and we see this as critical.”
Humphrey says what attracted Count to Affinia was that half of the revenue its advisers generated is from risk advice, while the other half is from investments and superannuation. “We thought that’s a nice balance,” he says.
“It is my expectation we will support all of our firms to have risk solutions for their clients, whether that’s risk specialists within the business or holistic advisers or having really strong referral arrangements.”
The model they want to replicate around the network is having a risk advice specialist who works for a specialist firm integrated within another Count business.
“They will work alongside the accounts and advisers of the one of our business and deliver that seamless integrated experience,” Humphrey says.
“We want that seamless client experience where they really feel like they’re interacting with one [team].”
This article was edited on 31 August 2023 to include Count’s overall net profit after tax.
