New York-based Merchant Investment Management has inked its first deal with a local financial advisory firm 12 months after entering the Australian market.
Professional Planner can reveal that Merchant, a provider of strategic capital to wealth management firms, has taken a non-controlling stake in MBS Insurance, a risk advisory firm with offices in NSW, Victoria, Queensland and Western Australia.
Merchant Australia partner David Haintz says the deal reflects growing demand for risk specialisation, praising MBS founders Kris Mason and Drew Burden for building an attractive national business over 17 years despite a tough commercial environment for risk advice.
“Your typical wealth firm is saying they don’t want to do risk insurance, it’s too hard to get PI [professional indemnity] insurance or get underwriting through,” Haintz tells Professional Planner.
“People are getting out of life insurance – but if there’s a problem – there are people looking for the solution and the solution is specialisation. More and more firms are outsourcing the risk insurance to specialists like MBS.”
The transaction comes amid heightened activity between surviving players in the troubled risk advice sector, including the joint venture between boutique firm Morrow Private Wealth and licensee Bombora Advice, unveiled in August.
Haintz describes MBS as a “pure play” insurance adviser, remunerated almost entirely by commissions. But while he views risk specialisation as an attractive attribute, he says Merchant will not take another stake in a local risk firm after MBS, with the aim to build a portfolio of between eight and 12 cornerstone Australian investments diversified by geography and demographics. He says Merchant is also in advanced discussions with a local high-net-worth investment specialist.
Haintz declines to disclose the value of the transaction or size of Merchant’s stake in MBS, which he describes as a “significant, non-controlling” chunk. It is understood that Merchant, which has interests in more than 60 wealth management firms around the world, ordinarily takes stakes of 20-25 per cent in its partners.
Merchant entered the Australian market in October last year, attracted to the nation’s highly regulated advice sector and growth tailwind emanating from the compulsory superannuation guarantee.
It is one of several global private equity players targeting the sector, including Connectus Wealth Advisers (owned by US-based Focus Financial Partners) and AZ NGA (led by high-profile local dealmaker Paul Barrett and backed by Italian asset manager Azimut).