Perpetual CEO Rob Adams

Infocus’ proposed takeover of Madison is in many ways a sign of the times in the business of financial advice.

First, it underlines the significant re-rating of perceived value in the market over recent years in which once-mighty licensees are now in many cases considered inferior businesses to the seemingly smaller businesses operating under their licence. At a headline offer price of $2 million, Madison is worth less than many SME advice businesses around the country (including, presumably, some within its own network).

Second, it shows the continued frenzy of M&A activity in licensee land, which will be a key focus of the upcoming Professional Planner Licensee Summit. The proposed Infocus-Madison deal follows Count’s takeover of Diverger, WT Financial’s acquisition of Millennium3 and Fortnum’s deal with Australian Unity to take its advice business Personal Financial Services, all of which occurred in this last financial year alone.

Given their target market of registered financial advisers has been diminishing for years, economic theory would suggest they have little choice but to pursue mostly inorganic growth, paying up for cheap, troubled or retiring rivals to bolster their ranks. Plus, dealmaking can be the fun stuff of business, at least for the victorious party.

But dealer group bosses should be under no illusions about the ability for these deals to paper over deeper fissures in the business model. While the case for scale is sound, commercial history is littered with examples of businesses viewing M&A as a panacea and coming unstuck.

For a recent case study, the advice community need look no further than an organisation many of them will have known well: Perpetual.

The company earlier this month announced it would sell its private wealth and corporate trustee businesses to KKR along with the blue-chip Perpetual brand, while its asset management division would be rebranded and continue to operate as an ASX-listed business.

The effective demise of Perpetual as it was known is a sad outcome for many who care about the history and business of financial services in Australia. As controversial journalist and former Australian Financial Review columnist Joe Aston noted in a recent podcast with Professional Planner, the firm’s equities team played a storied role holding company management and boards to account (cheered on no doubt by their clients in the advice profession).

The story again provides a signal that advice itself and not the financial product manufacturing apparatus is now seen as the more desirable part of the chain, given it is the private wealth advisory business, and not asset management, that KKR wanted.

But it also provides a cautionary tale for M&A enthusiasts. Over a six-year period under the tenure of CEO Rob Adams, Perpetual went on a global shopping spree, picking up assets including Texan fundie Barrow Hanley, ESG advisory business Trillium and – most spectacularly – its longstanding Australian equities archrival Pendal (formerly BT Investment Management).