When Ray Miles and a group of financial advisers established Fortnum Financial Group in 2010, the aim was to create an alternative to institutionally owned licensees and to allow advisers to own a stake in their licensee.
In an interview with Professional Planner in 2016 when he announced his retirement as Fortnum chief executive, and two years before the Hayne royal commission, Miles prophesised that “the instos are going to get out” of advice.
“They have to get out,” Miles said. “They don’t know what they’re doing in it and they shouldn’t have been in it in the first place. They [stuff] up the whole system because everything’s around product, instead of advice.”
Miles said the future for advisers was not obtaining their own AFSL – “which I think is problematic, and ASIC needs to get serious about those guys” – but in being part of “a dealer group like Fortnum”, where practices own 70 per cent of the business and interests are aligned.
Miles’ successor as CEO, Neil Younger, picked up the baton and ran with it hard, overseeing a period of renewal and growth of the Fortnum business, improvements to its adviser support services, and its rebranding as Entireti.
Earlier this month AMP, the last institution left standing in the advice space, announced the sell-down of its holdings in AMP Financial Planning, Charter and Hillross, along with licensee services business Jigsaw, for $7 million in cash and a 30 per cent stake in a new holding company.
It seems only fitting that the buyer should have been Entireti, fulfilling its founder’s 2016 prediction. And Miles’ adviser-owned ethos will be maintained after the acquisition.
Solving issues together
The AMP deal is similar in conception and execution to the deal Entireti struck with Australian Unity last November. Fortnum and Paul Barrett-led AZ NGA joined forces with Fortnum acquiring the Personal Financial Services licence owned by Australian Unity and AZ NGA acquiring the equity stakes in the advice practices.
Barrett tells Professional Planner that Australian Unity had “made some noises around having a new strategy for advice, and so we went in there as a consortium and looked to solve their issues together”.
“My interest was in the Australian Unity financial planning assets they owned, the actual businesses they owned, because they owned a handful; and Neil’s was in the licensee and getting scale,” Barrett says.
“We had an opportunity together to go and achieve both of those things and achieve AU’s objectives at the same time which would actually exit those two business lines.
“We felt that was a pretty good template for helping AMP. AMP obviously approached us and asked us to have a look at the assets, and we shared with them our thinking around the consortium. And that obviously was received well.”
AMP chief executive Alexis George says that “clearly the track record and having done this before was positive”.
“I think more for us was the cultural fit and what it was going to give our advice network going forward,” she says. “But, clearly, having some kind of experience in doing it was a positive.”
The sale of AMP’s licensees has been widely reported as the 175-year-old institution quitting advice, but George notes the company’s 30 per cent stake in licensees means it’s not entirely out just yet. George says the company will focus on building up its intrafund advice capability – currently just 10 advisers – and has yet to settle on a way of dealing with advice requests from AMP customers.
“We will, as we always have, think about whether we offer referrals or not, but I just want to think through that a bit more, whether we offer referrals out to our advisers,” George says.
“We spent our last three years trying to rebuild that relationship with our advisers, [to] rebuild mutual respect. That was hard, and it took a lot of effort and time on both sides, and I don’t want to lose that. They have been an important part of our trajectory.”
Younger says Entireti’s adviser-owned structure will be maintained and expanded to include the new advisers joining the group.
“The advisers will be, in the next while, given the opportunity to also be equity holders within the total business,” Younger says. “We’re maintaining that ethos of a community, where the value of the community is, in part, shared with that community.”
Licensees making money
Younger says there’s a common misperception that licensee businesses can’t be profitable. That might have been true inside institutions in the past, when the delivery of advice was subsidised by product sales and advice struggled to stand on its own when the subsidies stopped. Indeed, as a hangover of this legacy, AMP’s advice division posted a loss of $15 million for the six months ended 30 June 2024.
“Advice services businesses can [make a profit], and in fact we do today, in Entireti now,” Younger says.
“As those services continue to broaden, based upon the needs of the underlying community, then there’s margin to be had, and that margin comes back into the centre and is shared. That’s why I think there’s been a little bit of missing of the trick here.”
The general view the licensees business is that it’s all about compliance and governance, which advisers don’t value highly and isn’t profitable, and the risk the licensee carries.
But Younger says that is only one part of what an advice services business does.
“There are so many other things that that are a part of assisting small businesses in the delivery of advice,” he says.
“Many of those things anchor to the governance frameworks that we have in place, but are able to be monetised, particularly where you can create a step-change in the cost profile for advisers using these services.”
Younger says securing former AMP group executive of advice Matt Lawler is an important part of the transaction.
“He’s been piloting that business now for a couple of years and he knows the network well, and he knows about their value proposition, and he knows things that are important to the adviser segment there,” Younger says.
“Him agreeing to come and look after that component of the business for us is really important. He’s got very similar views and ambitions in terms of the way that this business continues to evolve in the future. He’ll be a good person to have helping with that.”
For his part, Lawler says that he’s looking forward to continuing a process with AMP’s advisers that has been in train for the past three years.
“We’ve had a good working relationship and we’ve improved a lot of things,” Lawler says.
“There’s still work to do. I want to make sure that this is bedded down well, and that the advisers continue to get services delivered at a high level. I don’t know how long that will take, but I’m enjoying myself and the advisers so far are giving us feedback that we’re making good decisions.
“As long as that continues, I don’t really see a point at which that ends. This is what I do. I’m working with people that I enjoy working with. I see this as this will go on as long as people value what I do and what I deliver.”
Harnessing financial horsepower
Barrett says that what sets Entireti apart from other licensee networks with similar or greater adviser numbers is that it has “financial horsepower”.
“We can get stuff done,” he says.
“Our execution track record speaks for itself, and I think that’s the difference. Being in a big advice network is one thing; being a big advice network with financial horsepower is a completely different thing altogether. I think you need both. You need scale in terms of adviser numbers, but you’ve got to have the financial horsepower, and the way you get that is by taking profitable services to planners, not loss-leading services to planners.”
Barrett says there are advantages in being a private company when many of Entireti’s similarly sized competitors are ASX-listed.
“I don’t want to be in a position where we’ve got all of the costs of listing without the benefits,” he says.
“You get the benefits once you get to sort of top 200, you become a liquid stock, you’re in the index portfolios. That’s when it starts making some sense. But if you can secure capital without being listed, you have a lot more agility and flexibility.”
Barrett says that “sometimes in business life, the right solution finds the right problem, and vice versa”.
“That’s what’s happened here,” he says.
“At exactly the time that AMP have got clarity over what they want to do, we’ve emerged in terms of our maturity, respectively, as organisations that together can solve almost perfectly the problems that they had to solve for. It doesn’t happen very often.
“Often what you do is go through a process, and you go, we’ve got a few options here but none of them are perfect.
“From the time we started talking to AMP, there was just this elegance around what they were trying to do organisationally and what we were trying to do. We were clear in our ambition, they were clear in theirs, and they just married up. And that’s what made a very complex transaction, with lots of nuances and layers, relatively straightforward.”
Younger describes the acquisition of the AMP businesses as “an accelerator of the journey that we’d already begun”. It’s also a neat way to bring into reality Miles’ prediction of eight years ago.
“We had a view that our ability to execute our strategy would certainly be faster with the larger base of advisers,” he says.
“This is one that we saw as a real opportunity, but by no means were we taking for granted…that we had a deal done. But we do now, so the plans that we’ve been working on for some time can go faster.”
Lawler says Younger’s vision of creating “a scalable back-office delivery system makes a lot of sense”.
“Economically, when you sit down and you do the numbers, there’s so many areas that you can get scale and you can trim your costs to get the cost base to the right level while still being a high-quality delivery,” he says.
“People like Neil have been doing this for a long time, and his team, they’re very experienced. They’re advice people that understand advice. They do it very, very well.”
Lawler says adding the AMP advice businesses to the mix lifts the Entireti business to the point where “scale can bring things to market that don’t exist today”.
“They could be in the areas of partnering with technology suppliers; it could be in partnering in terms of delivering services to either a small business or to help them deliver services to their clients.
“These are all the things that that Neil is thinking about, and now I’m thinking about in terms of how do we create something that’s actually going to deliver more than what is delivered today.”
