After years of promoting “quasi–equity” with a variable licensee fee structure, WT Financial Group has moved into the realm of advice practice equity stakes with a new joint venture with Merchant Wealth Partners.
In an announcement to the ASX on Monday morning, WT Financial Group revealed it was entering into a 50/50 joint venture with Australian subsidiary of New York-based financial advice investor Merchant to invest in “high-potential” financial advice businesses in the WT network.
WT and Merchant will operate under the newly established entity with the name “Investco”.
WT chief executive Keith Cullen will take on the position of managing director while Merchant partner David Haintz will be an executive director.
While Merchant will provide the capital, WT will be handling the due diligence, relationships and business management side.
The partnership marks a significant change for WT as previously they operated under a quasi-investment, or “quasi-equity” strategy. Moving to an actual investment strategy means WT can now take equity as half of Investco.
Cullen describes the change from as “an actual evolution” but emphasises they are “not abandoning the aspect of these being two separate things”.
“Our role as a as an advice network operator, it’s still imperative that that business, in and of itself, is structured properly,” Cullen tells Professional Planner.
But Cullen says he doesn’t expect every firm in the network to take up the opportunity to partner with Investco.
“We have a really good sense of which businesses might fit together well, which is really important, that’s what Merchant values so much in the relationship with us,” Cullen says.
“As a capital partner, you’d need to be relying upon your own inquiries and then, importantly, the people due diligence. Because when you’re looking at putting practices together, whether that’s through acquisition or through merging the practices, the biggest risk to capital is the principles in those businesses don’t end up gelling well together.
“Operationally, when you put them together, there ends up being conflict and so personalities are really important.”
Not traditional private equity
The terms of the partnership are that Merchant will hold primary responsibility for providing the investment capital for Investco. WT will be responsible for opportunity origination and overall management of the new entity and leverage its advice practice development and support resources and knowledge.
Cullen says WT’s knowledge of their practices is invaluable to Merchant, especially as the capital provider is a specialist in the financial advice investment space.
“Merchant really recognises the incredible value that we bring to the table from both the relationships and also the financial due diligence side,” Cullen says.
“All of the potential capital partners that have approached us have recognised that value. Merchant’s really recognised it, because they know this specific profession so well.”
Cullen says partnering with Merchant was “an obvious choice” as it differs from other potential capital partners.
“The critical part is they’re patient capital, they’re not yet traditional private equity that’s got a shot clock running from the minute they make the investment,” Cullen says.
“It’s not a like a venture capital fund that says here’s five million bucks, and the minute they give it to you, they’ve got the clock running going when are we getting it back and what’s the uplift going to be?”
The announcement said Investco intends to invest in a number of “hub” entities, called “Hubcos”. Hubcos will represent a single practice or a group of complementary practices which have multi-million-dollar revenue and high scalability potential.
The Investco investment model will specialise in financial advice types with the potential for a geographical rollout.
‘Only just begun’
In August 2024, Professional Planner reported WT Financial Group’s financial year results, which showed a 51.4 per cent increase in net profit before tax, from $2.9 million in FY23 to $4.4 million.
At the time, Cullen said WT was both proving its capabilities but also that, to a large extent, they had only just begun.
When asked if this was a hint about the partnership with Merchant, Cullen admits it could be and reiterates the notion that they’ve only just begun.
“Our vision has always been to help advisers get their mojo back,” Cullen says.
“The large majority of practices are really loving being a part of the group and really starting to get their mojo back. We’ve only just begun in that regard as well, in terms of being the advice network of choice.”
Equity stakes have become a popular option for licensees to create further value outside of fees, which had been pursued by licensees like Count and Centrepoint, while Oreana announced a partnership with Encore Advisory Group to boost its capabilities in the area.
