Insignia Financial-owned licensee Shadforth has acquired Melbourne-based financial advice firm PMD Financial Advisers in a move that will see its footprint in Victoria expand as the group continues its plan to double in size.
The first of what the group expects will be many M&A deals in the space, Shadforth will see five staff (including three advisers) with 388 clients covering $700 million in advice moving over to the licensee.
Terry Dillon tells Professional Planner that PMD looks like a Shadforth firm already in that it has a similar advice philosophy.
“There’s a lot about this that makes it easy for us to like it,” Dillon says.
“The clients look and feel like our existing Shadforth client base – higher net worth but not ultra high net worth.”
The firm increases the size of Shadforth’s Victorian business by about 15 per cent, which Dillon describes as a material increase to the group’s footprint in the state.
“We’re looking for patriots, not mercenaries – a lot of the people in this are looking for a financial outcome,” Dillon says.
“We think we can provide a great financial outcome but we’re actually looking for people who deeply believe in our advice philosophy and our investment philosophy. We’re looking for people who want to buy into the Shadforth purpose and want to be part of this growth adventure.”
The acquisition will see the firm fully integrate into Shadforth, retiring any existing branding. “We’re are not aggregators, we are integrators,” Dillon says.
“There’s a lot of other people doing M&A and are just aggregating. We’re looking for people who are broadly believing in the same thing as us. We’re not going to deal with businesses where the clients are too small or the investment or advice philosophy is very different.”
For advisers used to owning their own business and being the decision makers, it might seem hard to let go of that control, but Dillon says the value proposition for these advisers is that they will be remunerated “incredibly well”.
“Of our 94 advisers, 25 of them are in the Barron’s Top 100,” Dillon says.
“When we talk about salaried advisers, the implication there is somehow a negative thing or something to be managed. For a firm like PMD coming in, the compensation arrangements we have with them are similar to other advisers and it’s compelling, so it isn’t an issue.”
Insignia implications
The deal coincides with an overarching transition that will see Insignia delist from the ASX after CC Capital agreed to acquire the wealth giant for $3.3 billion.
Against that backdrop, it’s inevitable this would be of concern to prospective parties, but Dillon says both Insignia and CC Capital are supportive of Shadforth’s growth intentions.
“It is a topic of conversation with lots of people that we’re talking to,” Dillon says.
“How does it work, how will it help us? What are the pros and cons of it? But broadly, people are looking at the Shadforth target operating model and what we believe in and they’re buying into that.”
Insignia acquired Shadforth in 2014 and Dillon says they’ve been nothing but supportive since.
“The deal I have with Scott is that we just have to make each other better which means we get out of each other’s way where there’s no way to add value, but where they can help us, they help us,” Dillon says.
Growth philosophy
Shadforth previously outlined plans at the Professional Planner Licensee Summit about how the firm plans to double in size.
Dillon says the firm wouldn’t be “embarking on this M&A journey” if they weren’t already growing organically.
“We’re going organically really well, there’s a lot of demand for advice and Shadforth is very well positioned for that,” Dillon says.
“We’ve been growing strongly organically and we’ve got a very strong pipeline of new advisers coming through.”
Shadforth has 94 private wealth advisers and 61 senior associates who are their way to becoming advisers.
“There will be other firms who have decent pipelines of new advisers coming through but to my knowledge I don’t know anyone that’s got a pipeline as strong as that,” Dillon says.
“We’ve been bringing through five to seven through their PY [professional year] each year. We’ve got a pipeline of advisers coming through and our organic growth will help to give those guys clients to talk to and a start.”
Shadforth will allocate another adviser to help cover PMD clients so the four advisers will collectively serve fewer than 100 clients each.
Dillon says the group averages 107 clients per adviser although this varies state by state – New South Wales is 88 clients per adviser, albeit still being the highest net worth on average, while Tasmanian advisers average 115.
Shadforth’s philosophy involves making “50-year promises” which backed by its century-long pedigree which the licensee believes gives them a reputational edge in market.
“A lot of the great small businesses out there who have great service propositions, it’s very hard for them to actually follow through and keep that 50-year promise to clients whereas we have been around for 100 years and we don’t see any reason why we don’t be around for the next 100 years,” Dillon says. The firm recently celebrated its 100th anniversary.
PMD was assisted in the transaction by Tony Cimino from Endeavour Consulting.
