Access to the capital needed to fund growth, and the question of where it comes from and on what terms, is shaping up as the defining challenge for advice licensees over the next five to seven years, the Professional Planner Licensee Summit has heard.
A panel canvassing the diversity of business models across the licensee spectrum heard that whatever model a firm runs – whether it’s adviser-owned, listed, self-licensed or private-equity backed – the ability to fund technology, transformation and client growth now turns on access to capital.
The good news is that there’s now no shortage of capital available to good businesses, but each model is placed differently to get it and presents a different proposition to capital providers.
Perpetual Wealth Management chief executive Mark Smith said the spin-out of his business from Perpetual Limited, following the acquisition of Perpetual by Bain Capital, had created conditions he had not seen before.
“For the first time, I feel that some advice businesses are going to be totally capital unconstrained, and that’s a very unique environment,” Smith said.
“I think it creates a very different dynamic in terms of the relationship with product providers, relationship with certain parts of the industry that’s been really part of it for the last 30 to 50 years.”
Smith said the private equity route did not have to end with a sale to another private equity firm. He pointed to Bain’s history with Virgin, which returned to public markets through a listing.
“The end of the process is actually not to another PE firm, but it’s back to the market, and you’re back to the market with the right capital and balance sheet to actually do that.”
For Godfrey Pembroke, the calculation is different again. John Nantes, who took over as executive director from Mark Fisher, said that since leaving the Insignia Financial group, the licensee’s board had shifted the business from a corporate model to one owned and led by its advisers, with no corporate entity owning any part of the licensee.
The trade-off is that a big parent’s balance sheet is gone.
“Before Insignia, it was MLC. We always had this big parent helping, providing capital support, and next thing you know, you turn around and look and go, we have to solve this now,” Nantes said. “There’s no parent, there’s no capital.”
Nantes said the absence of an institutional backer had sharpened the firm’s discipline rather than constrained its ambition, and that being adviser-owned gave it a source of capital that other models lack.
“When you’re adviser-owned, adviser-led, we do have pools of capital, [it] comes from the advisers, it’s their asset, so if we need a bit of capital, they’ll put it in,” he said.
“We’ve tapped a bit of that lately to do interesting things.”
He said external capital was also available to a firm that had a story to tell. Four weeks into the role, he had already fielded approaches.
“I’ve had more calls from private equity and investment banks saying, ‘Hey, what are you up to, John?’” Nantes said. “I know there’s money, and I know there’s capital sitting there, so if we need to go grab capital, we can grab it.”
CoreData global CEO Andrew Inwood, from the floor, said the adviser-owned, adviser-led model carried real appeal but would run into the economics of a fast-maturing market.
“The money always wins. This is capital-hungry now,” Inwood said.
“How do you achieve scale… without access to capital? If you’re going to be adviser-led, then you’re going to have to embrace private equity or someone who can bring scale, or get a rich uncle and fund it from your own pocket.
“We are at the start of this curve, and it’s going to go really rapidly. I don’t know if it’s going to get cheaper or more expensive, but it’s going to be different.”
Andrew Wilkie, director of branches at Morgans, said that capital is necessary but not sufficient on its own to guarantee growth.
The 44-year-old full-service business, which won the CoreData Licensee of the Year award last year, has run a substantial technology program built around a Salesforce platform rolled out about six years ago. Wilkie said the harder constraint was not money but the capacity of people to absorb change.
“A human can only eat so many hot dogs, so we have a lot of change fatigue within our organisation,” Wilkie said. “There’s no amount of capital you can throw at that to solve for that, unfortunately.”
Early investment in data had since allowed the business to take advantage of developments in artificial intelligence.
“Our data has been at the fore for our business now, and we’ve been able to now really enjoy and ride along with all of these changes that are coming through with AI,” he said.
Evalesco Financial Services director Jeff Thurecht moved his business from a co-operative licensing model to self-licensed over the past 18 months, growing from five authorised representatives to 16. He said capital constraints shaped how a smaller firm chose where to spend.
“As a small business with finite resources, it’s about prioritising and keeping really clear on what are we trying to achieve,” Thurecht said.
“What are we saying no to on a consistent basis? That’s what I’m trying to get better at.”
Thurecht said self-licensing suited the business for now, but he was not ruling out a return to a larger network, or other partnerships, if that became the right way to fund growth.
“Longer term, we’ll do the right thing for the business and the right thing for our clients, and that may be joining a larger network,” he said.
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