Shadforth is buying businesses, not books

Not even a year on from its acquisition of Melbourne-based financial advice firm PMD Financial Advisers, Shadforth is looking for M&A opportunities, but CEO Terry Dillon says they want to acquire firms, not acquire client books.

But he tells Professional Planner that to do so it’s about finding the right cultural fit.

“If you really respect the client relationship, the interaction between the advisers and clients is so important,” Dillon says.

“We wouldn’t be doing deals where we were just buying books, we’re looking to bring the people with them, at least for three to five years.”

Dillon says when looking for businesses to acquire, they want to be transparent about the culture and benefits of being part of the Shadforth organisation, and whether it is the right fit for the prospective advice practice as well.

“I’ve seen people buying businesses where they don’t want the advisers, they see them as profit inhibitors or difficult to embed in the culture,” Dillon says.

“I think it’s because maybe they have advisers themselves with excess capacity.”

The acquisition of PMD added 388 clients with $700 million in funds under advice to the Shadforth licence.

Dillon says the acquisition “landed beautifully” but he expects that not every deal will be as straightforward.

“They were literally a few hundred metres away from the office [in Melbourne], but that’s been very encouraging to see how well those clients have fit in,” Dillon says.

“I wouldn’t underestimate how much we learned from going through the process, but I wouldn’t overplay the lessons because they were a very good fit for us.”

Dillon says the transition will only work if the younger advisers – the ones who aren’t planning succession – plan to stay on for three to five years.

“Everything we’ve seen in the first nine months says that both the clients and the advisers are going to have long, hopefully 10-year-plus careers with us and the clients seem to have settled into our Melbourne office really well,” Dillon says.

Dillon says the ideal business will have a similar operating model and set of beliefs as Shadforth.

“It’ll be comprehensive, ongoing advice; it’ll be higher than average net worth; it’ll be repeatable evidence-based investment processes that give us confidence about client outcomes,” Dillon says.

“We work in teams, we’ve organised ourselves into Shadforth advice teams because we think that helps everyone, including the clients. We use technology, where we can, to manage money to rebalance portfolios and we’re all committed to growth.”

Dillon says the business must continue growing in order to service clients well and to bring in quality support staff.

“If someone’s sitting there and happy with their 100 clients, we’re not terribly interested in them,” Dillon says.

“We’re interested in someone who wants to look after those clients, but is also interested in growing. That will probably mean that a lot of businesses that we’ll talk to might not be a great fit for us. We might be friends with them, but they may not fit into the Shadforth structure.”

And while Shadforth is on the hunt for more practices, the company, which is owned by Insignia Financial, is going through its own M&A transition after CC Capital acquired the ASX-listed Insignia Financial last year for $3.3 billion. The organisation de-listed from the exchange in April. 

Dillon says there haven’t been significant changes yet, but the private equity group has backed Insignia’s 2030 strategy – which includes becoming an AI-enabled company, cutting $200 million in costs and increasing growth – and the private equity firm is helping the company hit the targets ahead of schedule.

“It’s early days… but I would say everything that we plan to do is being broadly supported,” Dillon says.

“There hasn’t been a massive change, there’s been an acceleration and – from my perspective – a welcome acceleration. It means the plans for tech spend and everything else are being not just supported but properly dragged forward to make sure we get the benefits of them earlier.”

Dillon says FY25 has been the strongest year the business “has ever had”.

“We’ve got over 11,000 clients, but we’ll onboard more than 900 new full-service families – that’s up from 688 the year before, 550 the year before that,” Dillon says.

“Our problem has not been finding people who need advice, it’s been getting through the process of delivering advice efficiently, so we can see more people.”

The firm announced during June that it had promoted eight senior associates to private wealth advisers due to “record” new client growth, while there was also a pipeline of Shadforth professional year and senior associates, with another 63 progressing towards private wealth adviser roles.

“If you look at the efficiency side of the business, before we made these promotions, [we had] moved up to about 120 full-service clients per adviser and we’ve got a pathway where we want to be adding more advisers because we’re going to double the business by 2030,” Dillon says.

“But we also want to use technology and process improvement [so] our advisers can look after more people. This year we’ve gone up six or seven clients per adviser, and we’ve added gross 14 senior associates [who have] been promoted into private wealth advisers this year. We’ve grown our adviser numbers and grown the average numbers of clients per adviser.”