The days of Financial Index Wealth Accountants (Findex) flying under the radar are long gone. An acquisition reportedly worth $130 million will tend to do that.
Over the past 10 years, Findex has averaged four to five acquisitions a year. The Findex team has become adept at identifying potential targets, negotiating deals, integrating businesses and retaining clients. Growth by acquisition is so ingrained into how Findex works that it has developed an in-house mergers and acquisitions (M&A) team.
If the acquisition of Centric Wealth goes ahead as planned – and Findex chief executive officer Spiro Paule (pictured) says there is no reason to suppose it will not – then Findex will emerge with almost $8 billion of funds under management and advice, and a network of about 100 advisers.
Until now, a low profile had been a deliberate strategy. Paule says that had Findex sung its growth intentions from the rooftops, potential targets may have pumped up their asking price, compromising the company’s acquisition strategy.
Organic growth
“It’s not that we spurn organic growth,” he says.
“It comes because we have a program in-house where our advisers certainly do seek referrals, or ask for referrals, and people do come to us through that mechanism. I think most wealth managers grow organically through referrals and through mining centres of influence. And we maintain that thinking in our organisation.
“The fact is, though, that typically what happens in that environment is you go out and you might try to grow your business by 10 per cent, and an incredible amount of effort goes into growing it by that 10 per cent because the lead times to convert a prospect in to a client are long; you need to build confidence; you need to give them sensible strategies; you then need to implement. And that’s several months from one end to another.
“It’s a slow, laborious process. And at the same time you often find you are concentrating so much on generating that incremental growth that you’re losing clients at the other end because you have not stopped to service them as well as you necessary should.
“That’s typically been the form of yesteryear, and I think a lot of that still holds today. And we found that, when we did a study earlier on, that you grow by 10 per cent but 65 or 70 of your effort is spent trying to get that 10 per cent each year. Really, you’re not paying attention to the paying customers who have got you this far. So you’re disproportionately spending your budget on trying to get growth, and you’re underservicing those people who are paying the bills. We’ve found that strategy to be flawed; we felt that the people who pay the bills should get the most time.
The secret of success
“The only way to circumvent that was to go out and acquire more clients. Spend a lot of money acquiring them, and then make sure you don’t lose them. Really, that’s been the secret to our success.
“Considering that wealth valuation have been very, very firm, there’s no sense paying, let’s say, three times recurring revenue – it would take you 10 years to recover that and if you are clumsy at it, you’ve done an incredibly stupid thing. You need to pay particular attention to retention. And the clients who come across need to feel instantly like they’re part of the organisation, that you’re really vitally interested in them and their affairs, and that you’re stepping up the service rather than just tucking them in and hoping they’re going to stick. It just doesn’t work that way.”
Acquisitions have been the main driver of Findex’s growth over the past decade, and Paule says they will continue to be in the future. He says Findex takes “very seriously” its role as an alternative to the institutionally owned dealer groups and licensees that dominate the Australian financial planning landscape.
“The market is now very, very concentrated towards the institutional – I mean the banks and AMP,” he says.
“Over the period they have consolidated so much, they dominate the space. There’s very little of meaningful size left like Findex; and a few of the large listeds; then there’s a lot of very small players; and there’s a lot of co-op-type organisations that are very hard to consolidate because they’re really a federation of small businesses using a brand or a licence.
“It’s a tough game in the wealth space now to do a meaningful aggregation or consolidation. You either have to go right back to where our roots began, with small businesses – and there are quite a few of those, obviously – but it’s just as hard to do those deals as it is to do the bigger deals. We’re probably past that now, going back to mopping up a single practice, so it’s difficult.”
Opportunities in accounting
Paule says Findex currently sees the accounting space as offering the best opportunities for expansion.
“There’s a lot more mid-sized accounting firms looking for a strategy and a direction, and some sort of upgrading into a modern way of doing business where they can expand their services and offer a lot more under one roof than they have conventionally done, where they just focus on tax and tax compliance. There’s scope for extension to business services that accountants have traditionally offered over the years and then lost those skills. They now live in the big-end, in the large firms, and small firms tend to restrict themselves to tax compliance, and I think the opportunity is to acquire some of those and increase the range of services under our umbrella that they might struggle [to provide] on their own.”
Paule says Findex’s natural strength is wealth services “because that’s out heritage”, but he adds that “we’ve gone on and started to accumulate the additional services, like self-managed super admin”.
“We do risk; we look forward to extending our range under Centric to mortgage lending, to general insurance, to estate planning – all of those services really belong as a whole, to be offered to all clients, to the degree that they wish to [use] them,” Paule says.
“It’s difficult for people to get a concerted application to their finances when they go and get bits-and-pieces solutions – they go their wealth guy, they go to their accountant, they go here and they go there. There’s obviously inefficiency in doing that, and we’d like to offer as many clients as we have the range of services under one roof. That’s been our mantra for a long, long time, and indeed, Financial Index stands for that.”
February 3, 2014: This article has been updated to amend the name of Financial Index Wealth Accountants
February 2, 2017: This article has been amended to remove reference to the word ‘independent’ following a ruling by ASIC.
