Market Commentaries

Issue #11 : Market Commentary Financial Year 2017


Market Commentary 2017 YTD

The ASX 200 rose 9.3% for the 2016/17 Financial Year. Since the Global Financial Crisis only 2013 (17.3%) and 2014 (12.3%) have been better. On a total return including dividends the ASX 200 rose 14.1%.

Listed property trusts were the biggest losing sector down an average 7.3%.

There is general optimism that the market will break 6000 points by June next year (2018) however, it needs to be remembered that the Australian share market has only fallen once in the last 7 years and there are plenty of bears in the market commentary space pointing to the geo political instability in the US, European, Middle East and the Asian Pacific region.

APRA revealed super assets hit $2.1 trillion of that total $621.7 Billion was held in SMSF’s and $1.29 trillion was held by APRA regulated superannuation entities. $185.5B in exempt public- sector superannuation. Retail funds represented 26%, industry funds 22.2%, public sector funds 17 % and corporate funds 2.6%

Of the APRA regulated RSE Licensees, funds with more than 4 members, the annual rate of return for the year ended June 2016 was 2.9%. The average 5-year return to June 2016 was 7.4% and the average 10-year return was 4.6%.

Of the APRA regulated RSE Licensees, funds with more than 4 members, the annual rate of return for the year ended June 2016 was 2.9%. The average 5-year return to June 2016 was 7.4% and the average 10-year return was 4.6%.

This cost to return relationship is the fundamental reason why our market is internationally regarded as ripe for disruption. It is also a point of reference for politicians nominating that there are no scale benefits being achieved for the Australian public.

The financial year period has been much like the previous year with the over- arching theme being one of compliance. Compliance used to be on tap now it is on top with all decisions being vetted by compliance or risk managers. This has not only stymied or slowed down any decision making within the Institutions but has flowed downstream to individual planner offices. Planners continue to be embroiled in increasing compliance that seeks to go beyond legislative requirements and further enhance the Dealers risk management.

Enhanced compliance in regard to non- conflicted advice and client fiduciary care was needed, but now the pendulum has swung too far and this is one of the catalysts for the M&A and Dealer movement activity being seen and more about to be witnessed in the future.

To this point it is only fitting that this report reflects the market theme and starts with future compliance that will further burden all Dealers and planners from a time, productivity and profitability perspective.

Future compliance

Section s923A governs the use of the term independence and use of terms such as independent, impartial, unbiased, independently owned, non-aligned non -institutional owned. To use these terms you must satisfy s923s in that the adviser does not receive commissions, volume based payments or other gifts or benefits and operate without any conflicts of interest. ASIC will give a 6 months facilitative compliance period to change websites and marketing collateral in regard to the newly restricted terms. Financial service providers who receive asset based fees are not prevented from using the restricted terms.

ASIC’s Funding model came into effect with the passing of ASIC Supervisory Recovery Levy Bill on July 1 2017 which ensures the advice sector will be levied $24 million or $1,500 per AFS licensee and a variable amount (based upon a calculation each year of the amount spent by ASIC on the advice area divided by the number of representatives in the industry) for each representative – estimated to be approximately $960 per financial adviser. This passed against opposition from the FPA nominating their concern that it would create a large burden on small business and the lack of detail and transparency involved in the consultation process. AFA also nominated that this action was likely to put financial advice out of the reach of those that need it the most.

Professional Standards of Financial Advisers Bill 2016 passed the House of Representatives in Feb 2017 requiring compulsory education for both new and existing financial planners. The regime will begin 1 Jan 2019 with existing planners having until Jan 1 2021 to pass the new exam and Jan 1 2024 to reach degree qualification equivalent status. Govt announced independent standards body to be created that would govern the professional standing of the advice industry and to it would be funded by the large banks and AMP. The standards board to consult and then build the curriculum.

Life Insurance Framework implementation date Jan 1 2018 requiring maximum hybrid remuneration to be

  • 80% from Jan 1 2018
  • 70% from Jan 1 2019 and
  • 60% from Jan 1 2020

Digital Advice RG 255, Digital advice whilst the focus is on Robo-Advice it also profiles the need to Dealer Groups to have full access to all advisers’ client files which requires a centralised data storage and common CRM and advice platform. It also unscored the need for cyber security to be aligned with the Privacy Act and the need to report data breaching.

It is the existing and future legislative changes which is in part responsible for fuelling growth and transforming the Technology and Administration market.

Technology and Administration

Investment Trends Planner Technology Report states that new generation platforms are gaining momentum. CFS FirstChoice and BT Wrap are the two most widely used however Netwealth, Hub24 and BT Panorama are steadily increasing their market share. Netwealth and Hub 24 came in as top platforms for adviser satisfaction. The research nominated that 75% of advisers are open to switching their primary platform either to lower admin fees (47%) or a wider platform feature set (28%).

The Institute of Managed Accounts professionals estimated that managed accounts held over $30b in FUM as at Sept 2016 or approx. This represents 5% of all investment assets held on platforms up from $13b in the previous year. Growth has exponentially increased since Sept 2016.

Netwealth advised they are looking to IPO with a valuation range of $600 to $700 million. Netwealth hit $14B by the end of June, an increase of $5B or 55% in the financial year.

Hub24 acquired Agility Applications for $2m cash and $4m in Hub24 ordinary shares.

Link to acquire UK share registry and fund administration business of Capita Asset Management for $1.5b. Link Group entered managed funds administration business last year with the acquisition of White Outsourcing. Link is sitting on a war chest since successful listing and subsequently made the acquisition of Superpartners and announced the smaller acquisition of Adviser Network from Lonsec.

Fund Administration is likely to grow with many retail fund managers currently doing their own administration but this will likely change with margin compression (see below comment in Fund Manager section).

Rubik Financial agreed to $68m acquisition by Swiss Banking and technology firm Temenos. Temenos Chief executive said the acquisition would allow them to provide a complete vertically integrated solution for the Australian banking market. The acquisition will bring us scale and allow us to accelerate our penetration and growth in the Australian market across wealth, core banking and fund administration (see international section for additional overlay).

IOOF to acquire NAB Trustee business and merge with IOOF’s Australian Executor Trustees.

Mercer buys Pillar who had $100 Billion of Funds Under Administration and 1.1 million members for $35m.

IRESS announced in September they sought to acquire Financial Synergy for a total cash purchase price of $90m.

AMP’s SuperConcepts acquired Reckon’s Desktop accounting platform with 16,000 software clients for $2.5m 50% upfront and 50% deferred over 2 years.

Industry Funds

Equipsuper and Rio Tinto Staff super to merge to form $14b FUM of $14B for 75,000 members.

Merging Disciplines announced it has entered into an agreement to acquire a majority stake (80.3%) in Smartline and also entered into a strategic mortgage broking relationship with NAB. Smartline has 300 brokers nationally settling more than $6b annually and total loan book of $25b. and NAB have agreed to build an Australian first end to end digital property search and financing experience.

Infocus enters exclusive referral agreement with H&R Block. H&R Block has more than 2,000 tax consultants across more than 450 offices preparing almost 800,00 tax returns per annum.

Fund Managers

Electronic Traded Funds sector grew by 14% for the first half of 2017according to Betashares with a total $29.4B in FUM with a compound annual growth of 30% p.a since early 2000’s and especially since 2009.

Recent Morningstar report active managers both domestic and international underperformed index funds in 2016 – the 4th year in a row and 6th yr out of 10.

Globally ETF’s are estimated to save investors $20b a year in costs and taxes. In the last 3 years Vanguard have taken $800b in new funds that’s 8x times more than any other fund manager in the world.

Active Fund Managers are having to cut fees to stay relevant and this margin compression is due to competitive forces that will continue.

A Deloitte US study found there had been a 133 mergers and acquisitions in the Investment Management Industry was fuelled by four factors –

  • Deteriorating industry economics
  • Distributor consolidation
  • A need for new capabilities
  • A shifting value chain.

It is not a great leap to overlay the Australian experience with the US and suggest we will see significant increased M&A activity within the Fund Manager sector.

Banks and Institutions

NAB sold Singapore/Hong Kong private wealth business Oversea- Chinese Banking Corp which had US$ 1.7b mortgage portfolio and US$3.05b deposit portfolio with 11,000 clients.

First half year income from wealth management and insurance income decreased by $3.1b compared to the same period 2016 according to KPMG. The average FUM for the majors increased by $43B to $555.7B which reflected market increases but hid declining margins, unfavourable A$ movement and reduced fee income.

Commonwealth Bank half yearly report to Dec 2016 nominated sub- par performance in its wealth management business largely due to continuing issues with life insurance and the cost of its advice remediation process. CBA’s wealth division cash net profit after tax was down 34% compared to the same period the previous year. The ASX release said the result was driven by an 11% decrease in operating income, higher operating expenses and lower investment experience. Insurance income was down 33% with strong general insurance growth offset by significant lower life insurance result.

AMP for the same period announced a full year net loss of $344m driven by problems in its insurance business and the loss of a large number of advisers.

IOOF reported a 17 per cent decline in underlying net profit yet at the same time reported positive platform flows up 46% to $1.4b and increase in advice flows of 17% to $865m.

The underperformance in the insurance sector aligns with NAB’s sale of MLC Life to Nippon Life and ANZ’s forecasted sale of its wealth management division and Suncorp stating they are exploring strategic alternatives.

ANZ to sell it’s stake in the Australian joint venture ANZ ETF’s with ETF Securities Group taking full ownership.

ANZ in a trading update of results nominated sale of non- core assets such as 20% stake in Shanghai Rural Commercial Bank, the UDC finance business in NZ and ANZs retail and wealth business in five Asian countries.

ANZ reported breaches in relation to its life, general insurance, superannuation and funds management activities in March 2016 ASIC said 1.3 million customers were affected in the period early 2013 to mid-2015 requiring compensation of $4.5m and rectifications and remediation of $49m. in Dec 2016 PWC made 6 recommendations to One Paths compliance framework.

ANZ and Macquarie both had proceedings brought against them by the ACCC at the end of Nov for attempted cartel activity in the foreign exchange dealings. ANZ fined $9m and Macquarie $6m.

ANZ announced in December product manufacturing is “not the model for ANZ” and were conducting a strategic review with a sale being one option. The whole business is valued at approx. $4.5 billion. IOOF confirmed their interest in the asset/s.

All banks had to face House of representatives Standing Committee. In questioning Andrew Thorburn NAB’s chief executive stated that 1,138 NAB employees were facing consequences for misconduct that had been uncovered in 2016.

ASIC imposed additional conditions on the NAB super Trustee NULIS Nominees for insufficient disclosure of insurance changes, inadequate training of staff and updating of insurance policies resulting in inadequate death and TPD insurance and $1.6m in members claims underpaid or declined. NAB identified 220,000 members accounts that had incorrectly been charged fees to the value of $34.7m.

CBA completed in its Open Advice Review Program after assessing 8,600 cases offering a final compensation amount of $23m. CBA contacted over 350,000 households to invite them to register for the OARP which was established in 2014 and closed 3rd July 2015.

ASIC estimates that the banks will pay $178m to clients for advice never delivered with CBA estimated to pay $105.7m ANZ $49m (as above) NAB 16.9m.

Bankwest decided to close its salaried advice division and transfer clients to Financial Wisdom.

The recently announced (Aug 2017) action by Austrac against CBA regarding multiple breaches of the AML-CTF regulations will increase political pressure on the banks as well as require a significant investment from CBA to either defend and/or settle the matter.

Adviser Migration

Bell Potter commented adviser migration is not cyclical it is a long- term development in Australian Financial Services citing the Big 4 and AMP have lost 400 advisers in the last 6 months and market share of 1.8%. “We expect this trend to continue, particularly as players like ANZ look to exit”.

Steve Murray of Catalyst Compliance has observed “that due to the focus on the failures within bank advisory structures there have been a steady movement of advisers away from these vertically integrated structures.

The preferred dealer for institutional advisers who are moving, are the small to medium size boutique operations who can demonstrate a viable service proposition.

Some advisers have the capacity and skill level to be able to establish and run their own AFS licence. This has become increasingly more viable as the range of compliance organisations who provide ongoing compliance assistance to AFS licensees has increased over the last few years. Running their own AFS licence affords the representative with absolute control over their business operation and direction – but also, of course, responsibility for those as well”. Alex Everard of My Dealer Services stated he has experienced their busiest year yet in terms of new licence applications, up 25% from the previous year. He stated” the continued movement in the industry and bad press surrounding vertically integrated models has increased the number of advisers enquiring as to whether holding their own AFSL is the right solution”.

These comments align with our own experience via Forte Dealer Solutions which assists practices to move to the most appropriate licensee arrangement. The most preferred Dealers we have introduced planners is the boutique sub 50 advisers sector.

Steve Southwood Associate Director of Forte Dealer Solutions provided the following commentary. Recent years of compliance obligations, new education standards, improved consumer knowledge etc., has seen advisers question where is my business going and what is the true value in my alignment with my Dealer. Dealer/Licensee costs has long been an issue now it is the number one reason. There are other “alignment issues” factors such as product and platform choice (read APL) and cultural fit or more accurately alignment with a like-minded professional community.

Forte Dealer Solutions in conjunction with IFA and InvestorDaily have conducted the most comprehensive surveys on Dealer migration over the last 3 years. The below are from the July 2017 Dealer Survey-

  • 89% of those giving thought to or having made the decision to change their licensing arrangements nominate their preference is non-aligned and Independent groups (51%) as well as Self Licenced options (38%). Only 4.5% nominated that they would look to move to aligned or Institutional Dealers.
  • 27% of those thinking of moving licensees are considering a change in the next 12 months
  • 40% of advisers have reviewed their Dealer licence agreement in the last 2 years, 30% in the last 12 months and a large part of the adviser force (30%) that rarely or has never given thought to alternate licensing options
  • Of those practices that have moved in the last 2 years 24% nominated that the primary reason was due to fees, 16% to go to their own AFSL, 14% sold or merged.
  • Of the total that responded to the 2017 Dealer survey only 40% were degree qualified.

Advisers perceive Over regulation/compliance coupled with the ability to continue to operate and deliver quality advice to their clients in an efficient and profitable manner as the major challenge going forward.

Top 5 Reasons for Leaving

2017 2016 2015
Uncompetitive Licence fees Culture/work environment Ownership Structure
Own AFSL Ownership Culture/Work environment
Sold or merged practice Restrictive APl Lack of operational support
Poor Management/Leadership Restrictive Platform Lack of growth support
Collapse/merged Dealer Lack of Operational support Restrictive APL

It is natural for Licence fees to come to the top especially as most of the advisers moving are coming from a subsidized vertically integrated environment and there is a shock as to the cost of doing business in the “independent space”.

It is the first time in the three years we have seen going to own AFSL in the top 5 reasons for seeking to leave.

Dealer Groups

The greatest opportunity for non- aligned Dealers is capturing this talent and FUM movement but this also represents the greatest threat. Small and medium- sized Dealers groups are all reporting the most significant onboarding ever. The challenge is having the available resources to on board new advisers whilst still delivering the expected historical services to the existing practices.

Practice recruitment is a time and resource consuming activity for both migrating practices and Dealers. Dealers are hyper sensitive to compliance standards as none want to introduce a Trojan horse into their midst given the costs and damage created by any Enforceable Understanding or ASIC finding. How-ever compliance services whether in-house or outsourced are limited as the banks are absorbing most of the available compliance professionals available. One bank anecdotally has 400 compliance personnel working within its distribution channels. There has been consequently a cost increase of compliance talent in response to the current supply and demand imbalance.

Dealer growth also requires capital in many instances with greater adviser numbers comes greater infrastructure and internal headcount but profit growth only comes after a sustained period.

The other area of growth and opportunity for Dealers is in the area of “ïn-house” asset management. With diminishing returns due to July 2013 conflicted revenue and the cessation of platform revenue sharing for new clients Dealers must explore other revenue opportunities. This involves the selection of best of breed new age platforms, asset managers, fund managers and/or use of index or ETF’s.

The use of branded Robo advice especially coupled with in-house asset management is also a key imperative for growth.

The other significant challenge is cultural authenticity and maintenance when growth rates are more than 30/40% and in some cases 100% per annum. The key distinguishing feature of any Dealer is culture or community and it is also what attracts and retains FUM and revenue.

Dealer Groups have experienced diminishing profit margins and hyper competition and at a time when they have had significant back office investment and a requirement to keep tight expense management.

It is for these above reasons we are seeing and will continue to see more M&A activity of mid- sized dealers in 2017 and beyond as capital and back office efficiency is sought.

Dealer Group M&A

Beacon Group merged with Libertas to form a combined group of 270 AR’s with $4B FUM. Beacon Group had previously acquired Risk and Investment Advisers RIAA in April 2015.

Easton Investments Limited into entered into conditional agreement with GPS Wealth for $20m (50% cash and shares) priced on future EBITA of $2.5m with cost saving synergies to increase to $3m. Easton have existing Dealer Merit Wealth. Combined Merit and GPS will have 150 Authorised Representative (AR’s) and 400 limited AR’s more than $3.4b FUA and annual premiums of $48m and 6,000 SMSF’s.

GPS Turnover was $33m with 82 practices, 123 AR’s 182 limited AR’s, Funds Under Advice (FUA) of $1.7B and $600m on GPS’s core investment platform CARE. Annual risk premiums of $36m and over 4,000 SMSF’s advised on. GPS awarded IFA Dealer Group of the Year in both 2015 and 2016.

Deal to take effect 10th of August 2017.

InterPrac to merge with Sequoia for $12.83m. InterPrac has 215 advisers, $3b in FUA.

It was reported that OneVue, Centrepoint and East Group had also approached InterPrac.

It has also been reported that OneVue, Centrepoint Alliance and IOOF Group have had discussions with Madison.

Centrepoint Alliance sold its Premium Funding business to bank Of Queensland for $20m in Dec 2016.

Forte Asset Solutions is aware of three Dealer Groups in advanced discussions currently and more are exploring opportunities.

A local group with international funding is also looking to make its first Australian Dealer acquisition.


Relatively recently international interest has been in the Australian insurance market and as evidenced by the Japanese acquisition of TAL in 2011 and the recent introduction of Nippon Life with the acquisition of MLC Life and Sony Life taking a significant stake in Clearview Wealth.

The Japanese rational for Australian acquisition is the lack of Japanese domestic growth and the attractiveness of the Australian market regarding structure and regulatory environment.

Mutual groups are potentially better custodians of insurance business when the emphasis on 6 monthly market reporting is not as critical and long- term strategies can be maintained.

Japanese insurers have been dealing with aging demographics more than any other country in the world.

A recent announcement was made by the UK Mortgage Advice Bureau, one of the largest UK mortgage groups with 800 brokers and settlements of $16b is considering Australian opportunities given the many similarities of the two markets.

Stephen Prendeville the Managing Director of Forte Asset Solutions did a Podcast with IFA’s Alek Vickovich whilst attending speaking at a conference in Japan, if interested please link to

Australian Financial Services has always been an internationally diversified market place but primarily in Funds Management, now we have an emerging but significant interest in the advice space.

Forte Asset Solutions currently has 8 financial planning assets for sale and of those 5 have international buyer interests. Each of the internationals have different targets – one seeks primarily aligned practices, one only boutiques another those with inhouse asset management. The pricing is very similar being 6 to 7 Times Adjusted Earnings Before interest (AEBIT) or Tax or 10 times Net Profit After Tax. They generally all have longer term payment structures than normal Australian business to business transactions. They also seek size and scale and thus stand- alone profitability with purchase prices being above $5m in most cases.

Financial Planning

As an industry, we saw significant new business activity with the retrospective $1.6 million pension cap stimulating organic growth. For many there is little organic growth being experienced and are thus seeking inorganic strategies.

MW Lomax, backed by New York based Focus Financial Partners acquired Brisbane High Net Worth wealth management group Westwood Group.

AZNGA continued their acquisition strategy with 18 acquisitions in as many months.

2016/2017 will be remembered as the greatest seller’s market ever experienced. This seller’s market is due to the imbalance in supply and demand and is likely to continue into 2018.

The imbalance is due to excessive demand and little supply, due to multiple factors, primarily low interest rates.

The good news on the financing of financial planning practices is that the major lenders to the industry (NAB, Westpac, Bank of Melbourne/ St George and Macquarie) are all active in the market with 2016/17

The challenge for the industry is that credit conditions have tightened considerably in 2016/17 with lenders conducting greater due diligence on businesses they are looking to lend to. This is also impacting on funding turnaround times with the average financing time being 10-12 weeks from initial meeting with the lender.

With respect to the pricing of bank funding, we have seen 1 deal in the 4% range with others in the 5% to 7% range, depending on the financial position of the business and the sponsors as well as the debt size required. If you have debt in your business that has been in place for a while it may be worth reviewing it as there may-be an opportunity to reduce your funding costs.

Forte Asset Solutions are happy to facilitate an introduction to a finance broker that specialises in cashflow funding for financial planning businesses.

Secondary factors fuelling the demand are the absence of organic growth and rising cost of compliance and P.I. requiring size and scale to give synergy benefits.

On the flip side of low interest rates, owners are saying it is fine to capitalise their business but, they will only get 3% bank cash rates or look to invest in the alternative assets of equities or property that have higher risk associations and less returns than what their businesses are providing. Given the backdrop of rising equity and property markets, owners are experiencing more healthy returns from growing FUM and associated revenues and profitability.

Due to FOFA, advisors have built better businesses with more engaged clients (most businesses having sold down C &D clients between 2013 to 2015), better systems and more effective reporting processes. The businesses Forte tends to represent are reporting 35 to 45% EBIT to Gross and many principals are enjoying balanced lifestyles.

The big question is why sell now?

  • We tell our clients to never try to pick markets, nor should we.
  • Markets never stay static and there are growing bearish voices being heard.
  • If you are thinking of retirement you probably already have.
  • Supply will change significantly as we come closer to 2019/ 2021 educational requirements.
  • Most large and even some smaller transactions can take 12 to 18 months from introduction to market to first settlement and could be structured over 12, 24 and 36 months or more with rise and fall clauses.
  • Owners will never have as much choice of buyers than they currently experience. On average, for metropolitan businesses there are 50 buyers to one seller. Purchase price is normally secondary to finding the best adviser to ensure your clients and staff welfare.
  • Interest rates are only going to go one way
  • Labor could return
Revenue Type Multiple Applied
SMSF Advise 3.00
SMSF Administration 1.00
General Insurance 1.09
Risk 3.50
Financial Planning books C/D clients 2.5
Financial Planning 3.00
Accounting Individual Returns 0.60
Accounting Compliance/BAS 0.80
Accounting Advisory 1.00
Accounting SMSF 1.00
Mortgage 2.5

The range for Financial Planning prices paid for Financial Planning businesses over the last 12 months has been 2.75 to 3.2 times. The low price was due to the client age demographics reflecting more than 30% aged over 70. The top end price was due to the underlying profit of the business was 45% Adjusted Earnings Before Income Tax (AEBIT) to Gross Revenue. The majority of our transactions this year have sold on AEBIT due to the size of businesses being greater than $5m and in 3 cases greater than $10m. The range has been 6 to 8 times AEBIT or 10 times Net Profit After Tax.

  • • As evidenced by the above table most businesses are trading on accepted historical multiples and we are not seeing premiums being paid due to demand inflation. Demand is being reflected in the seller’s contractual protections and deal structure – higher upfronts with no clawback etc
Contract Composition

Narin De Saini of Nexus Lawyers has represented almost exclusively all Forte Asset Solution clients over the last 7 years. He has observed the following changes in contract construction in the last year.

Summary of concept
Buyers involved The bulk of transactions are being executed by local acquirers.

However, we see more activity from international buyers than previous years. Their continued involvement will depend partly on the performance of completed acquisitions, exchange rate considerations and the continued stability of the regulatory environment.

Structure Smaller transactions (below $5 million) continue to be dominated by asset purchases except where AFS licensees are involved. These are generally bolt-on transactions.

Larger transactions are overwhelmingly, and typically, structured as share purchases.

We are also seeing more partial share acquisitions where buyers with stronger reputations, processes, networks or balance sheets take controlling stakes in businesses with a growth agenda.

Consideration Equity consideration is becoming a noticeable feature of larger transactions.

This is particularly the case with international buyers, who tend to have more valuable equity to offer. However, local players are starting to explore this.

Financing Private equity financing tends to be a feature of larger transactions and international buyers.

Smaller transactions continue to be financed through traditional bank sources. However, we are also starting to see some stronger local buyers relying on their own capital and cashflow during earn-out periods to finance deals.

Warranty breach protections Escrow and warranty and indemnity insurance continue to be absent from most private acquisitions.

However, we are seeing longer earn-out periods. These longer periods, coupled with a set-off for warranty breaches, work to provide buyers with warranty breach protections.

Seller protection features We see a stark difference between the approach of local and international buyers.

Local acquirers seem to have become more desensitised to the concept of allowing sellers to negotiate in seller protection measures, such as maintaining servicing arrangements and anti-distortion of business and revenue. Interestingly, such measures were traditionally subject to lengthy negotiations.

International buyers on the other hand are more cautious and may be driven by the need to be flexible. While we have been able to gain protection measures for sellers, they have been hard-fought and compromised. Any seller dealing with international buyers should bear this in mind before engaging in protracted negotiations.


On the surface, it would appear all is good with rising assets, engaged clients, better businesses and rising profits. However, by drilling deeper we can see this year is a transformational year and significant structural changes are happening or are appearing on the horizon. These changes will forever change distribution and more than likely the dominance of the current incumbents.

If we focus on Funds Under Management, we can see existing, current and future distribution flow changing. The banks’ domination was almost total but as profiled above it has come at a huge cost, especially if we take into acquisition write downs as well as the penalties and prevention cost. Whilst these can be swept aside in a super profit reporting period, what has been most damaged and critical is the impact to reputation and trust. The question of bank divestment is not if, but when and to who.

The rise of international participation will increase across all sectors; insurance, wealth management, distribution and advice. We will likely see more joint ventures with domestic and international players.

The internationals will also be capital providers as there are substantial Australian opportunities seeking capital.

We will see enhanced M&A activity in the Funds Management sector in the face of low-cost alternatives and continued margin compression. Growth is predicted in the outsourcing of administration and custodial services.

The growth of third-generation platforms will continue unabated as adviser migration is reflective of Funds Under Management, seeking more cost and service competitive options.

Dealer Group consolidation across the size spectrum will continue at an accelerated rate to meet adviser and shareholder requirements.

The advisory industry is a great influencer, with some control of FUM and is somewhat at the steering wheel of change, but there are some speed bumps and some brick walls ahead. Margin compression is forecast due to compliance (ASIC Supervisory Recovery Levy Bill as one example), and given the average age of practitioners (58), the challenge many will not rise to is the move to degree qualified educational standards.

We speak of disruptors coming to market, but what is evident is the market is already shifting from its axis and change is already here and the greatest disruptor has been compliance, existing and future.

It is in keeping with the theme that we finish this paper with our own compliance requirement and disclaimer.


We have accepted third party information at face value, and have assumed it to be both adequate and accurate for the purposes of this commentary. Forte Asset Solutions denies any responsibility arising in any way whatsoever to any person or organisation, in respect of the information set out in this commentary, including any errors or omissions therein arising through negligence or otherwise, however caused. This commentary does not purport to be all inclusive or contain all information. Forte and its agents, directors, officers and employees do not warrant or represent the origin validity, accuracy, completeness, currency or reliability of, or accept any responsibility for, errors or omissions in the information or any accompanying or other information (whether written or oral); disclaim and exclude all liability (to the extent permitted by law) for all losses, claims, damages, demands, costs and expenses of whatever nature arising in any way out of or in connection with the Information (or accompanying or other information), its accuracy, completeness, or by reason of reliance by any person of any of it; do not have any obligation to advise any person if any of then becomes aware of any inaccuracy in or omission from the information (or any accompanying or other information); and do not, by this commentary, provide any recommendation, service or advice.