Market Commentaries

Issue #9 : Market Commentary Financial Year 2015


Market Commentary 2015 YTD

Forte normally takes a rolling 12 month period to identify market trends but the 2015 YTD is so unusual and trends so marked we will reserve most of our comments to the period of January to June 2015.

2014 finished with some certainty in regards to “grandfathering of conflicted revenue” .. an authorised representative to continue to receive benefits that would have been grandfathered had the authorised representative not moved licensee…”. Plus new regulation 7.7A.16BA.. ” to clarify when a business is sold, the rights to grandfathered benefits are transferred to the purchaser, who can then receive the ongoing benefit…”

These qualifications were resolved in December which meant for the first time in more than three years we have had legislative certainty, combined with a low interest rate environment, increased compliance costs, improved share markets but sluggish organic growth has buyers coming back in unprecedented numbers.

Whilst buyers came back in force, sellers responded slowly. Exit strategies that had been deferred in some cases for 7 years due to GFC (e.g falling personal super balances, FUM and revenue) followed by legislative uncertainties as to what it meant to client and revenue retention finally found a solid platform to make lifetime decisions.

This mismatch of response timelines created the greatest imbalance in supply and demand equilibrium we have ever seen. At Forte we were and still are receiving unprecedented enquiry levels for listed assets for sale. The normal Forte experience is we receive 15 to 20 enquiries for any listed business, however this year the responses have been averaging 40 and in one Sydney CBD case in excess of 70 enquiries.

Our website experienced on average 1,600 individual visitors per month, predominately going to the businesses for sale section.

The supply side is coming back on. This time last year Forte only had 2 assets listed for sale today we have 9, not including the businesses that are not listed for sale. More businesses are coming on in the immediate future and some of this was due to the fear of Labour being returned to power and what this may mean for the industry. It is expected that the supply and demand equilibrium will come back to more historical levels in 2016.

The current ‘sellers’ market is being expressed on two fronts not only by the multiples achieved for Financial Planning practices of between 3 to 3.5 times but also by the terms being entered into. Not only are sellers enjoying larger upfront considerations, greater level of vendor clauses protection but what vendors are really appreciating is the wide selection of potential buyers and being absolutely comfortable they are finding the best possible advisers to look after the welfare of their clients, staff and family interests.

Dealer Commentary

We have seen the fastest consolidation or mergers of mid sized non-institutional Dealer groups in our industry’s history.

Last year we saw the merger of Patron and Infocus, then this year Premium and Australian Unity, Wealthsure and Sentry Group, Risk and Investment Advisers Australia with Beacon Groups parent company Linchpin Capital, Paragem and Hub24 and Netwealth’s Financial Planning Services Australia and Fortnum Financial Advisers.

We believe this trend will continue. The reasoning is simply – there is a need for size and scale. The merging of dealer services makes compelling sense so you are not duplicating in-house services and you can create buying power leverage on outsourced solutions.

For example say a $2B FUM Dealer Group is collecting revenue of $20M and the average Dealer fee is 10% so $2M in Gross revenue – the cost structure is conservatively $600,000K Human Resources, in house compliance $100K, external consultants (compliance, legal, software) $300K, travel $100K, rent $70K, commission management $50K, marketing/branding/sponsorships $50K etc so Profit likely $500,000 or 25% EBIT to Total Revenue for a lean well-managed business.

Those businesses smaller than $2B FUM and where the Dealer Principal does not personally have an underlying owned financial planning practice to use for cash flow or asset leverage they will continued to be challenged and that is why we will see more small to midmarket Dealers contract and larger non-aligned Dealers emerge.

Given the last three years and the investment in technology, compliance and diminishing overrides and increasing P.I costs and higher associated risk with little cash reserves Dealer groups are exposed and the fiscally sensible strategy is merging and consolidating back office efficiencies and increasing FUM and adviser numbers and asset value.

The new buyers of dealer groups will be the new age technology players seeking distribution, offshore interests seeking a national footprint and other dealer groups who have a shared vision and culture. The success of SFG is still the template to be followed which requires quality, size, future listing and continual growth with good leadership.

We expect to see growth in individual practices of a certain size of $1.5m gross plus seek their own boutique licences. This is for fiscal as well as market positioning positions. The growth of boutiques is further supported by high quality outsourcing solutions available in the marketplace for ASIC licence submission and ongoing compliance and additional services.

Offshore Interest

Our market is attracting International attention and the reason is partially we were spared the GFC and the disruption to financial markets all other world participants experienced. A recent US visitor commented that there are 850 less Dealer Groups and 30,000 less advisers in the US and the market has disintermediated where once some products were the sole domain of the Ultra High Net Worth investors are now being made available to all. The market tore away duplication and the middle men and our market is now exposed to experienced disruptors. These disruptors come aided by technology and new business models.

Our market is seen as ripe for disruptors given the domination of the banks, the tension between banks/advisers and consumers and the heavy margins being protected by lack of innovation and investment.

The low A$ also assist with a market that has legislative growth (superannuation) but with high barriers of entry from a licencing perspective.

We saw this year the withdrawal of UBS it is thought that the reasoning was due to the constraints placed upon its balance sheet with the provisioning for latent liabilities unlike any other country they are domiciled.

However this has not stopped the Italian Asset Manager Azimut via its Next Generation Advise business with its acquisition of Eureka Whittaker McNaught and Pride Advice and more to come in the immediate future.

Additionally the multinational De Vere Group has come to our shores with the promise of creating “Australia’s largest Independent advice group”.

Forte has had multiple discussions with International interests from the US, South Africa and Asia who are all looking at acquisition opportunities within the Australia market and across all sectors of the wealth management industry.

Forte has never before seen the abundance of capital, both international and domestically looking for investment opportunities.


The alignment of Hub 24 and Fortnum is completely logical and a development that Forte had signalled last year as a natural industry progression. The new technology platform providers are predominately listed (with a couple of exceptions) providing access to capital or debt and they need distribution. One Vue has been active in acquisition in recent years and will remain so. Managed Accounts came to market stating that they were looking to take equity positions in advice businesses. Netwealth has its own salaried advice channel and assists self-licensed businesses.


The list of those who are coming to the local market is increasing with Financial Index, Spring Financial, YBR, Ignition Wealth and Mercer have announced they will soon come to market.

We are seeing local players going offshore to look for technology partners and offshore tech providers looking in the Australian market for a branded group with infrastructure capabilities and we will soon see these searches come to fruition.

The objective is to capture the self-directed or the unengaged consumer. The business strategy is to utilise easy to use technology at a low cost and capture data and position product most notable ETF’s.


It is almost weekly now we meet new capital groups specifically designed to assist fin tech new start up’s.

There is significant venture and private equity groups that are looking for the right vehicle to invest in.

It is interesting to have a look at the partners to Stone and Chalk – Allens, Amex, AMP, ANZ, ASX, CMCRC, Finsia, Finzsoft, H2Ventures, HSBC, IAG, KPMG, Macquarie, NSW Industry Skills and Regional training, Oracle, Reinventure, Suncorp Bank, TAL, Thomson Reuters, Veda, Westpac and Woolworths – to understand the interest also from the big end of town.

There is such movement and development that Sterling Publishing has created a new mast head to report on this dynamic market (Fintech Business).

Advice Market Convergence

Australian Property Finance is to launch its own Financial Planning service and CPA is to launch CPA Australia.

Countplus launched Advice 389 and Blue 789 to buy advice and accounting practices.

Notable Acquisitions

Australian Unity acquired Flinders and AMP acquired Just Super.

Market Summary

This year to date (01.09.2015) has been a period of unparallelled activity and much of the activity is yet to be seen but our industry is changing and at an accelerated rate. There is significant opportunity for early adopters and those that are investor ready. Investor ready applies equally to buyers and sellers.

2015 will go down as a time of significant capital, adviser movement, dealer merger activity, buyer demand, seller opportunities, technology/platform market penetration and as the springboard for 2016 and execution of industry changing developments.

Forte Solutions

It would be true to say Fortes’ service standards have been challenged in the deluge of enquiry levels nominated above and we apologize for any frustration that may have been experienced by prospective buyers. However in response we are immediately investing in additional personnel, systems and processes. This is not just in regards to Forte Asset Solutions but also Forte Dealer Solutions which is a service that assists businesses to migrate from their current dealer to one that meets their individual/group, this service is also experiencing exponential growth.

Forte is continuing to evolve to meet the demands of the industry and is pleased to announce the launch of Forte Executive Solutions. Specialising in senior sales, marketing, finance, leadership and management roles, Forte Executive Solutions is another service in the Forte family designed to assist financial organisations in achieving their strategic growth goals. Leading Forte Executive Solutions is Wendi Dawson who brings with her a wealth of leadership and business insights and recruitment expertise.Wendi utilises a risk mitigation approach to her consulting as she seeks to understand each business’s unique objectives and impediments and then in guiding them to the right talent solution. Forte’s focus of all business units is cultural alignment.