Adviser retention is one of the biggest obstacles to buying a dealer group as a growing number of licensees declare themselves for sale ahead of profound regulatory changes, industry participants said.
“The main problems that dealer groups have are around the locking-in of advisers,” advice industry broker Forte Asset Solutions director Steve Prendeville said.
Prendeville said the toughest part of any negotiation was “nutting out” an incentive and retention scheme acceptable to both sides of a transaction.
SFG Australia managing director Tony Fenning told InvestorDaily adviser retention is “a big issue”.
Fenning said there was no real mechanism for locking in advisers, but a longer due diligence process helped.
“We need to know if they’re staying on or going down the road or just want the cash,” he said.
SFG Australia is the product of the merger between Snowball Group and Shadforths Financial Group.
The expanded group, which has $12.6 billion in funds under advice (FUA), has said openly that it is on the acquisition trail for larger dealer groups and smaller businesses.
Fenning said SFG is in advanced talks with two ‘tuck-in-style’ businesses, which have “hundreds of millions, not billions” in FUA.
The level of mergers and acquisition activity in the financial advice market is unprecedented as a result of the government’s Future of Financial Advice (FOFA) reforms, participants said.
“It’s been deemed by Barry Lambert and others that dealer groups need scale to succeed in a post-FOFA world,” Prendeville said.
Lambert is the chairman of Count Financial, a dealer group he founded in 1980 and sold last year to Commonwealth Bank of Australia for $373 million.
Prendeville said the full vertical integration model has become the Holy Grail of financial advice groups, which face rising costs as a result of FOFA.
Full integration meant product manufacturing, administration, distribution and advice, Prendeville said, noting that six organisations control 90 per cent of the funds under advice (FUA).
SFG is considered a logical buyer of Matrix Financial Solutions. However Fenning declined to comment whether it was in talks with Matrix, which has $2.6 billion under management and 107 advisers in 44 practices.
A number of other companies are believed to be crunching the numbers on Matrix, believed to be two other financial advisory groups – including an aligned network – and an industry superannuation fund.
