Local advice sector an attractive opportunity for global PE firms

Local experts are observing a growing investment opportunity in Australian advice platforms that may not be as apparent for global investors, but since the sector is currently at its "infancy", many can capitalise on buying low and selling high.

Speaking in a panel discussion at the Financial Services Council (FSC) Shaping Advice Summit in Sydney this morning, AZ NGA group chief executive Paul Barrett said the local advice platforms will continue to grow, and investors are bound to notice the trend.

He noted advice platforms are filling in the craters left behind by the bank's exit from the sector and are prompting fruitful investment opportunities for global private equity businesses.

"You fast forward a decade from now, and these advice platforms are going to be multi-billion-dollar enterprises. They're going to hire thousands and thousands of people, and you want to think about what private equity sees in that," Barrett said.

"There's huge upside for private equity, and that's just the basics."

He alluded to CoreData's latest findings, where technology can bring the client-per-adviser average to 155, compared to those that were not adopting them (131), and said the leveraging of innovation to draw in more clients will be its core focus moving forward.

"We're going to take that in the first instance, and the easy low-hanging fruit to [increased clients per adviser to] 155 that can generate between $22 million and $45 million of margin for our advice platform," Barrett said.

"... if you can make these, what looks like marginal improvements, on things like clients per adviser, you can have enormous benefit in terms of value creation. If you've got a scale platform that owns the client relationship, that's key."

However, he lamented that many investors have been rather idle and yet to take any action.

"Although there's probably more talk than action... the complexity of getting this money, it's not easy to get, and once you get it, the demands and expectations that are placed upon you are not the same from... that banking environment or the self-owned and licensees; it's quite different," Barrett said.

Barett added that this model has been around and matured in other jurisdictions like the US and the UK, and if Australia can replicate those markets, investors will capitalise greatly.

"There are some incredibly impressive organisations in those markets, and the valuations in those markets are going one way... and now that capital is coming here, there's also an opportunity for investors to come to this market at its infancy in the evolution of advice platforms to buy low and sell high," Barrett said.

"It's not just demand and supply. There's a bunch of factors, but it's just great that we've been having this conversation, and I think the landscape is changing very quickly."

CoreDara founder and principal Andrew Inwood agreed the industry is proving to be an intriguing investment point for global private equity businesses.

He said the Australian financial services industry has been industrialised to the point that many of the high margin, highly scalable and reliable businesses are pledging to investors they are "sensible" to bet on.

But he reiterated advice businesses need to be mindful of the capital flooding in as they can be "tricky" to manage.

"It's extremely tricky to manage, and it's hard to get, and once you've got it, they demand a lot of attention," he said.

"... unless it's a regulatory challenge, there's no way that this money can be destroyed. It must be managed [appropriately] and we must have better outcomes."