Plenty of Insignia upside in M3 sale

ANALYSIS

A key number attaching to the sale of financial services licensee Millennium3 to WT Financial Group is that Millennium3 made a pre-tax loss of $2.3 million in the 2023 financial year.

The stark bottom line is that Insignia loses $6.3 million in net revenue but gains upwards of $175 million in annual cost savings. What is more it will keep a large slice of M3 money on its platforms.

There had been speculation for months about who would buy Millennium3 from Insignia Financial and that is why many eyes will be on WT Financial do determine how it will bring its new acquisition alongside its earlier acquisitions of Synchron and Sentry to generate a respectable return on its investment.

But, in fact, its investment in Millennium3 is not exorbitant. Insignia Financial is being paid just $2.03 million for the M3 business and was quick to tell the Australian Securities Exchange yesterday that it would benefit from cost savings of between $175 million to $190 million from the divestment.

The sale of Millennium3 was a work in progress even before Insignia earlier this year announced a reset of its financial advice business and the creation of a new Advice Services partnership model.

Insignia’s outgoing chief executive, Renato Mota pointed to the road ahead stating that the company’s advice strategy would enable it to focus on the growth of its Professional Services Advice businesses, Shadforth Financial Group and Bridges Financial Services “expanding the scope of advice through superannuation”.

For WT Financial the transaction has been based on modelling that suggests that suggests that, once fully integrated, the M3 business will contribute more than $50 million in revenue, generating around $4.5 million of gross profit and more than $500,000 in net profit before tax on an annualised basis.

The WT Financial announcement to the Australian Securities Exchange (ASX) said Insignia currently services the M3 network via a centralised support group which accords with how WTL supports its Sentry, Synchron and Wealth Today advisers

WT Financial chief executive, Keith Cullen said that the M3 fee structure closely aligns with the WTL fee structure on a net per practice and per adviser basis.

“Additionally, it includes a variable fee component, aligning our interests in helping practices grow their own revenue and profitability, which is our core focus at a time of unprecedented opportunity for advice professionals and advice network operators alike.