The profit struggles of financial advice licensees laid bare

Mike Taylor

Managing Editor and Publisher

5 September 2022

Individual financial advisers have never been busier but new analysis conducted by Financial Newswire’s financial analysis team has revealed the degree to which most of Australia’s medium-to-large-size financial planning licensees are struggling to achieve and sustain profitability.

The financial analysis, based on the latest round of company reporting to the Australian Securities Exchange (ASX) underscores why licensees such as Diverger are looking to grow their scale through seeking mergers with similarly-scaled firms such as Centrepoint Alliance.

It also explains why the licensees are competing fiercely to recruit both good advice practices and individual financial advisers.

What the analysis shows is that even the two biggest players in the financial planner arena – AMP Limited and Insignia (IOOF) are struggling to generate a profit out of advice and that the best that they can hope for in the near-term is break-even.

But it is not just listed players losing many, the Financial Newswire analysis team has pointed to many well- known unlisted licensees posting losses with the full picture likely to emerge over coming months.

As an example, Fortnum reported a FY21 loss of $999,041 following from a $794,374 loss in FY20. Privately owned licensees losing money is not uncommon, it will be some months before many private licensee results for FY22 will be known, but the Fortnum result is expected to be representative of the broader situation.

Because of the time and opaqueness with respect to the financial reporting of many private licensees, our financial analysis team has drawn on the performance of the publicly-listed licensees to provide an indicator.

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Looking more closely at the segment reporting for licensee services:

*DVR limited AR revenue is excluded from NPBT calculation.

The analysis shows that if the revenue Diverger generates from its CARE product and platform payments ($4.854M) is excluded, then the licensee segment would be loss making and the NPBT per adviser is a moot point.

Equally, with respect to CentrePoint, if the $2.792 million in product revenue is removed then the licensee segment generates less than $1.0M in profit translating to $1,650 profit per adviser.

The CAF merger with Clearview indicated a pro-forma EBITDA of $8.0 million, reported FY22 EBITDA at $4.5 million which suggests there is still work to do.

The analysis shows that Clime is achieving a low profit per adviser. At a purchase price of around 10 times for its acquisition of dealer group, Madison and growth in Advisers of +7 in FY2022, the result suggests there is more to be done.

Where profit per adviser is concerned, some commercial models seem to be working better than others.

Thus, if AMP, at 1,043 advisers, could achieve profit per adviser in line with CountPlus then its advice business could generate NPBT of $12.067 million – a lot of work but compared to its reported loss at half year a significant lift for earnings per share.