Will an IPO or takeover follow Insignia’s adviser equity play?
ANALYSIS
Insignia Financial has sent a clear message that it sees its adviser equity model offered to self-employed advisers comprising RI Advice, Consultum and TenFifty as a means of cost-effectively adjusting to the environment it believes will emerge out of the Quality of Advice Review.
The changes to its Advice Services business will provide it with a clearer, more innovative, and sustainable value proposition, through a new partnership ownership model for its self-employed licensees comprising RI Advice Group Pty Ltd (RI), Consultum Financial Advisers Pty Ltd (Consultum) and TenFifty.
While much attention was initially focused on the adviser equity move, equal attention should also be directed to the company’s announcement that the strategy “also provides Insignia Financial with greater opportunity 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, and the development of new technology-enabled advice delivery to leverage future opportunities presented by the Government’s response to the Quality of Advice Review.”
In other words, Insignia is not going to sit idly by while the Government allows industry superannuation funds to expand their offering into the ad vice space.
Equally importantly, the company is lowering its risk profile via the formation of the company within which advisers will be invited to take equity.
As Insignia Financial chief executive, Renato Mota said: “The greater focus and specialisation of both organisations will lead to better outcomes for clients, making advice more accessible to more Australians.”
What must be contemplated is the possibility of a float and the attractiveness the new company will have for other significant licensees with deep pockets.
This sort of scenario grows from the fact that Insignia Financial will contribute staff, resources and working capital to the new company and will continue to support the new business under a transitional services agreement for 12 months from completion.
“Insignia Financial will also provide a capped indemnity to the new entity for any historical remediation relating to conduct under Insignia Financial’s ownership,” the company’s announcement said.
“An extensive cost and operating model review has been undertaken and ASC is expected to be profitable after the initial 12-month establishment period.”
“ASC will be led by an experienced management team, headed by CEO Darren Whereat. Key management personnel will also participate in equity.”
Fact Check: No licensees, even the listed ones, have ‘deep pockets’.
This whole episode proves that financial services licensees should not be listed companies. Thin margins, high risk, zero growth prospects and mediocre management teams. Pass. Oh wait, I forgot they run awesome conferences.
Which is also why qualified advisers should not have to be under the AFSL regime.
Maybe that can be an option going forward,
1) Real Advisers operate as Real Advisers without need for AFSL over reach.
2) NON Real / Sales Agents, Call Centre Backpackers operate under an AFSL, so at least the AFSL is on the hook for some type of Regulation and Compliance, AFCA, etc. That also makes sense in the past as AFSL’s related a lot to vertical integration and a focus on product sales.
Interesting decision – not sure this is the right execution of action though.
We all know the AFSL structure is to make ASIC’s life easier, so is here to stay as long as they remain our regulator & disciplinary body.
The deep-seated cynic in me (after surviving post-GFC “everything is the advisers’ fault” and more recent farcical deluded Hayne Royal Commission “everything is still the advisers’ fault”) can’t help but state there’s one clear direction we need to take:
The FAAA or professional body should be considering creating a planner owned/planner led ‘industry super fund’ (non-unionised) so that all the benefits the unions/Labor & ISA enjoy (communal yearly member fees without necessitating advice unless asked and then at an extra fee, ‘consulting’ fees, ‘referral’ fees, ‘aligned internal asset manager’ fees, vertical integration to unlisted assets we control and want to value regardless of market forces which aids ‘performance’, unlimited advertising budget out of member’s funds and of course sponsorship and corporate box opportunities and undisclosed ‘gifting’ all allowable – of course to get this over the line, just like ISA & the unions have done with Labor, we’ll have to pay our tithe to the Libs to properly align them to our cause & preservation. (And the greens, maybe we can also come up with a pure ESG super play to rope those crazies in as well!).