Consolidation takes centre stage

My firstassignment as a journo onMoney Managementin 1997 was to cover the launch of BT’s wrap platform. At the time, the industry hadn’t heard of wrap. Which was just as well because wrap to me was something that held sliced meats, sun-dried tomato and assorted condiments.

But I soon learned. The event that really brought home the importance of wraps and master trusts was the bidding war that developed for Sealcorp later that year. But even more important than the $272 million winning bid by St George was the fact that Sealcorp founder Graeme Morgan walked away with more than $100 million from the deal. Financial planners who had put millions of dollars into the Asgard platform felt they should have bagged some of the spoils from the deal. The term “Sealcorp envy” was born and rapidly gained currency around the industry.

Over the next four years, Sealcorp envy would spawn a number of ventures aimed at sealing in the value of the money pouring into master trusts and wraps for the financial planners who used the platforms.

The first of these ventures — known as “co-operatives” — were both born in Melbourne but rapidly spread their wings nationally.

The ill-fated Consolidated Financial Services (CFS), the brain-child of David Craig, managed to attract two of the most respected names in the industry, Kevin Bailey and James Doogue, before coming to grief due to wrangles over the group’s structure.

Two other groups classified initially as co-operatives, Roger Gumley’s AustChoice and Indy Singh’s Fiducian, had happier futures and are still going strong today.

After “co-ops” came so-called “roll-ups” or consolidators as they became known. The key difference between consolidators and the co-ops before them was that consolidators were generally groups of accounting practices banding together under a listed entity to form financial planning operations. Like co-ops, consolidators had their share of problems. Steve Hart’s Harts Group came to grief late last year due to financial issues while Stockford and Deakin both suffered substantial losses last year.

On the brighter side, Kevin White’s Investor Group continues to grow both funds under advice and the number of practices under its moniker.

While planners rushed to get a bit of the platform action, master trusts and wraps themselves began to look ripe for a shake-out.

In 2000, US-based research group Cerulli Associates concluded that only five wraps or master trusts would survive in Australia until 2005. Subsequent consolidation and margin compression looks to be turning the prophecy into reality.

The theme of consolidation probably made up more column inches ofMoney Managementthan any other subject during my tenure. And most of the action came from the banks.

Financial planning is now recognised by mainstream Australia as a respected profession in its own right and will continue to prosper as this credibility grows. Congratulations toMoneyManagementon playing its part as the industry’s sounding board during 15 tumultuous years of change. Happy birthday!

Stuart Engel was editorfrom 1999-2001 and isnow with BT FundsManagement.