Dealer groups face various listing challenges

Financial planning dealer groups with listing ambitions face a number of major issues, according to Bell Potter client adviser, Romano Sala Tenna.

Sala Tenna said key issues facing the financial services sector include general market conditions, regulatory change and pending litigation.

“Generally across any industry it’s difficult to get initial public offerings (IPOs) off the ground at the moment, because we’ve seen a wave of less ideally priced IPOs,” he said, adding that there is a noticeable backlog.

But in terms of the financial services sector, there were a few issues that must be dealt with first, including litigation claims, he asserted.

“If you look at some of the higher profile claims against people in the industry — such as Westpoint — and if you work your way down from there, there may still be a wave of litigation to flow through,” Sala Tenna said, adding that some of the better players were more exposed as they held better insurance and therefore were the ones with the greater capacity to pay a claim.

“If you look at everything, from your property schemes to [managed investment schemes], there’s potentially still some issues to flow from that system,” he added.

Sala Tenna noted that legislative change was another concern and there remained uncertainty around fee-for-service and what model businesses would operate under.

“Some of the older more established groups have got some real headwinds there — they need to change the way they have been doing business for quite a few years.”

Sala Tenna said another issue was index levels, which he considered a double-edged sword.

“When index levels are at the 6800, and your market capitalisation is substantially higher, then given that a lot of that fee revenue comes under assets under management you’ve got a free kick in terms of the revenues coming through at the planner level. But when the index is a third down from the high, you’ve just got to look at listed companies like Perpetual, AMP and Platinum Capital that are trading at a fraction from their all-time highs because their assets under management are substantially less than they were - through attrition and through the market decline, but also because people have pulled a lot of their money out of these products and have gone to cash.

“I think you need to see some certainty and recovery in the indices, to generate further revenue,” he stated.

However, Sala Tenna noted that all these issues would be resolved in the fullness of time, adding that Australia would see “a large, vibrant financial planning and wealth management industry”. Going forward he expected to see smaller capital raisings or more back door listings.

“I think we’ve seen the worst for this sector, and there’s more upside than downside because the valuations and expectations have been brought back to realistic levels.”