Financial advice identified as M&A hotspot

Financial advice and its associated technology have been identified by a panel of industry experts as key hotspots in the Australian M&A landscape. 

Speaking at Gilbert and Tobin’s inaugural Financial Services Forum last month, professionals like Anthony Brasher, founding partner at Barrenjoey Capital; Kelly Power, chief executive of superannuation at Colonial First State (CFS); and Alex Kauye, partner at Gilbert and Tobin, laid out their predictions for the years ahead.

These are:

• Investment in technology to ensure scaleability of new financial advice ecosystems.
• Partnerships in financial advisory business.
• Product diversification offerings from big four banks.
• Continued super fund mergers.
• Continued role of private equity and foreign investment.

Financial advice partnerships

The panel noted “interesting partnerships” are emerging in financial advisory businesses, as consolidation activity continues in the sector. 

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According to a recent report from Forte Asset Solutions, as the operational costs of running an advice practice rises higher, achieving size and scale are fuelling the strong demand for acquisitions. 

It particularly noted the emergence of buyer groups in the advice industry providing capital and growth opportunities to smaller businesses.

There has been a lot of M&A activity in the advice space lately, most recently with Entireti acquiring the advice division and self-licensed offering of AMP for $10.2 million.

As well as this, Count acquired Diverger in March for $82.2 million which created Australia’s second-largest licensee. 

There has also been interest in Australian businesses from overseas firms, with AZ NGA confirming it has entered a strategic growth partnership with global investment manager Oaktree Capital Management, which has US$193 billion ($294 billion) in assets under management.

AZ NGA was also involved in a major deal earlier this year to acquire stakes in 16 advice practices from AMP for $82.2 million, with the intention of helping those practices with their M&A goals.

Technological investments

According to the panel, as well as the businesses themselves, firms are also looking to make acquisitions of technology firms which will play a key role to ensure scaleability of new financial advice ecosystems.

Already, big players like CFS have significant tech deals, announcing a five-year agreement with Microsoft in July to underpin its use of cloud and artificial intelligence (AI) technology in wealth management.

This year, DASH Technology Group also acquired Integrated Portfolio Solutions, a portfolio administration solution with $10.6 billion in FUA, which serves as a “whole-of-wealth” non-custodial platform servicing investment advisers, family offices, financial planners and ultra-high-net-worth direct clients.

In July, Investment Trends’ Adviser Technology Needs Report, which surveyed more than 1,730 advisers, found $37,000 is the annual average tech spend of advice practices.

However, this number is only expected to rise, with advisers saying they plan to increase this by 6 per cent to $39,000. 

The number ticks up higher for larger practices, especially those with five or more advisers, which are looking to do so by 8 per cent to $91,000 per annum.

The role of banks

Finally, the industry panel forecast there will be increased activity seen among Australia’s big four banks.
Particularly, they predicted a growing appetite for opportunities to diversify their offerings by providing complementary products and services for customers.

In the recent Quality of Advice Review, Minister for Financial Services, Stephen Jones, has stated his desire for banks to return to the advice ecosystem, particularly via the controversial “qualified advisers”. 

“The government will expand the role of superannuation funds in providing advice to their members. Today, I can go further and announce that this model will apply across all financial institutions: superannuation funds, life and general insurers and banks,” Jones said at the time.

The idea of banks being included as a way to boost the provision of advice was first mooted in an industry panel held in June 2023 where leaders, including HUB24 managing director Andrew Alcock and former abrdn managing director Brett Jollie, called for banks’ inclusion.

Reflecting on recommendations from the Quality of Advice Review, he said: “Broadening the base of super funds will help but it needs to be broader, what about purely investment advice, there has to be a role for banks in this. That has been controversial in the past but the guardrails have changed and there’s a role to be played there, as well as for accountants and other non-relevant providers.”