The fish get bigger and the pond gets smaller

Achieving scale in readiness for the new Financial Services Reform Act (FSRA) environment has been the major driver for mergers and acquisitions among the small-to-medium-sized players in the Top 100 this year, while consolidation aimed at extracting greater efficiency has been the most common strategy pursued by the majors.

Where consolidation is concerned, the Commonwealth Bank has led the way over the past four years since its acquisition ofColonial, with the original six financial planning entities having this year been reduced to just two —Commonwealth Financial PlanningandFinancial Wisdom.

The reduction to two entities followed the Bank’s move earlier this year to fold Commonwealth Financial Services into Financial Wisdom.

Similar though less rapid moves have been afoot at the National Australia Bank in the wake of its acquisition of MLC, where seven groups have been reduced to five, with more in progress.

While NAB still boastsGarvan,Godfrey Pembroke,MLC Financial Planning, MLC Private Client Services andNational Australia Financial Planning(NAFP) under its masthead, AdvantEdge and National Private Client Services have been folded into MLC Private Client Services and NAFP respectively.

AXAhas also been pursuing a consolidation strategy as evidenced by its announcement in June that it would close its Altus dealer group as part of a rationalisation of its financial planning brands.

The group will officially close on December 31, by which time AXA expects most of the 40 practices to have moved to eitherCharterorAXA Financial Planning. It was not expected that any would move to Ipac.

INGhas also been in consolidation mode, having merged Lynx, Partnership Planning and AustAdvisers intoTandem Financial Advice.

However, while it has been all about consolidation and achieving efficiencies at the big end of town, the picture has been very different among the small-to-medium-sized groups that have been looking to get larger in a bid to better manage the new regulatory environment.

A case in point isNow Financial Serviceswhich merged with Inscorp back in February to become Financial Services Partners, with chief executive of the merged group Geoff Rimmer explaining at the time that it was all about coping with the new FSRA environment.

“Scale is part of the reason and we felt there was a need to rid ourselves of duplication before we apply for our AFSL [Australian Financial Services Licence],” he said.

Rimmer said the group also felt that the merger would “make us more attractive for recruiting and acquiring those businesses which may struggle to obtain an AFSL on their own”.

Also on a growth path has beenCentrestone, which declared from the outset that it would be pushing hard for expansion, targeting five to 10 financial planning businesses a year.

Centrestone’s managing director Michael Pillemer says that the group has concentrated on growth in Sydney and that, moving forward, it will be looking to pursue that growth strategy in Melbourne.

However, he makes clear that while other groups may have pursued growth on the basis of achieving scale ahead of the FSR regime, this hasn’t been the primary driver for Centrestone.

Instead, he says the group’s growth has been driven by acquisitions of like-minded entities that have wanted to achieve scale without moving within the confines of a large institution.

For that reason, Pillemer argues that a key for groups such as Centrestone has been building an infrastructure that is the equal of the corporates while, at the same time, maintaining a small company ethos.

The Commonwealth Bank’s executive general manager for investment and insurance services, Brett Himbury, agrees with the analysis that the industry has been characterised by smaller players looking for scale over the past 12 months, while the larger institutional players have been consolidating.

He predicts the situation will stabilise moving forward, as people consolidate their position with respect to compliance.

But while Himbury expects some stabilisation, he also predicts the continued pursuit of growth based on drivers very different to those that have been evident over the past 12 months.

He sees the new drivers being the recovering investment markets and the strengthening economic position.

However, when asked to look at the broad picture for the industry moving forward, Himbury disagrees with the contention that smaller groups will have to get bigger or get out.

“In circumstances where some of the smaller groups have got their act together and know where they stand and where the larger groups have got natural scale and momentum, the middle ground might be the most uncomfortable place to be,” he says.