Hangover from debt binge haunts dealer groups

Debt exposure, particularly debt raised to fund rapid growth, has emerged as the difference between those dealer groups currently cutting costs and those positioning for growth.

Dealer groups Matrix Planning Solutions, Fiducian, and Snowball Group told Money Management their healthy balance sheets and near-zero debt levels have shielded them from the market volatility that has caused other dealer groups to search for cost-cutting measures in an attempt to stay profitable.

“[Heavy borrowing] has been the risk in our industry always,” said Indy Singh, the managing director of Fiducian.

Fiducian has zero debt levels, according to Singh, and its careful consideration of like-minded practices has ensured that it has not picked up dangerous practices.

“We’ve rejected people for two reasons. One is, of course, first when the price is ridiculous, and second is if the culture doesn’t fit.

“Many in the industry [have tried] to grow market share [and] just grab whatever comes their way É sooner or later that holiday has to come to an end. And I suppose for those who are heavily in debt [in order] to grow their business, that model looks pretty bleak for many years to come. There just isn’t money going around now,” Singh said.

The managing director of Matrix, Rick Di Cristoforo, said the company was “positioning itself” for growth in the industry.

“We have a strong balance sheet and no debt, which I suppose is one of the key things about not being vulnerable, or not being as vulnerable, so in fact we have a number of growth plans that we are going to proceed with.”

Matrix has acquired six financial planning practices this year, including Lakeside Financial Planners and Integrated Professional Services, and has plans to expand to 120 advisers across Australia.

Snowball Group managing director Tony McDonald said finding the right practices when making acquisitions for a dealer group was “mission critical”.

“We have said [that] for some time and during the height of the bull market we got some criticisms for it, and I can tell you right now, we feel very vindicated.

“The test is around the balance sheet, the test is around the diversification of your revenue streams, and your distribution. The test is around whether you have acquired well, or just acquired for the sake of acquiring,” McDonald said.

A number of dealer groups have come under pressure in recent months to streamline costs. AMP Financial Services has announced plans to cut approximately 200 jobs across its business, while Centric Wealth has denied rumours that the dealer group is seeking $10-15 million from local and international banks to keep trading, after the collapse of plans to raise $100 million through a rights issue underwritten by CHAMP Private Equity.