Wraps and master trusts – Choice is simple for controlling advisers

Over the past five years, advisers have watched from the sidelines as a number of retail financial services groups have been sold with what seem to be large price to earnings ratios.

First there was the sale of RetireInvest to Mercantile Mutual in 1995 which was perceived by industry pundits at the time as surprisingly high multiples of funds under administration. IPAC's partial sale to the Commonwealth was next off the block but the final icing on the cake was the sale of Sealcorp to the St George in late 1997 for $272 million.

According to AustChoice managing director Roger Gumley, some advisers have observed these sales with discomfiture.

"Many advisers have said to me 'how come all the finders do all the work and the minders get all the fruits of the labour?'," Gumley says.

This grievance was the main inspiration behind the formation of AustChoice and the reason Gumley says its has grown so quickly since its launch early last year.

Since the launch, 22 adviser groups have joined the six founding adviser members to propel the group's master trust to its present $170 million under administration from a standing start. The 28 shareholders represent about 290 individual advisers, Gumley says.

Adviser groups which have already joined include Peter Richards' Protax group,

Paul Scales' Leader Financial Panning and Keith Lawson's Security National group. Each of these three dealer group principals sits on the AustChoice board elected by the shareholders.

AustChoice is set up in a similar way to a co-operative, except with a very hard-nosed business ethic. Adviser group principals take a shareholding in the group which entitles them to a portion of the group's dividend which in the case of AustChoice is virtually the same as its net profit. In it first year it paid out close to $250,000 and Gumley expects the next payout to exceed $1 million.

"And this is on top of the usual trails advisers receive from investing in the master trust," he says.

Foundation shareholder, AustSelect, maintains 20 per cent of the company's shareholding and provides the master trust and other services. AustSelect is jointly controlled by Melbourne stockbrokers Austock Brokers and Select Managed Funds, the proprietor of SMF Funds Management, a specialist corporate master trust superannuation administrator and manager.

AustChoice advisers can access a superannuation master trust and a non-superannuation master trust which includes managed funds and access to direct shares. AustChoice has also co-branded the Income Choice long-term annuity in conjunction with Challenger Life and is offering stock broking services through Austock which includes access to exempt markets.

But Gumley says advisers simply wanting products and services at wholesale prices would be missing the whole point of AustChoice.

"The real point is to take control of the products into which advisers direct their client's funds," he says

"As distributors of AustChoice products, advisers share in the ownership of AustChoice in direct proportion to their distribution of AustChoice products.

"Advisers also gain a valuable equity holding in a capital asset in a public company entity which increases the value of the advisery business and enhances current incomes through dividends."

The big picture plan, according to Gumley, is to list AustChoice on the Australian Stock Exchange, probably within five years. But Gumley says the group will list when it has built a business which will have a reasonably large market capitalisation.

"When we do list, I want it to be a substantial concern. I don't want it to languish with the $30 million companies that the institutions ignore due to its size," he says.

Gumley is aiming to list a company with about 70 shareholders and a market capitalisation of about $180 million based on funds under administration of about $2.5 billion.

But he is patient. "These are just early days. We are in for the long haul because there is no way we will be listing blue sky."