The ASX-listed mortgage broking and wealth group, Yellow Brick Road Holdings Ltd (YBR), has entered into a sale and cross referral arrangement with InterPrac Financial Planning Pty Ltd (InterPrac), a wholly owned subsidiary of Sequoia Financial Group Ltd (Sequoia), in relation to the head office operational and business functions that comprise its YBR Wealth Division.
InterPrac has now acquired YBR Wealth’s share of the rights to the recurring revenue streams derived from its wealth advice and life insurance distribution businesses.
56 YBR Wealth advisers expected to transfer
According to an ASX update, following “due diligence by a specialist third-party compliance consultancy business”, InterPrac has selected 56 existing YBR wealth advisers to operate under the AFSL of InterPrac after completing an onboarding process, according to the announcement made by Sequoia Financial Group to the ASX.
As part of this process, YBR Wealth advisers who transfer to the Sequoia Group will continue to provide wealth advice and services to their existing clients (under InterPrac’s AFSL) and will retain their rights to income from their client books.
YBR Wealth advisers who do not transfer to the Sequoia Group will be assisted in selling their rights to income from their client book to other transferring YBR Wealth advisers or other advisers in the Sequoia Group.
If all selected YBR advisers transfer over, it is expected that an additional $10 million gross revenue, or $600,000 earnings before interest and tax, will be generated over the first 12 months.
The purchase price of $2.5 million is payable to YBR in cash in four equal, half yearly payments over 18 months, with the first payment due on completion.
However, it is subject to all YBR Wealth advisers transferring on completion and remaining exclusively authorised under InterPrac over the next three years, otherwise the purchase price will reduce pro rata for any non-transferring revenue streams.
Cross-referral arrangement set up for YBR brokers
A cross-referral arrangement has also been agreed by the parties. Under the agreement, Sequoia will act as the preferred referral partner of wealth advice and services for YBR’s 1,200-odd strong mortgage broking network (including YBR, Resi and Vow brands), and YBR will become the preferred referral partner of mortgage origination advice and services to Sequoia, and its existing network of over 250 advisers and accountants.
The sale agreement comes after YBR announced in May last year that it would dispose of its head office wealth business functions and focus on mortgages to create a “much simpler business”.
The company had said that in order to “concentrate its efforts” as a mortgage distribution, servicing and manufacturing group, and “reduce significantly the cost-to-income ratio of the business”, the board had decided to begin a process to “dispose of, outsource or otherwise restructure the head office wealth business functions”.
YBR executive chairman Mark Bouris commented: “The decision to exit the management of YBR’s wealth business was driven by YBR’s recent strategic pivot away from wealth management, in which it lacked scale in an increasingly regulated environment, to focus on the mortgage market.”
“The selection of Sequoia was made after a long marketing, evaluation and negotiating process. Sequoia is an ASX-listed company that provides financial planners, equity advisers, corporate advisers and accountants with licensing, compliance, education, sales management and administration functions in a manner YBR determined as market-leading and culturally aligned to YBR.”
Sequoia CEO Garry Crole also welcomed the deal, stating: “We are pleased with the outcome of our negotiations with YBR, seeing this transaction as a positive change for all parties involved.”
“From Sequoia’s perspective, this gives us the opportunity to significantly enhance our core existing advisory and wealth management business, whilst providing our advisers with expert solutions for their clients’ mortgage needs.
“YBR achieves its goal of being able to focus 100 per cent on its mortgage business, whilst its wealth advisers who transition to SEQ will gain access to a broader range of market-leading products and services, thus meaning customers will receive specialist expertise in all areas of financial management.”
Completion of the transaction is expected to occur in early 2020 following the transfer of advisers and finalisation of other implementation aspects of the transaction.
The sale does not affect the YBR mortgage distribution business or its Australian credit licence, and all YBR franchisees will remain operative under their existing YBR franchise/licence agreements.
[Related: New mortgage strategy ‘key’ to YBR growth]
Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.
Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.