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Broker groups to buy into wealth sector

An M&A consultant is seeing increasing interest from large broker groups eager to acquire financial planning businesses.

Forte Asset Solutions managing director Steve Prendeville said he has seen a surge in interest in the last six months from mortgage groups looking to acquire financial planning firms.

“There is the realisation that the value of advice fees is greater than the revenue stream of a mortgage fee,” Mr Prendeville told Mortgage Business.

Mortgage revenue has a capitalisation of approximately 1.5 to 2.0 times recurring revenue, while financial planning groups have 3.0 times value and insurance businesses achieve 3.5 times value, Mr Prendeville said.

“So it is a way of increasing overall value of the business as well,” he said.

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While listed Australian brokerage group Mortgage Choice recently launched its financial planning arm organically, Mr Prendeville believes the heightened interest from other mortgage groups will lead to an increase in M&A activity.

“Brokerage groups are looking to acquire wealth businesses,” he said.

“In the last six months I have had a significant number of people within the mortgage space looking to cross over into the wealth space.

“I suspect that it is likely to increase M&A activity, rather than be an organic launch, because it can be quite expensive as a start-up.

“Many are seeking profitability from day one.”

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As Australian third-party businesses look to the future, part of their strategy involves protecting and diversifying their revenue streams, Mr Prendeville said.

“If you have a look with what has happened in New Zealand, there is some writing on the wall that brokers need to protect their revenue streams,” he said.

“One way of doing that is to diversify.

“New Zealand has been a really good example for many that brokers cannot rely on upfront and recurring revenue, so they are looking to develop stronger and more robust revenue streams.”

In July, Mortgage Business reported that retail finance brokerage Finsure had acquired a major stake in financial planning group Spectrum Wealth Managers. 

Broker groups to buy into wealth sector
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