The Australian financial advice landscape is not just changing; it's evolving into a landscape of boundless opportunity. The emergence of 'super firms' is reshaping the industry's future, as revealed by the Australian Financial Advice Landscape Report (AFLR) 2024. The stabilisation of financial advisers at around 15,500, a 36% increase in client growth, and rising funds under advice signal a new era of potential for high-performing practices.
At the forefront of this evolution is AZ Next Generation Advisory (AZ NGA), which has recently forged a strategic growth partnership with funds managed by Oaktree Capital Management L.P. through a capital injection of $240M. This significant development validates the growing value of advice businesses and underscores the increasing sophistication of practice management and service delivery in the sector.
Paul Barrett, CEO of AZ NGA, excitedly stated, "We've managed to entice a global superpower in the investment world into financial advice practices in Australia. That's awesome, and we should, as a profession, really embrace that and be grateful for it."
Barrett highlights the shift in value creation within the broader financial services industry: "Not long ago, fund managers were the most valuable, then platforms. Now, advice businesses are emerging at the top of the value chain, both financially and from a public good perspective."
Barrett highlighted that the capital will provide two significant benefits to the group. Firstly, it will fuel further M&A activity in financial advice businesses, both at the large scale - as seen with the recently announced acquisition of 16 AMP practices- and continuing to make acquisitions at individual practice levels.
Secondly, it will allow for the acquisition of aligned service businesses - again, as seen with the recent investments in Virtual Business Partners and the acquisition of Catalina Consultants, which can assist in the growth and support of the expanding network of firms AZ NGA has ownership in through the services they provide.
Barrett described their acquisition strategy as creating "super firms"—practices that excel across multiple dimensions. "We're looking for scale and a growth mindset in leadership in our initial practice acquisitions," Barrett explains. These firms become hubs for growth by developing their own M&A strategies to fill out their specialties.
Barrett elaborated on their vision for investments and acquisitions in aligned service businesses: "Over time, we also want to focus on building out a utility services business that does all the things that the planners shouldn't be doing! We want the planners to do things that create a sustainable competitive advantage. We don't want them to do middle and back office work where they can't achieve that. So we'll do that for them over time."
This approach aligns closely with the findings of the 2024 Australian Financial Advice Landscape Report on optimal practices, which indicates that top-performing firms have profit margins exceeding 40% and have increased revenue by more than 15% year-on-year. These practices are characterised by their embrace of technology, strategic use of A.I., and a focus on efficiency and client service—in short, a practice with a growth mindset that is looking for scale and efficiency by focusing their people on where they add the most value to the practice - providing advice to clients.
The use of data and analytics to improve practice management and client outcomes is an area of growing importance. Barrett acknowledges that the profession still has "a long way to go" in solving data problems but sees significant opportunities in this space. The AFLR 2024 supports this view, showing that practices leveraging data analytics for client segmentation and service delivery are more likely to achieve higher profitability and growth.
Returning to AZ NGA, Barrett highlighted the value of Oaktree's experience with similar ventures in other countries. "Oaktree has done extensive work with financial planning networks in the U.K. where they've brought together aggregators and enhanced their propositions to financial advice practices by bringing in additional services, integration, benefits, and so on and so forth, to the practices they serve. They've done this very well, so we're also eager to learn about their international experience."
Barrett also noted the potential for cross-industry learning: "Interestingly, in Australia, Oaktree has experience not in our vertical but in the medical sector, dealing with SMEs and doctors in that sector. And so I know they're different, but some interesting learnings and parallels exist which we're keen to bring into our profession."
The future of financial advice in Australia appears bright, with well-capitalised, technologically advanced, and client-focused practices leading the way. As the industry continues to evolve, those firms that can adapt to changing conditions while maintaining a steadfast commitment to client outcomes will likely thrive in this new era of advice.
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Over the coming weeks, we will draw from the AFLR 2024 and Barrett's insights as we commence a series designed to define excellence in financial planning practices today. We aim to support the profession's transition through implementing the Delivering Better Advice legislative changes to support improved financial advice businesses and get professional advice to more Australians. The series will focus on several key attributes:
- Technology adoption and cybersecurity focus
- Scalable business models with diverse revenue streams
- Strong leadership and growth mindset
- Client-centric approach addressing evolving needs
- Strategic use of data and analytics
- Ongoing professional development and education
- Adaptability to regulatory changes
- Efficient operational processes
- Robust investment strategies leveraging ETFs and managed accounts
- Cultural alignment with the values of a "super firm."
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