In the wake of Insignia's recent foray into the co-equity model, the question arises: will AMP, armed with its investment platforms like AMP North, take a similar path? The prospect of selectively choosing top-tier advice practices, particularly those they already have familiarity with, could offer AMP an advantageous edge in terms of visibility and comprehension of their licensed operations.
We estimate that one in three AMP and Insignia practices could be alluring for this new model as shown below, given those with profit margins over 10% and revenue over $1 million.
Figure 1: Practice Revenue v/s Profit Margin (AMP & Insignia practices) 
Source: Adviser Ratings
It has become an attractive alternative in the financial services landscape for certain advice practices. It has demonstrated a potent capacity to drive business expansion in advice practices, providing a mutually beneficial partnership between licensees who have scalable access to technology, compliance and backend processes and advice firms.
Leading the way originally in co-equity model sphere was Focus Financial Partners, a renowned KKR backed wealth management firm based in the U.S, investing in Australian advice practices including Escala Partners and Brady & Associates. Its CEO, Rudy Adolf, has praised the co-equity model, asserting that it fosters sustainable growth.
Another player embracing this model is AZNGA, an offshoot of Italian financial powerhouse Azimut. CEO Paul Barrett attributes their successful Australian market penetration to their strategic use of the co-equity model. In numerous comments to market over the years, he believes that the model has been instrumental in optimising both client outcomes and practice valuations. AZNGA's most recent investment has been Sydney-based financial advice firm, Foster Raffan iPlan.
The co-equity model has enabled these practices to tap into the financial strength and strategic expertise of these well-funded groups. More recently, Merchant Investment Management, a privately funded New York firm, has an Australian war-chest attracted by what they see in Australia, bullish on the number of advisers moving into the IFA space. Merchant is backing industry stalwarts David Haintz, of Shadforth fame and Santiago Burridge, co-founder of Lumiant and and the Lonsec acquired Implemented Portfolios. Could Insignia be protecting (investing in?) the very advisers David has helped build, and subsequently parted ways with when he sold Shadforth to Insignia back in 2014 for $670M.
At the same time, healthy profit margins remain in part attributed to the growth in managed accounts and also in part to better practice management, as seen in figure 2 below.
Figure 2: Advice Practice Profit Margins 2022
Source: Adviser Ratings
However, there's a pivotal question that needs consideration. With this race towards profitability, could there be a surge of rogue advice and the "mismanagement" of managed accounts? This concern has been raised quietly in the hallways of licensees in the past but is particularly pertinent now as the Quality of Advice Review is set to usher in a new wave of lower-cost players into the industry. Will we see an acceleration by practices into managed accounts to protect margin erosion. Practices that aren't necessarily well equipped or appropriately educated to offer them, as they look to get a march on the yet legislated "Good Advice" model.
Perhaps, a well-managed co-equity model existing alongside a mass market solution, the latter of which AMP and Insignia are trying to crack and will no doubt compete with super funds, can ensure a balance between business growth and the maintenance of high-quality advice. A stringent compliance structure and a strong scalable tech stack is key to mitigate the risks associated with potentially reckless expansion. Several licensees have already led the charge here, such as Count, but Insignia's move could signal a seismic shift. Another shift in the licensee landscape! One not surprising given the amount of risk that resides with licensees for what is looking like little financial benefit.
The adoption of the co-equity model by AMP and Insignia could potentially transform their business landscape, enabling rapid growth, while ensuring the provision of high-quality financial advice.
The co-equity model, hence, has the potential to usher in a new era of growth for advice practices. But do advice practices actually need licensees or is this the start of the adviser licensing / partner model akin to the accounting profession?
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