Banks are scrambling to buy dealer groups and boost funds under advice while planning sector prices, suppressed by the global financial crisis (GFC), remain low, the head of a financial planning practice broker has said.
Forte Asset Solutions principal Steve Prendeville said Commonwealth Bank of Australia's (CBA) $373 million offer for Count Financial was the start of a trend as banks and other financial institutions scrambled to buy distribution on the cheap.
"As a sector, the prices are all suppressed, mainly because the post-GFC hangover is still in play. However, all of the institutions are seeking to get larger," Prendeville said.
By way of example, he cited National Australia Bank's (NAB) frustration over missing out on buying Axa after the competition regulator blocked the transaction but approved the sale of Axa to AMP.
"The banks are the most aggressive in the marketplace because they're taking advantage of the suppressed share prices or market prices that are governed by revenue, so there's a real opportunism," he said.
Before the GFC, financial planning practices were selling for 3.8 to four times recurring revenue, but since the crisis battered revenues and slowed business from new clients, the multiple has fallen to about 3.3 times.
CBA's offer for Australian Securities Exchange-listed Count is a multiple of nearly 15 times earnings.
"The banks are realising the competitive fight is on in terms of funds under management and advisory numbers," Prendeville said.
If CBA succeeds in buying Count, its adviser numbers will swell to 1850, propelling the bank to number two behind AMP, which has about 3000 planners, thanks in part to its Axa acquisition.
Prendeville said it made sense for CBA to expand its planner numbers.
"The Commonwealth Bank is the one bringing up the rear," he said, citing ANZ's acquisition of ING, NAB's MLC and Westpac's BT Financial Group.
"You'd probably look at them and think that at Commonwealth Bank, with only one dealer group, Financial Wisdom, it would make some sense for them to increase their competitive position."
He said the abolition of volume rebates under the government's proposed Future of Financial Advice reforms could heighten uncertainty, which effectively opened the door to bank-style vertical integration.
"There's a risk with the Future of Financial Advice [reforms], there's a risk with dealers, not just Count, but all dealers with volume overrides are potentially at risk," he said.
"What we're seeing is dealer groups are starting to move away from offering just advice and starting to have ownership through the whole value chain. That includes having their own platforms, maybe their own managed funds or manage-the-manager type of structure. So an institution that can bring that whole value chain together makes a lot of sense."
