Structure of advice industry ‘rewards independence’: Praemium

Addressing shareholders at the group’s AGM on Tuesday (29 November), Mr Wamsteker described Praemium as a “growth business” that is seeing a dramatic shift in market share from the previous incumbents to a new generation of challenger investment platforms.

“This shift has been driven by two main factors. The first is not unique to the investment platform business. Newer players in many sectors emerge with more efficient technology solutions,” he said.

“The second factor is somewhat unusual. The structure of the industry used to reward vertically integrated business models; now it rewards independence. Both factors contribute to superior outcomes for the consumers of platform services — financial advisers and their clients.

“We believe the shift in market share has further to run and we plan our business activities accordingly.

Mr Wamsteker said the changes Praemium has made over the past 18 months are part of this plan; one of those changes has been the divestment of its international operations.

The platform provider recently sold its UK business for operations to Morningstar for $62 million, earning it a profit of $46 million.

Commenting on the divestiture, Praemium chairman Barry Lewin said the international division consumed significant capital and management time over its 10-year lifespan.

“That investment was originally made on the assumption that the international opportunity was at least as large as that in Australia and that it could be pursued utilising essentially the same strategy, technology, and business processes as here,” Mr Lewin said.

However, he revealed that the current board and management team felt that this assumption, while largely correct, did not take full account of the execution risk and necessary bespoke IT development for differences in the UK tax and regulatory framework.

“In essence, it did not compare at all favourably with the wonderful opportunity here in Australia, and it provided an ongoing drag, for an indeterminate period into the future, on cash flow and profitability,” Mr Lewin said.

“The sale of Praemium’s international operations was a huge milestone. This successful divestment will allow Praemium to focus on the enormous opportunity at home.”