Is Insignia’s new model poised to start a trend?

Last month, Insignia Financial announced its intention to reset its financial advice operating model to “competitively leverage opportunities for sustainable growth”.

This new business, under the working name of Advice Services Co (ASC), will work as a new partnership ownership model for its self-employed licensees, which comprises RI Advice Group (RI), Consultum Financial Advisers (Consultum), and TenFifty.

Following Insignia’s recent move into the co-equity model, Adviser Ratings asked whether AMP may follow in its footsteps, estimating that one in three AMP and Insignia practices, characterised by profit margins over 10 per cent and revenues exceeding $1 million, could be well suited.

According to Adviser Ratings, the model has become an attractive alternative for certain advice practices, providing a “mutually beneficial partnership between licensees who have scalable access to technology, compliance, and backend processes and advice firms”.

“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,” Adviser Ratings said.

The technology and ratings firm credited Focus Financial Partners as a pioneer in the co-equity model sphere, with the US-based wealth management business investing in Australian advice practices including Escala Partners and Brady & Associates.

AZ NGA, a subsidiary of Italian financial giant Azimut, mirrored this trend, with its most recent investment being in Sydney-based firm Foster Raffan iPlan.

Paul Barrett, AZ NGA chief executive, has attributed the company’s successful Australian market penetration to the business 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,” Adviser Ratings noted.

“The co-equity model has enabled these practices to tap into the financial strength and strategic expertise of these well-funded groups.”

However, Adviser Ratings speculated that the “race towards profitability” could risk a surge in the “mismanagement” of managed accounts, particularly 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,” Adviser Ratings said.

The firm believes that a well-managed co-equity model existing alongside a mass market solution, the latter of which AMP and Insignia are both trying to crack, 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.”

While some licensees have already embraced this approach, Adviser Ratings asserted that Insignia’s move could signal a “seismic shift” for the advice landscape.

“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.

“But do advice practices actually need licensees or is this the start of the adviser licensing/partner model akin to the accounting profession?”