The future of succession planning: Why WT is investing in advice firms

On Monday, financial adviser network WT Financial Group announced that it has entered a joint venture with the local subsidiary of New York-based financial advice investor Merchant Wealth Partners, forming WTL & MWP Investco Pty Ltd (Investco).

The joint entity aims to provide strategic growth capital to “high-potential financial advice practices across Australia”, taking non-controlling interests and offering the practices it partners with long-term, “patient capital”.

Speaking with ifa, Keith Cullen, founder and chief executive of WT Financial, who will also serve as managing director of Investco, said one of the benefits of the model the firm is putting forward comes in the form of succession planning.

According to Cullen, there was a significant level of synergy between the cohort of practices looking to scale up and grow, and advice principals that are eyeing retirement.

“We're talking retirement still sort of five to 10 years off for them, but they don't want to pursue that model that has been the standard in the profession, which is you just get to the end of your career and you sell your book, or you sell your business at market driven multiples,” he said.

“They're looking to have built themselves into a bigger corporate structure where they'll have partners, or capital partners, that can buy not all of their shares out, but most of their shares out, and give them an ongoing interest and potentially an ongoing revenue stream, or income stream, once they've retired.

“I just think that makes a lot more sense than the traditional model that's provided. We’re really happy to be able to be in a position to support that through what we've done with Merchant.”

Indeed, Cullen said it was an area that had already seen advisers approach WT looking for assistance, which formed part of the impetus behind setting up the joint venture.

“The demand’s been there for the idea of teaming together the younger man or woman in their late 30s or early to mid-40s that's got a long runway ahead of them, that's very entrepreneurial, that wants to grow, teaming them together with a couple of advisers that are two, five years from retirement is absolutely the ideal for all parties.”

“It will make the business more efficient, it will enable those advisers that are setting themselves up for retirement to really maximise their face time with clients between now and retirement and help build their asset value, and then they're sitting there as a shareholder of a much bigger entity with multiple shareholders and a capital partner.

“You can just see the pathway to liquidity there for them.”

It also brought benefits for clients, he said, with the opportunity to transition clients across within the larger firm as the adviser scales down ahead of retirement, rather than a bulk transaction that sends clients to a new entity they have no prior relationship with.

“You've got the double benefit of the advisers being owners of the business, which I think clients are very comfortable with – they like to know that they're dealing with a principal,” Cullen told ifa.

“But also having it be a bigger corporate structure where they can get to know the other people in the business and then the way that the business operates has been streamlined across the period of time.

“The adviser steps out and from an operational perspective and a client service perspective, nothing's changing for the clients, just the person sitting in front of them. I think that is one of the challenges traditionally with M&A, where if you sell out and disappear, and your clients have got to deal with a new adviser – it's a lot of change to deal with if the operating rhythm of the business is completely different as well.”

He also pointed to other professions, such as accounting, legal and engineering, as indications of how this model could work and where advice is heading.

“All of those professions have ended up with the average size practice being on a scale beyond what you see the average size financial advice practice being. They've got flexibility in them, and they've had it for years as it's just been the prevailing model,” Culled said.

“That the partnership model in accounting, for example, with partners coming and going and reducing their hours and so on. It's been really effective for them, and I think it's just natural that we'll see that happen in financial advice and teaming with the right partner that has that patient capital approach.”