WT Financial Group (ASX:WTL) Presentation, FNN Online Investor Event, November 2021

Company Presentations

WT Financial Group Limited (ASX:WTL) Founder & Managing Director Keith Cullen talks about industry changes, demand for financial advice, and strategy, including the company's recent acquisition of Sentry Group.

So today, I'm going to give you a brief introduction of WTL and its background and explain our recent acquisition of our industry peer Sentry Group. And then take you through what's happening in the financial advice industry in Australia, talk a little bit about the disruption that we've been seeing, and therefore, the opportunity ahead for WTL and companies like it. So we'll flick through all the disclaimer material there.

Look, WTL was founded in 2010 initially under the name of Spring Financial Group. And our complete focus was on building a diversified financial service offering direct to consumers, so a B2C model. And all of the advisors and staff that we had were salaried. So a salaried advisor network. We enjoyed great success. Initially, we were profitable from our first year of operation and our success was built out of developing a great range of intellectual property assets around advisor education and training. Consumer education that we parlayed into client recruitment tools and a very process-driven approach to the creation of advice and also risk management and around that sort of client recruitment and digital marketing.

We listed on the ASX under the code of SFL in 2015. And we listed under the profits test and built a strong dividend history paying out around $7 million in dividends in our first couple of years. So look, fast forward to 2017 and significant changes to legislation and regulations in our industry and to education standards, the Royal Commission all impacted considerably, not just on the industry, but on our company itself. And it really forced ourselves as a board and the shareholders to have a rethink about where we saw the future for the assets that we've built, that I've just mentioned. And we determined that it was best to bite the bullet and move away from that direct-to-consumer model that had been very negatively impacted from a branding perspective across the Royal Commission. And instead focus on becoming more of a business-to-business operator, a move that we thought would enable us to leverage the assets and intellectual property that we've developed through that journey of building a significant B2C operation.

So this transformational strategy saw us dispose of a number of our B2C assets, scale back a lot of our fixed overheads, and pivot into being a B2B operator. And central to that pivot was the acquisition of a dealer group known as Wealth Today. And we completed that acquisition in 2018. And Wealth Today provides a comprehensive range of services to advisors who unlike the salaried advisors in our Spring Financial Group business, independent business operators who act as authorised representatives. The services that we provide include licensing, compliance, education and training, technical support, practice management, and business development services. Look, the primary driver for this pivot was that we saw in the wake of the Royal Commission, what became a very rapid unraveling of the traditional vertically integrated model where the banks had acquired many of the dealer groups in the country to aid in distribution of their products.

So with that sort of shift that came about from the Royal Commission, what we've done is we've turned the impact of industry disruption on the company on its head, and instead of it being a burden to us is we've really been capitalising on it and we've turned it into an incredible opportunity for us. To put that in perspective, when we acquired Wealth Today, it had just 42 advisors in the group, but leveraging the assets that we built has enabled us to grow that organically to more than 120 advisors across 105 advice practices. This has subsequently grown to around 275 advisors now across 200 plus practices, thanks to our recent acquisition of Sentry Group.

So just to touch on that acquisition, we paid $7 million for Sentry Group. There's a further potential up to $3 million that will be payable 12 months post settlement based on the acquisition delivering against certain performance hurdles. And the acquisition price was satisfied 50% in cash and 50% in shares. We raised an additional $1.5 million in cash at the time to deal with transaction cost. And we settled that acquisition on the 19th of July.

So we've had a few months now of integrating the two businesses together and getting the benefit out of that. So Sentry at the time of acquisition had around 155 authorised representatives across 95 practices, and the acquisition, so therefore, in effect, more than doubled the size of our B2B operations.

The key to the acquisition for us was that it was not only complementary in terms of the two businesses, but an enormous amount of operational efficiencies could be gained from it. And we've already implemented a lot of cost reductions across the group from bringing the businesses together. So those synergies and there's some potential further savings ahead, but the majority of the savings through the integration process, we've already recognised.

So the integration of systems and processes across both Sentry and the Wealth Today practices has been really well received by advisors in both camps. Look, despite the lockdowns presenting some challenges in getting things integrated, we're really pleased with the progress that we've been able to make and the reception that we've had. I think it's fair to say that the execution risk with the transaction and the integration of the two businesses has been met. So that's been really critical for us at both an executive level and also the operational teams across the two businesses. The two cohorts have come together very well.

So look, we had of course been in discussions with Sentry for some time. And then after announcing the transaction, we had around a month's delay before settlement while we got through a shareholder approval meeting. So that sort of lead time into settling the transaction gave us a lot of opportunity to really hit the ground running, know what we were doing in terms of merging the operations, and merging the key aspects of the two businesses.

So I just touch on there, a couple of points on that slide. Post-acquisition now, we've emerged with 275 advisors across 200 practices. It's made us a really significant player in a new crop of heavyweight independence. I'll talk some about the board and management team in a moment. A key thing about settling the transaction is, heading into the transaction is we were able to look very closely at the financials. We've restructured the balance sheet with taking up various provisions to cover integration costs and so on at settlement. So we've provided ourselves a really clear runway to deliver a strong financial result for this financial year that we're a little way into now.

Just wanted to have a look at some post-acquisition comparisons. Look, this chart moves around a fair bit and it could do with some updating that I'll talk to in a moment in terms of a recent acquisition that was done by both Easton and also an acquisition by Centrepoint Alliance acquiring a subsidiary of ClearView.

But really what's happening in our industry is well captured in this chart here. Is on the left-hand side, you'll see there in the wake of the Royal Commission was the big six in our industry, AMP, IOOF, and the four major banks has really been narrowed down now to the big two with NAB, CBA, Westpac, and ANZ all basically exiting the financial advisor or the financial advice side of financial services altogether. IOOF picked up a number of advisors out of some of those groups. AMP has been shedding advisors as it's tried to rationalise its business. But you see the big six really down 54% in advisor numbers over the last couple of years. And the top 10 independents have picked up nearly all of those. Some of them would've left the industry, some of them would've gone off and got self-licensed, and some of them would've gone to the long tail of sort of much smaller dealer groups that are out there or AFSL holders that are out there.

All this activity has seen us now with the acquisition emerge in that top sort of three or four of financial advice groups by advisor numbers in the country. And whilst the company WTL is now really well positioned for further strong organic growth in building what we'd call a best-of-breed offering for advisors, is there's certainly significant further opportunity for mergers and acquisitions in the space.

I just wanted to talk briefly about what's happening in the financial advice industry in Australia, because really, it's easy to read the headlines in the newspapers and look at the banks abandoning the playing field of financial advice and wonder why you might be investing in this space. But the key to that is really the demand for advice. We right now are on the doorstep of the largest intergenerational wealth transfer in the history of Australia with some $3.5 trillion of wealth about to pass from one generation to the next over the next sort of 10 to 20 years.

Key to this is that the nature and complexity of advice required for this wealth transfer is really forcing advisors to upskill to address the increased complexity that comes along with this. So the demand from consumers for estate planning and legacy planning, for retirement income advice, for aged care advice, and then for the recipients for strategic investment advice is really growing. And this presents an enormous opportunity for both advisors within the network, as the space is consolidated in the wake of the Royal Commission, but also companies like WTL at a time when others are abandoning the playing field in the dealer group space. From an individual advisor perspective, advisors need support of a really strong dealer group with the right infrastructure in place to help them deal with the upskilling that's required for them to cope with this increased demand and increased complexity in the nature of advice.

And this is really marginalising a lot of low-cost dealer groups, which presents further sort of organic growth and transactional growth opportunity with those dealer groups that are sort of sub 100 and certainly sub 50, really becoming very marginalised as the demands on advisors, on the demands on their education skills and so on grow.

So I'll touch briefly on the board. A good part about the acquisition with Sentry is really for the vendors of the Sentry business. It represented a sell-in rather than a sell-out for them as the key shareholders of Sentry have all become rather significant shareholders of WTL.

And we're pleased that Michael Harrison, who was the non-executive chairman of Sentry has joined our board as a non-executive director. Rob Jones, who was one of the other directors and shareholders, who is partners with Michael in a major consulting business in financial services called Peloton Partners has joined an advisory committee with us that looks at internal operational matters inside the business. And we also picked up David Newman, a very experienced operator in financial services who was MD of Sentry. He's joined our Frank Paul as chief operating officer or joint chief operating officer in the business. That's really rounded out the level of skills and experience that we have to embark on this sort of next upward leg of growth, both organic and transactional growth that we're targeting.

So just having a look at our guidance is... Or we won't talk about 2021 as our annual reports in the market. I'd encourage everyone to grab a hold of it and have a read, but our guidance for FY2022 is for a total revenue of $70 million and a net profit after tax in excessive of $2 million. I think a key thing to note about our guidance for the year is that it's really based on the run rates that the two businesses of Sentry and WTL were at when we settled the transaction. So we're not looking for any form of hockey stick growth. We're just looking for relatively conservative organic growth in those numbers.

And key to it is that around 90% of our revenues are recurrent or recurring revenues. So we're pretty well measured on what we know we're going to do from a revenue perspective. The costs are very easy to control within the business. Really, the most significant cost as a professional service business is in the payroll. So having brought the two businesses together and got those efficiencies is we're very confident with where we stand. Good growth opportunity in our industry from further consolidation and we think good upside in the business.

So I think I've done well there in keeping to 15 minutes, Clive. I've just put our contact details up there for anyone that wants further information or would like to organise a one-on-one discussion with the business. They can do so either through our investor relations firm, Jane Morgan Management, or also my details there, welcome to contact me directly.


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