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Real value in those insights, @joewolf, which add grist to my...

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madamswer

16,933 Posts.

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02/05/22

14:56

Post #: 61149262
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Originally posted by joewolf ↑

You reached the exact conundrum I reached a long time ago. This will probably be a long post - Sorry. I worked in a variety of professions and support structures. All of these made me suspicious of product driven personal financial advice. An easy example is - if we live in a low return environment and say income is around 4% can you afford to pay the LIC fees of 1% plus outperformance fees.

My first adventure with Garry was to buy into Diversa and I did well - it was an easy business to understand.

The next bit isn't what has been said to me but is based upon comments GC has made to questions and I have built the picture:

My view of the industry a decade ago was that they were ticking boxes but were led by what I would call tied products. So the programs led them to a product that was part of the organisation or one they promoted. The commissions led a lot of them to be happy at that point and sell (I use that word specifically) the client that product.

So my Base of understanding is that Interprac has always been servicing professionals - So independent of advisor groups plus chartered accountants. So they provide the platform and services for these parties to service their clients. Garry is hugely strong on not tying anyone to SEQ/Interprac. So essentially he is accepting that people gravitate to service providers that suit their style. That the bank model implied that they were giving great advise (as safe as a bank...) but the royal commission pointed out that within banks humans work and they don't necessarily reflect well upon the banks values and ethics and that the system could also just fail the customer.

The accountants' always have clients with needs - One of which I found was that they could not provide reasonable life cover for small companies as the pool is too small. Australia has a very high number of smaller family attached businesses - in that I suspect its pretty unique. So these clients have specific issues - SMSF , Family Trust, Operating trusts . Estate planning. Busi8ness advice etc.

Some people go to accountants , others talk to their attorney and even more are happy to have a financial planner.

At the core of the model is that it is supplier agnostic. If you want to use our AFSL then you can if you comply with this process and use our services. If you are accountants and want to register trusts or SMSF's and provide Financial advice you can take what services you need. The real interesting process is you say there are these agglomeration - That is what it is.

They are accumulating businesses that have the same objective as they have but may have a different catalyst or style.

The wealth division is pretty easy. It houses the AFSL's and has advisors - mostly as independents or part of the group. It provides compliance for advisors and provides them with the tools to do their job. Family office are those that have a greater high Net worth and have some of the tasks done for them and a personalised service be it record keeping or cash management.

The Professional services division is there to create the legal entities and help the Advisors with compliance. So its trust formation , SMSF formation. Updating etc. The insurance brokers just gives another tool to the professionals. To my mind this division is the hub.

Equity markets is a legacy issue that they purchased Morrisons which needed a lot of investment in and as that had been done they then saw that it added value. It was interesting that part of that investment was to invest in the clearing business - they saw the gap with Pershing leaving and went to their core - creating a compliance unit that has helped them grow. You could easily sell this or separately list it in my opinion.

Direct is an interesting division - at first glance it looks like all the orphans in one place. I think it may have started like that. However they used to sell a lot more structured products. So they used to offer SOPH's an option to invest in stocks with a future cost based upon options or betting the index. I liked a lot of them but really wanted something a bit more refined. I haver often looked at investment protection via options either put or call. In 2020 I wanted to buy a lot of call options as I went pretty liquid in the first week of March. Importunely I didn't have accounts with Morrisons so could not phone someone and get the strategy going. By using options I would not have had to sell the stocks if I bought a put option - thereby limiting my realised capital gain until the event unfolded.
I am not sure if that would have been here.

The real issue is that there isn't enough planners and advisors left and as we move forward we are going to get into the same mess Healthcare is - There is a growing market that don't have the financial resources to pay fee for service. They will have to have some degree of Robo service with follow-up from staff. That requires education , training , customer follow-up. They need to have something that people can use: Having an information arm is great but it probably has to become more focused. There needs to be a customer acquisition arm , a customer information and communication arm and a robo/ customer acquisition arm . Lastly we can have a financial education information objective as part of that.

Yield report is pretty good and I suspect there will be more content like that. I see it as a necessary evil in an industry in transformation. Almost an insurance policy.

I think that GC has put out those objectives for some date in the future but hasn't clearly said that they are only paying out 25% because some of those objectives will only be reached via acquisition of entities to get them there. I think that reality suggests that we need 800 advisors - they are 400 you wont get to 800 without acquisition. The accountants will come if you have the correct product mix and I think by using compliance as your hook is great - its becoming the biggest fear of all professionals - Compliance or face the consequences.

The equity market division generates sufficient cash to invest in its own growth. It probably benefits from the group or parts of the group using its services. However it needs to keep adding new things to develop.

The professional services division gets there by delivering on what they have done to date. Great compliance and more features and solutions. The advisors you have to acquire but accountants will come if you provide them the tools to make their job easier and that goes back to the direct division and the professional division.

Personally I think there is one larger acquisition to be done before the board is set for the kinds of growth we need.

By the way it wasn't only the Youngs selling prior to that there was a couple of events that dropped a lot of shares into the market. By my reckoning there was over 15 million that changed hands when management changed as well.

This is complex play. You have to provide services and solutions to professionals for them to want to sign up. You have to be very good at mundane things like compliance. No prizes for getting compliance right but huge penalties for getting it wrong. You cannot lock professionals into your product you have to win them over. The business is driven by relationships - much harder to achieve.

The next big question what is it worth. If it doesn't get the growth it is probably worth 40% more but will be taken out at some point. If it does it is multiples of where it is now.

Expand

Real value in those insights, @joewolf, which add grist to my research mill, so thanks again.

I have to say, SEQ reminds me a bit of DVR, not directly comparable in terms of business composition, perhaps, but in terms of complexity of the investment thesis.

In terms of degree of difficulty, using an Olympics diving analogy, they are akin to reverse 2.5 somersaults with 2.5 twists in pike into a barrel of water.

Very high score if the execution is near-perfect; but elimination from competition if you get it wrong.

.

SEQ Price at posting: 63.0¢ Sentiment: None Disclosure: Not Held
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