Easing the burden: SA wealth managers and financial planners move to merger model

Alex Cook, CEO of GCI Wealth.

South African independent wealth managers and financial planners, under pressure due to shrinking margins and the increased burden of compliance, are welcoming the opportunity to merge with larger wealth management firms to optimise their profits and reduce their overheads.

This is according to Alex Cook, CEO of GCI Wealth, the ‘futuristic wealth management firm’ that is actively absorbing smaller advisors to the benefit of both the advisors and their clients.

“We find that the smaller firms are under pressure from all sides: most operate on very low margins while the cost of compliance is rising and eating into their profits. Few value their own time accurately, which limits their own earning potential. Many take on more clients than they can effectively focus on, so losing the ability to deliver personal attention that made them successful in the first place. And most worryingly, few independent advisors have effective exit strategies and succession planning in place – meaning that if they should want to scale down or retire, or if they should become disabled or die, the full value of their years of hard work would not be realised,” says Cook. Typical exit strategies such as selling all or part of the business will often impact the advisor’s independence and fail to deliver the returns that should have been possible through an optimal business strategy, says Cook.

“Lump sum payments don’t replace the lost business annuity revenue, in the case of franchising – the franchise fee may be equal to gross margin, and many succession plans don’t cover all potential trigger events,” he says. While most advisors do cover disability or death in their planning, they may overlook less obvious triggers such as retirement, being forced out of business by decreasing margins and the increased demands involved in balancing advising clients and running a business.

“The merger model addresses all eventualities and is proving the most beneficial for smaller firms with less than R10m in turnover,” Cook says. “It increases margins and earnings and frees the advisor to focus on what he/she loves doing and is good at – advising clients.” The model effectively moves people from being self-employed to becoming true business owners with sustainable businesses that can continue growing even when the owner retires.

Cook believes that the ‘Independent Fee Based Financial Planner’ will dominate the advisory landscape over the next 10 years and has structured the GCI Group offering on being the perfect home for this person. Referring back to GCI’s 2025 goal of 150 000 happy families, Cook says, “Retaining Wealth Managers in the industry and keeping them profitable is the best way of creating more happy families through safe and secure retirement”.

To assist Financial Planners with understanding the value of their business using different valuation methods as well as how a merger would work, GCI has developed a toolkit comprising a business valuation calculator and merger calculator.

“These new calculators were introduced this year, and of the 18 assessments we have carried out so far, more than half immediately opted to merge with GCI. They had never seen this level of forecasting before, and were pleasantly surprised at how significantly the merger model could improve their financial outlook. All of these firms realised the benefits within a month of the merger going ahead,” Cook says.

Cook explains that GCI’s model positions advisors to bring their own clients aboard and focus on their wellbeing, while handing over costly and onerous admin and overheads to GCI’s core support team. The merged firms are supported by asset consulting and sales support, full back office support, various systems including ALM, prospect and commissions systems. They also benefit from an advanced consolidated paperless reporting system, which enhances reporting and improves client experience. “Most importantly, our model creates an income for life for Wealth Managers through annuity retirement revenue at any age and for six years after death,” he says.

“The merger model turns advisors into business owners who almost always earn better revenues after retirement than they earned working full time.”

GCI Wealth offers business and merger valuation calculations for Financial Planners considering their succession strategies. Find more information at www.gci.co.za.