Nothing off the table as wealth consultants face shake-out: JANA

The first shots have been fired in a transformation of a “cottage industry” wealth industry that is being forced by clients demanding more sophisticated solutions to their financial needs.

Wealth consulting is being rapidly consolidated from a “cottage industry” dominated by a large number of small-scale players into a more concentrated sector of better-resourced specialists, says Michael Karagianis (pictured), head of wealth at JANA Investment Advisers.

Karagianis says recent takeovers and mergers have been the “first shots fired” in an industry transformation that is likely to most impact the “huge tail-end” of small consultancies lacking the critical mass to compete with the larger players.

He says JANA, which was established 35 years ago, is accelerating its expansion into the wealth sector to broaden and diversify its client base. “The potential for wealth services is quite significant. We are looking at how we can accelerate the consolidation. What was talk is now becoming action,” he says.

Karagianis would not specify whether its growth would be mergers, takeovers, accelerated organic growth — or a combination — but expects major changes over the next two years. He says: “Nothing is off the table.”

The nation’s financial consultancy sector ranges from large companies such as JANA, Frontier Advisors and Mercer, advising corporate, high net worth and institutional clients, through to a tail-end of about 80 boutique and independent advisers.

Following the Financial Services Royal Commission, which reported in 2019, many large banks quit advice, leading to even more fragmented adviser-owned network that is finding it increasingly difficult to cope with the rising cost of regulation, need for increased capital for new technologies and client demand for more sophisticated solutions.

“This is an industry model that will not survive,” says Karagianis.  “What was a nascent industry five or six years ago is now much more focused on governance and players that have adequate resources in terms of capital to meet requirements and be a long-term player.”

A round of strategic acquisitions by local and international companies highlights a push to expand services, client base and global reach.

For example, last month, local wealth manager Ironbark Investment Partners acquired Mercury Private, a family office company offering investment advice, asset protection, tax structuring, succession and estate planning.

LGT Crestone, a specialist wealth management firm owned by LGT Group of Liechtenstein, recently acquired the remaining high-net-worth advisory operations of the Commonwealth Bank, involving around 500 clients and about $5 billion in assets.

Recent merger activity by consultants seeking scale also includes WT Financial Group’s joint venture with US-based Merchant Wealth Partners to combine WT’s extensive national network with Merchant’s global expertise.

Management-owned JANA, which employs about 100 investment professionals, has more than $10 billion under advice and management, including about $3 billion in managed accounts, which are specialist portfolios managed by professional fund managers.

JANA’s core business has been investment consulting and advisory services. Its institutional investors include superannuation funds, insurers, endowments and foundations.

Ageing population

It set up a private wealth and advisory division about six years ago to provide services to third-party wealth advisers, family offices and high net worth and corporate clients, managing nearly $15 billion across 17 wealth-sector relationships, including private wealth firms, advice practices and family offices. JANA was recently appointed to the consultant panels of Count, a leading licensee group.

Analysts believe the wealth advice sector will continue to be buoyed by the $4.1 trillion in super, which is expected to more than double by 2038; an ageing population needing financial advice about an estimated $750 billion transitioning from accumulation to retirement phase over the next decade; and consumers looking for more comprehensive advice, including tax retirement and estate planning.

They claim factors influencing consolidation in the industry are the growing need for scale and resources to deal with complex regulatory issues, operational efficiencies in technology and management of market and risk assessment.

“There is an increasing appetite for tailored investment strategies, particularly those wanting access to private markets, alternative assets, and differentiated sources of return,” says Karagianis.

He adds that more advisers and clients want research and governance capacities that have traditionally only been available to institutional clients.

That includes a range of managed accounts for mid- to large-sized advice companies and “democratisation of institutional strategies”, a term used to describe offering private clients access to private equity, private credit, infrastructure and property through multi-manager funds.