It is profoundly amazing how surprised people are when they learn of large financial advice businesses rapidly scaling and innovating.

Yet no-one seems fazed by the exponential growth of the broader wealth management industry, which has benefited from compulsory superannuation, strong equity markets, and the increasing number of high-net-worth individuals; the very same tailwinds underpinning growth in advice.

Admittedly, growth in advice has historically been relatively weak.

It’s only in the last decade that it has really ramped up, sparked by the exit of the major institutions, and fueled by the current advice demand and supply imbalance, favourable M&A conditions, and capital now pouring into the sector.

The role of ambition can’t be underestimated either.

Ambition isn’t a trait typically associated with financial advisers.

Investment bankers, fund managers and politicians, yes, but many advisers have been content to look after 100 or so clients, earn a decent living and grow incrementally over time.

I’ve met many exceptional advisers who have built “large” small businesses, and they should be proud of their achievements. At the top end, these businesses have revenues of circa $20 million. They’ve grown without the tailwinds and capital flows the sector is now enjoying. Now there is an opportunity to redefine what’s possible and be even more ambitious. Outside this industry, $20 million of revenue over 15-20 years is not considered strong growth.

he industry’s definition of growth is being challenged by the rise of super firms and talk of advice platforms.

There is an increasing recognition that building exceptional businesses of significant capital value requires more capital, expertise and ambition.

Growth begets growth

The advice industry’s complicated relationship with growth can be attributed to its fragmented, cottage industry roots and heavy institutional influence.

The dominance of permanent capital hasn’t helped.

In the decades leading up to the Hayne royal commission, the banks and life companies accumulated stakes in licensees and underlying advice businesses, but they didn’t have particularly high expectations around return on investment or a clear strategy to add value or create liquidity.

So long as advice businesses continued to support their products and platforms, the institutions stayed relatively hands-off.

However, patient capital, while critically important, can also breed complacency, stifle innovation and curb growth.

In more recent years, the presence of private equity in wealth management and advice has enhanced the capital stack and shareholder structure and lifted the intensity inside businesses. A blend of patient capital and private equity can bring a combination of stability, excitement and liquidity in a market where opportunities to grow are momentarily in large supply!

It is also driving consolidation and greater investment in systems and technology to increase efficiencies, productivity and scale.

This shifting dynamic is stirring up a desire inside advisers and business owners, both young and older, to do more and dream bigger.

The fact that all the major players have exited or are in the process of exiting personal advice, during one of the most exciting periods for the industry, is unsurprising.

For the better part of a decade, the big players have been buried in the past. They have been running remediation programs, overhauling systems and processes, and fixing problems.

Their teams have been stuck in a low growth environment.

By contrast, advice firms have largely been unencumbered by legacy, enabling them to build for the future.

Feeling good

Many advisers have gone back to school to gain additional education and training qualifications and, while this process has been forced and painful for the industry, it has contributed to the personal growth and development of advisers and raised standards of professionalism.

In this growth environment, advisers, teams, clients and shareholders are prospering. People are learning new skills, gaining valuable experience, and taking on more responsibility.

While being challenged and stretched can be uncomfortable at times, it is also energising and should never been taken for granted.

Growth is good, it feels good and it’s a positive sign of health. Those of us lucky enough to be in a high growth environment should pinch ourselves.

As advice businesses continue to grow, there will be some unsettled people in financial services.

Already there are pockets questioning the sustainability of that growth and the ability of advisers to build and manage large, multi-disciplinary, corporatised national advisory firms. These doubters are used to seeing financial advisers at the bottom of the value chain.

Whether advisers can truly disrupt the pecking order will depend on their ability to build advice platforms.

Institutional investors with serious capital are looking to build and invest in platforms, which is the word they often use to describe a business with scale and repeatable revenue. Advice platforms globally are valuable and sought-after assets.

Australia desperately needs financially strong advice platforms that are capable of servicing large numbers of people and closing the widening advice gap. We need advice platforms with the financial resources to invest heavily in improving advice processes and the client experience.

Importantly, advice platforms need to be scalable so business models aren’t dependent on advisers peddling harder and faster to grow.

Right now, capital is pouring into our sector because it recognises that there is plenty of upside.

Advice is a young profession with stacks of time to fulfil its potential. It is still highly fragmented, creating opportunities for consolidation and collaboration. Strategic capital and private equity, both local and offshore, only invest in sectors and businesses where they see significant growth to be had. The advice industry is only in the very early days of the private equity cycle highlighting just how much opportunity and growth there is to come.

Read more of Paul Barrett’s articles in Professional Planner.