WT Financial Group (ASX:WTL) FY2023 full-year indicative results

WT Financial Group Limited (ASX:WTL) Managing Director Keith Cullen discusses drivers of profitability, the effect of lower adviser numbers in the industry and opportunities moving forward.

Abbey Phillipps: Today I'm joined by Keith Cullen, the Founder and CEO of WT Financial Group (ASX:WTL). Over the past few years, WT Financial Group has become one of the largest financial adviser networks in Australia.

WTL operates in two divisions. The first is the B2B division, which delivers wealth management, retirement planning and personal risk insurance advice. It also does this through a group of around 400 privately-owned adviser practices. These advisers operate as authorised representatives under WTL's Wealth Today, Sentry Group and Synchron subsidiaries. The second division is the B2C division. This delivers a range of financial advice services directly to clients through the Spring Financial Group brand.

Keith, thanks for joining us.

Keith Cullen: Oh, thanks for having me, Abbey. It's great to be here.

Abbey Phillipps: First up, you've just released your indicative results for FY23. Could you talk us through the highlights?

Keith Cullen: Yeah, sure, Abbey. Look, revenue was up 60 per cent on last year, which is terrific, to a bit over $162m. But, most significantly, both net profit before and after tax are more than double, with the before-tax number being a little bit over $5m and after-tax being $4.3m, so a great result.

Abbey Phillipps: What were the key drivers of performance?

Keith Cullen: Over the last couple of years, we've made some key acquisitions, obviously. You know, last financial year, or the prior financial year, it was Synchron Group and before that, Sentry Group.

So, the real focus for us in the last 12 months has been to consolidate those operations to really focus on rationalisation of both the network of advice practices we support and also our back office operations, to keep the cost down and create a cost base that we can now grow from. So, I think the key driver, the acquisitions have helped with the revenue, obviously, but what's driven profitability has been rationalisation of both the network and our operations.

Abbey Phillipps: Now, WTL has a B2B and a B2C division. What was the larger contributor to revenue?

Keith Cullen: By far and large, the B2B business, which is supporting our advisers through Wealth Today, Synchron and Sentry is the largest contributor. A bit more than 90 per cent of the businesses sits within that and 90 per cent of the profitability.

But the B2C business, our Spring Financial Group business, where we're advising clients directly, is still a very important part of our business because we call it our research and development lab. It enables us to really keep it real with what we're doing for our independently-owned advice practices we support. We don't need to second-guess what it's like to sit in the room with clients, what sort of impact legislative and regulatory changes either have within the practice or for clients because we're living and breathing it every day. And I think this is a key differentiator between ourselves and other AFSL providers that are supporting networks.

Abbey Phillipps: Thanks, Keith. Talking to the advice industry in general, there's been a large reduction in adviser numbers over recent years. What impact has this had on your business?

Keith Cullen: Yeah, good question, Abbey. Adviser numbers are down significantly from about 25,000, 26,000 a few years ago to around about 16,500 on the financial adviser register at the moment. Some would argue that number's a bit lower than that because that includes a lot of people that are not client-facing, so maybe the number's about 14,000.

It's had an impact on our business. One of the key aspects of our business is the number of advisers. The way that we earn fees from our advice network, though, is not just per adviser, but with the vast majority of our practices we're sharing in their revenue. And this is the real key, I think, to not only our profitability recently, but where the upside's coming in, because demand for advice keeps growing, yet adviser numbers are down and the barriers to entry have been set very high.

Abbey Phillipps: How large is the funds under advice of the industry and how quickly do you see this growing?

Keith Cullen: Great question. Look, it depends upon which sort of surveys you look at, but the vast majority of advisers are providing advice on superannuation assets. So, superannuation assets total about $3.5 trillion in Australian now. Around about 12 per cent of Australian households are getting advice. So, you could assume, if you looked at that, just from a superannuation perspective, you're talking about $350 billion is what you would call advised money in the country. That's certainly advised superannuation money.

It's probably a number somewhere north of that because you've got to consider that most people getting advice have probably got higher-than-average superannuation balances. And also, there's a lot of non-superannuation assets being advised on. So, you're probably looking somewhere between $400 and $500 billion worth of advised money in the country.

From a growth perspective, you've obviously got sort of natural asset growth that's coming out of the markets, but with superannuation assets, they're growing at an incredible $2 billion a week alone. So, when you take into account the inflows into super, which is both statutory contributions plus voluntary contributions, and then you deduct off that the draw-downs, people in retirement that are accessing their super or lump sum taking it out, and then you add back the asset growth is you're netting out to about $2 billion a week, so the growth is very significant.

Abbey Phillipps: Going forward, what do you see as an opportunity for the company and do you think the drivers of revenue will change?

Keith Cullen: I don't see the drivers of revenue changing any time soon. I think it's really important to us that we're sharing in revenue with the practices that we support. It makes us aligned with helping them grow. So, I think our drivers for growth are the same as what the drivers for growth for individual advice practices are. And that's this incredible sort of supply-demand imbalance that's emerged, which is, you know, I think we're going to net down to about 12,000 advisers in Australia. I talked before about there being maybe 14,000 at the moment. We're seeing just with natural retirements and people selling their businesses a reduction of about 1,000 or 1200 a year. And, at this stage, the new entrants coming into the game is only sitting around 300 or 400. So, we think by the time that sort of bottoms out and the number of new entrants on a good note is increasing every year, but by the time those two things normalise, we're probably a few years away. So, we think we've got this sort of constriction of supply that's going to remain for quite some time, all at a time when, you know, every year, millions more Australians are either approaching retirement or entering retirement, and at the same time, you've got that incredible sort of superannuation asset growth that I was talking about. So, for us the real focus is to work with advisers to grow their own revenue and profitability. And we think it's halcyon days ahead over the next sort of 5 to 10 years, and we'll benefit from that because of the relationship we have with our advisers.

Abbey Phillipps: Thanks, Keith. So, you've made some large acquisitions over the past few years, in particular Sentry Group and Synchron. Are you still looking to grow via acquisition?

Keith Cullen: Look, we'll never rule it out, but I think, Abbey, those two acquisitions were very strategic for us insomuch as the strategy was to ensure that we built an appropriate level of scale to be able to support advice practices properly. And there's certain costs associated with putting that infrastructure together that you're going to bear whether you've got 50 advice practices you're supporting or 500. So, scale was really important to underwrite that. Not scale for scale's sake, but scale to build a robust platform that can really provide support to large and small practices.

So, that strategy has delivered for us. We think we've got the best adviser proposition in the country now to support them and their clients. Everything that we do is taken through that lens of being in the room with the client, being in the practice with the adviser, and really putting advice at the centre of what we do. So, we've got the platform there now. I won't say no to acquisitions, but it's not a deliberate strategy. But there'd hardly be a week that went by that, you know, some opportunity or the other didn't come across our desks. So, we'll just continue to assess them as they come along and assess them on their merits.

Abbey Phillipps: Last question from me, Keith. What can shareholders look forward to over the next six months?

Keith Cullen: Look, I think over the next six months, it's us taking advantage of that supply-demand imbalance that sits there in the marketplace and really working with advisers to continually refine their proposition and refine their pricing models and the clients that they're dealing with to improve their revenue and profitability.

From our perspective, one of the key things that we're working with advisers on now is getting more of them to return into providing advice on personal risk insurance. As the industry's reduced over the last few years, we've seen a lot of risk insurance specialists leave the game, and that's left a lot of the wealth specialists with clients that aren't being properly served from our perspective there. So, we think this is an enormous opportunity for the practices that we have in our group and for the advice community, generally, is to really step up to the plate and fix that sort of shortcoming that's emerged due to the exodus of advisers over the last few years. So, we think that's a really good opportunity.

I think maybe not in the next six months, but in the longer term, what I'd say is we're really fortunate at the moment to have a minister and a government, bearing in mind that our profession is very heavily regulated and legislation's very important to us, we've got a minister and a government that is really focused on looking at making the right sort of regulatory reforms and legislative reforms to open up advice to more consumers. And in there lies opportunity, I think, for advice practices to really innovate and look at serving more people in different ways. And at the same time, the same government is looking at ways to really remove those barriers to entry for new entrants, to encourage more people to come out of university and into the space. So, you know, we think longer term, that sort of regulatory reform to open advice up to more consumers and open the gateway up to more people coming out of uni into the profession presents really great longer-term opportunity as well.

Abbey Phillipps: Keith Cullen, thanks for your time today. Congratulations on the results.

Keith Cullen: Thanks, Abbey.