Centrepoint Alliance Limited (CAF) Earnings Call Transcript & Summary

Well good morning, everybody, and thanks for joining us today. Welcome to the CentrePoint Alliance FY '20 Results Investor Conference Call. [Operator Instructions] I'll pass you across in a moment to Centrepoint Alliance management to kick off our discussion of the company's progress. But first, let's just address some brief housekeeping. Thanks to everyone who have submitted questions ahead of time. There will be a formal presentation this morning followed by Q&A. [Operator Instructions] So to kick things off, I'll hand over now to Centrepoint Alliance CEO, Angus Benbow. Go ahead, Angus.

Thanks, Tim, and thank you all for your time this morning. It's a busy beginning of the reporting season. So I appreciate you making the time to dial in. We'll get straight into it. I'm joined by Brendon Glass, our Chief Financial Officer, who will go through results. Initially, I'll just go through top line results and the trend -- the results against the strategic refresh transformation. Disclaimer. Now getting into headline results. Centrepoint Alliance is a business that's focused on supporting financial advisers throughout Australia and really focuses on rebuilding communities' trust in financial advice. Headline numbers for this year, the results, gross revenue coming into the business, $131 million, up 11%. EBITDA, $3.7 million, excluding legacy claims, up 12%; expenses reduced by $25.6 million with some very aggressive cost management and disciplined execution in the second half. We did a cash at 30th of June of $12.2 million, up 54% on FY '19 with cash generation -- net cash generation of $4 million, which Brendon will take you through. As I said, the core business that we focus on supporting financial advisers, be it through licensee solutions where we provide licensed advice business and advice technology support, to advisers who utilize a license or AFCA in Australian market. That's a market of 16,000 advisers, where we have 317 advisers who we support. 79 new in FY '20, which is up 6% on a net perspective compared to FY '19. That's against the backdrop of a market that shrunk by approximately 13% in the last 12 months. The addressable revenue pool there is really the revenue that comes into license and e-services. So you see the total market revenue with the $131 million is even larger for advisers across the market. I'll get into the business model shortly. The core business, as I said, we've transformed the business. We've grown the business, and we're very well positioned in a market that's going through disruption and is highly fragmented. New opportunities. We're currently the largest scale service provider in the self-licensed market, which I'd argue is a relatively immature market in terms of being service. We have 159 self-licensed firms that we support, 12 new in the last financial year. Again, that's a market of about 1,900 firms out there. We're also exploring and have had success with a new dealer-to-dealer wholesale offering and we also have an extensive good position in Centrepoint Lending and mortgage broking business that we do more with. Revenue extensions in terms of new -- completely new acquired the leading advice technology firm, Enzumo, in the last couple of months. We're currently exploring what we do with regtech, given that we've brought a very good advice tech capability. We build our own, buyer, partner and exploring aggressively, continue to explore the core and extension inorganic opportunities. Getting into detailed results before we go to the financials. We've been on a, what I'd call, a 3-year strategic turnaround, under strategic refresh. We've just completed our second year. So it's a good time to take stock and highlight where we're at on the delivery side. This slide talks to only the results of delivery. And I think that provides confidence in that what we said we would do, we have done, and it's delivering results that we feel are putting us in a very strong position to continue to grow the business. So our focus to supporting our advisers, we've got a scalable advice offering. As you can see there, through some of the metrics in terms of the level of coaching interactions and technical inquiries that we respond to. Our adviser satisfaction score, which is a recent adviser, independent survey that we conducted, is 83% in terms of how well our adviser is satisfied with Centrepoint Alliance overall, which is reflected in the average tenure of our advisers of 11 years, for those who have been with us for greater than 2 years, it's an 11 years tenure. Staff satisfaction is up over the last 12 months across a backdrop where we start to do more with less, as you'll see with the financial results, which is telling you the commitment of our staff to taking this business forward. Under recreate, we've had to completely rebuild our revenue model, and its success really is flowing through there. The new adviser fee model, and this is what links back to that $800 million revenue pool potential that I've talked to. A year ago, our average fees were $19,000. That's increased by 89% to $36,000 for the 1st of July, which is offsetting the legacy rebate revenue decline, which I've talked to previously. So that has seen a 61% increase in our adviser fee revenue of $10 million, which is now our largest revenue line, with 83% of our advice firms retained through the period, which again, goes to that satisfaction, not only of our services, but also the commitment to transparency and taking the industry forward. As we've made that change, and this is the biggest driver against the $131 million gross revenue, is the underlying mix of our advice practices has fundamentally improved. So those advisers departing, average revenue of $159,000, and the average of those retained and new is $318,000, so -- and I'll talk more about that result on a specific slide. We continue to invest in process improvement, especially around our audit process improvement, which goes to the next extension of that being regtech. And there's a demonstration of our commitment to taking the industry forward through advice technology, where we've invested and launched Centrepoint Connect and Centrepoint.AI, which I'll talk to in more detail. On the growth side, not only have we delivered a great focus to our existing advisers in a pretty tough market, transform the existing business. We're also growing in that market as well. 70 new advisers, 79 new advisers have joined the license, which is 49 new firms, and that's grown the overall net numbers to 317, which is 6%, up against a market that's contracted by 13% in the last 12 months. And that's then led, obviously, with the improving quality underlying of the business, 11% gross revenue increase. I'll let Brendon talk more to the cash position, but a very healthy cash position puts us in a position to continue to look opportunistically for growth in a market that's got a lot of disruption and evidence there, where we were able to actually acquire the advice technology firm Enzumo, a very good strategic asset and extension for us, but also consistent with recurring revenue streams for the advice market from Chant West. Moving into our focus. Now stepping through -- this is our core business. Core business being licensee support. Just got a couple of key metrics there on how we make money, what the addressable market is. Revenue model at Centrepoint Alliance is now -- is very much an annual subscription fee per adviser model. We've got our fee rate card there, which effectively talks to the transparency that we have coming through the business. So annual subscription fee per adviser, average tenure of 11 years, very good annuity-style revenue-generating business in a business that's relatively capital-light. Self-license is an extension, again, under-serviced market in our view, whilst we have a presence in this market, probably the largest support provider. This market has grown by 12% over the last 5 years, 1,800 firms, 5,000 advisers. We feel we're ideally in place to provide on those scalable services coming through. Of our existing advisers in this space, the average tenure is 8 years. And wholesale licensing, this is a new part, I wouldn't say a new part of the market, but definitely a new offering that we've actually pivoted towards. We have had already some success with about 34 advisers taking up a wholesale arrangement with us through another license. And again, this market, whilst smaller than the others, probably stand and point line is uniquely placed given the scale that we've got to service it. So hopefully, that just provides investors a bit more of transparency on how we make money, the consistency of the earnings coming through and what the potential of the business is. We've got a national presence around the country, as you can see, again, that talks to the scale of the business across self-license, licensed, small salary business and mortgage brokers with lending solutions. What we do, and this is effectively what our product offering is or service offering, we would call it, is that financial advisers, whether you're a small or a large, need an AFSL to operate under, under the Corporations Act. So it's a requirement under law to operate as a financial adviser, you need a license. So a lot goes into that, so in terms of running a license, but also for financial advisers keeping up-to-date with their compliance requirements, educational requirements or continuing professional development, but also the understanding of legislative and regulatory change. So that's what we do. So we provide all of those services. And I think this slide demonstrates the depth of that and the extensiveness of what advisers are required -- need to run their business. Now -- so what's the opportunity or why do advisers come to us, so if they weren't coming to a license, such as Centrepoint Alliance, they would have to do a lot of this themselves. In a model where they're a professional services business, any time spent away from clients is money that they're actually not making and they're not able to generate any revenue. So we provide scalable solutions that they can tap into, provide them the confidence and reassurance that they're doing the right thing in an incredibly regulated industry, so they get -- can get on and focus on delivering good client outcomes. And this is consistent across self-licensed and licensed. So self-licensed advisers, which I've talked to in the outlook, need those services just as much, and we just don't take on the risk from a licensing perspective, but they still need that support. Big commitment over the last couple of years in improving our service offering, which is that last slide. And that's really playing through in the satisfaction of our advisers. So I'll just call attention to the left-hand side of the slide. There's a bit of external data here and internal data. So the bar charts is some independent research done by CoreData, very probably the most reputable independent research firm in the advice industry. This is some recent information from them. So they -- for those advisers considering switching licenses, what are the top 3 considerations. And top 3 are compliance support, advice technology and technical services. Tech services are things like regulatory updates and superannuation, education sessions, et cetera. The round circles are what is the satisfaction from Centrepoint Alliance advisers against these categories. And that's, again, this survey is pretty hot off the press. It was just completed in July. So again, compliance support, 82% satisfaction; advice technology, 72%; and technical services, 87%. Of note are 2 things. Firstly, we don't outsource these services. There are a lot of other licenses, which are smaller that outsource these services to others. We actually do them in-house, which actually builds that scalable platform. It's actually why we can take those services to some of those other small licensees. Secondly is that satisfaction of 72% under advice technology. Whilst we are quite comfortable with that, it also reiterates the investment we've made in the Enzumo business to take that one forward as well. So that's sort of pre any client offering and integration with the Enzumo offering that we've got. So really excited about the potential. I won't go into the detail on the right-hand slide, that's just a useful information around validating adviser's satisfaction with the business. Recreate component of the offering. So this is where we really have focused on rebuilding the revenue model of the business to one of being sustainable and reoccurring revenue model. As you can see on the left-hand side, the average fee for advisers have increased. That's our rate card effectively. I think it speaks to the transparency that we bring to the market, which is why advisers are moving to businesses like ours. And in the middle, we made the transition in quarterly jump. So from the first of July last year, we stepped up the piece fees from an annualized perspective of $19 million to an annualized $24 million. And the commitment we made to our advisers was, look, this is a big transition for your business. It's a big transition for ours. So let's step that up quarterly to assist you in managing those cash flows. From the 1st of July, that's projected to be an average of $36 million. Just of note for your modeling, the reason that $36 million is not the same as the $45,000, it's an average. So it's a mix of the advisers that we have. Some are single person businesses. We have some practices who've got 15 or 20 or more advisers. So that is a blended of the actuals that we project. You'll see the gray box. So what is that? In Q4, we were forecast or we were committed and contractually committed adviser to step up the fees to $33 million. We actually waived that to provide fee relief due to COVID-19. So as we all were facing into what were a lot of unknowns, we felt that let's provide our advisers with certainty, just from a cash flow perspective, so we held the fees at an annualized rate of $27 million, but then stepped them up subsequently to the $36 million. So just provide us some fee relief to provide certainty through a pretty difficult time, which I think is a testament to the business, the leadership of our advisers and also why we go to the right-hand side that 83% of firms have been retained since the beginning of the year. So again, good results. And over the last 2 years, it's 71% again. So good results in terms of that transformation of the underlying business. As we've transformed the revenue model, the businesses that have been attracted to the offering have changed as well. So just stepping through this slide quickly, those firms have departed, this is over the last effectively 2 years since October '18, which is when we announced the reset of the business. As you can see, the revenue per adviser, $159,000 of departing, which meant that the previous average revenue for the underlying adviser firm was $250,000. That stepped up to $318,000 in terms of the combination of those who stayed and those who joined. It doesn't mean these weren't really great advisers. A lot of them have had very long distinguished careers, but many of them have potentially retired or ceased their business just because they're uneconomic going forward. Some of them have brought their businesses into other businesses within the network or sold them. But this does point to the changing nature of the underlying business. And probably the real call-out is the top right there, the significantly higher actual adviser fees. So all advisers are going through their own transition of moving away from old grandfather commissions on investments or platform and insurance. And if you look at the actual fees, adviser fees jumped from $84,000 to $221,000 from departed to joined. So again, as we transform the revenue model, we'll transform the underlying nature of the businesses that makes us a very sustainable business. This is the key number that's driving that $131 million of gross revenue increase. As I talked to earlier, we have been making a significant -- not significant capital investments, but definitely significant investments in time and focus around building out a scalable offering. So we do have a self-serve platform, which leverages that scale. It's effectively a portal for our licensed advisers. They get that as part of the overall bundle package for self-licensed advisers, effectively, depending on what bundle they purchase, they get access to the material underneath it. So there's a lot of content in here that they need to support their business, to manage their licensing obligations, and it's effectively an online portal or self-serve, which they pay for. Likewise, Centrepoint.AI, very rich data analytics engine that takes effectively 12 to 13 different systems on advisers' businesses and the way we support them, to provide them real-time analytics to understand their business better. So that's early days. That's been going for about 12, 18 months, but the feedback we get from advisers is quite exceptional in terms of how they can use that to take their business forward, and that's quite unique in the market. So really excited about those things, especially when you overlay the opportunity of Enzumo and the adviser technology investment we've made there. We're taking this part of the business forward. On the growth side, talk to some of these numbers that highlights net numbers up from 300, 317, 6% against the market that's declined by 13%. And again, another record year of recruitment of 79 new advisers joining on our license against 68 last year, and 68 was a record for the previous few years. You can see that the retention of advisers have stabilized, and this talks to that quality piece that I was mentioning in the previous slide. We had 106 advisers leave previously, a lot of them exited the industry. As you can see, they didn't really move to a lot of other firms, they were either retired or they moved into another practice. And that's just part of what's happened across the industry in terms of the professionalism, education, changing revenue models to make the business or businesses and the industry more sustainable going forward. And you can really see that playing out, and we're really happy with how you can see that playing out in our business. And hopefully, our transparency helps you get that confidence in that revenue line. Against the market, so that's our internal metrics, how we are pacing up against the market for growth. As I said, 13% decline overall. And within our peer group and without sort of naming our peers, the way we categorize this is, we're not part of the big 6, which would be AMP, IOOF, [ MLC ] and any of those sort of banks that have now exited. But we're also -- we don't benchmark against stock brokers or purely accounting businesses that have limited authorized reps. So these are the holistic financial advice businesses. Some are blended with accounting firms, but generally focus on financial advice. So we rate as the second largest in that market with 323 advisers. That is slightly different to the previous number you saw. And that is a reflection of these numbers have come directly from ASIC and includes some staff. There's a note on the previous slide that the previous slide only counts those advisers where we're generating revenue from. So that's just a note for your purposes to understand that discrepancy or that difference. Not only are we the second largest there by size, what's really pleasing, we've been the third largest in terms of growth over the last 2 years. So it's about maintaining that scalable base whilst improving it and growing it, which you can see flowing through. Last slide on growth before I hand over to Brendon for the financials update is to talk through just the Enzumo acquisition. As you can see, I'm not going to go through all this. A really aligned business providing support to financial advisers, reoccurring revenue, average client tenure of 4.5 years. So it's exciting to bring this together with the other investments we've made in advice technology around that client portal, Centrepoint.AI, around the data to see what's possible. We'll take this forward. And this is where the regtech side of the market comes in to say, well, we've got probably one of the strongest compliance and governance teams in our part of the market, combining that with the technology investments that we've made in Enzumo means it's an exciting time to think about what's possible from a regtech perspective. Now handing over to Brendon to provide financials update.

Thank you, Angus. Financial results summary. What this slide showcases is this business is our resilient business. It's underpinned by a professional specialist starting as well as a committed and loyal adviser network. Looking at our gross revenue, as you can see, from 2019 to 2020, we saw a rise of $117.5 million to $131 million, and that was principally driven by adviser fee growth. So adviser fee growth was up $17 million, notwithstanding we saw a $5 million reduction in our grand further rebates, which has been documented. In terms of our gross profit, I'm just going to focus on the second half of the year in particular. You can see that from H1, it went from $14.1 million to $15.2 million. Again, that showcases just the resilience of our industry and our business through the COVID pandemic as well as how we've managed our fiscal resources, and we've designed more with less, as Angus has mentioned. Our cost-to-income ratio of 78% is at a 3-year low and is an outstanding performance in this market. The EBITDA number has dropped from $3.1 million in 2019 to $0.1 million. And just to note, that's been restated for AASB introduction 16 standard. What that shows is a drop in the EBITDA, but that is driven by the provision for claims, and I'll talk about that in more detail on the balance sheet slide. And if you take out the legacy clients, EBITDA is up 12% from the prior corresponding period. Just looking into the revenue and expense analysis in slightly more detail. The revenue in 2019 was $30.7 million, dropping to $29.3 million in F '20. We mentioned the increase in the adviser fees of $3.8 million, demonstrated by our strong annuity-based business and our growth in advisers. We've seen that rebate drop to $3.3 million. Importantly, we incurred $800,000 one-off costs for overpayment of commissions historically. So bearing that in mind, the performance in the gross profit is even stronger. Our investment margin, we saw a reduction there in $1.4 million. What that shows is a pragmatic and agile investment solutions team, which is responding to the market and listening to our customer base and delivering the services at the optimum price. In terms of our expense management, 2019 at $27.4 million, dropping to $25.6 million this fiscal year. Unemployment costs have dropped by 5%, with our headcount down from 109.6 to 95.4 FTEs. And with the COVID pandemic, we've been restricted in terms of our engagement in community and we started with doing things, and that's been a reduction in our cost of $600,000 or 33%. We've also rationalized our property in Melbourne to give us a reduction there. In terms of our balance sheet, we are very well positioned to maximize and optimize the disruption and opportunities in the market. Our cash and term deposits are very strong at $12.2 million, up from $7.9 million the prior year. And our cash from operations is driving that growth. So when we think about that provision for legacy claims, which is a book entry, it is a cash accretive business, generating strong returns in this industry. Just noting that we've booked $1.4 million in escrow for the settlement of deferred tax payments when COVID was -- came into the market. The [indiscernible] it's a broad market, and we've taken that in anticipation of what may happen. In terms of our trade number receivables, I mean you can see that they dropped from $9.2 million to $7.8 million. So we're managing our credit risk very prudently. Our loan receivables are down from $6.6 million to $3.6 million, Neos life repayments have been received at $2.5 million this year, which is consistent with our loan agreement. We've got $2 million to be repaid in June 2021. The other fee loan of $0.5 million on the balance sheet has been conservatively written down in consultation with our auditors. We maintain a positive relationship with RFE. And we're working with them in terms of business. We've made that decision in relation to that balance. In terms of our intangibles, the growth there is underpinned by the acquisition of Enzumo. Enzumo has a very strong annuitized business with robust customer relationships and the valuation of that business is principally driven by those customer relationships. In terms of our provisions for claims at the end of 2019, they sat at $1.2 million. They now sit at $3 million. Importantly, the claims that were brought forward, historically, they have been closed or settled. $3 million relates to claims for the financial year we've just had. The AFCA window that was extended, closed at the end of June '20, so we faced some provisions on unknown circumstances. In terms of our net assets, they've dropped from $16.9 million to $14.9 million. That is primarily driven by the increase in legacy claims of $1.8 million I've just mentioned. In terms of our net tangible assets, they have dropped from $11.8 million to $8.7 million. That's a function of the net asset reduction of $2 million as well as the acquisition of Enzumo, which is an intangible, of course. In terms of off balance sheet, so recognition, no income tax losses. We don't recognize them on the balance sheet as the account stands -- don't allow for that at this point in time. You can see that our income tax losses have reduced from $51.4 million to $50.4 million. So that showcases that our business is expected to deliver a taxable profit in 2020, driven by the timing difference for claims, which are yet to be settled. So over to you, Angus, for the outlook.

All right. Thank you, Brendon. So I'll step through the outlook pretty quickly, so we can move on to questions. So the outlook we see is very positive for the industry, for the advice industry and for where Centrepoint Alliance sits. This is a slide I presented to the half year. We've updated it for the full year. But as we all know, it's well documented, the big 6 are exiting wealth, you can see the opportunity or that the advisers moving from there. And that's where organizations such as Centrepoint Alliance picks up new advisers seeking a quality offering that is not owned or necessarily controlled by a product organization. We're also seeing a lot of opportunities, as I've talked to on the small license to bottom left, in 2 areas. Firstly, for advisers seeking services, given the increased regulatory pressure and penalties in doing the wrong thing, or inadvertently, I should say, doing the wrong thing, accidentally, that they're looking for a quality partner to move to. Some of those licenses are subscale and are also looking to be consolidated or sort of wind down as well. So we are seeing opportunity from that. But also the second one is the wholesale services. There's a lot of great quality of small licensees, but they just don't have the scale to invest in a legal team -- heads of compliance, people who are reviewing the regulatory documents are getting updated monthly as we speak at the moment and also on the regtech side -- or not regtech, the advice technology. So it's just the basic economics of scale. So we are seeing increasing partnerships, utilizing our scale for other licensees. And then to the bottom right, an under-serviced, I would say, self-licensed market that has grown significantly over the last 5 years and stabilized somewhat over the last 2. But the reality is that an AFSL doesn't dictate that you have different standards for different sizes. So the requirements on our AFSLs, the ANZs, AFSL and our self-licensed are exactly the same on the Corporations Act. So they need to comply. But they -- again, they don't have the scale. So they need to outsource services and get support from people with scale. So that's where we're very well positioned to support them, as we've already got a good, strong position. So that's the industry dynamics. A lot of opportunity for Centrepoint Alliance, we're seeing flowing through the numbers. The focus, as I said, we are in year 3 of a 3-year strategic turnaround. So the strategy remains the same around focusing on our core business and growing quality advisers, continuing to leverage the scale that we've got in the business around enhancing our service experience with utilizing sales force and other things like that to make sure we've got a much better view on exactly how we're supporting our advisers and what the opportunities are. There is a lot of work still around preparing advisers and their license for the final rural commission changes coming through from the 1st of January next year. And obviously, the continued investment in our people. As you can see from the numbers, we have got significantly less staff, but we're providing, probably, I would say, more support to advisers, so it has been a great team effort in terms of what's being delivered. Recreate. We've done -- we've completed the transition of the core license revenue model. We're in the process of -- not finalizing that. We have launched it into the self-licensed market. We have pivoted that somewhat, but we're taking that to market as I speak. I'm excited about that part of the market I've talked about. Regtech, I've talked about continuing to work on the data-led insights and to explore other businesses we've got to get more out of them around the Centrepoint Lending Solutions. In terms of purely focus on growth, and if I think about this more from a capital management and inorganic side, a lot of opportunities in the market. The market is being disrupted. It's fragmented. We are in a very strong position with the cash balance that we've got to take advantage of those opportunities. And I think Enzumo is a case in point of an accretive -- cash accretive acquisition that we made, very strategically aligned. We're also taking that new wholesale offering to market and then broadly more reviewing the broader portfolio of businesses within the Centrepoint stable. So continuing to really look at how we grow the overall business and deploy the capital at our disposal to provide that growth. Final slide, just a sort of headwinds/tailwinds. There's been a lot of negativity realities around the advice industry and financial services for the last couple of years. I do believe that some of those headwinds are dissipating. COVID, I think, has helped dissipate that with people's focus elsewhere, but also a demonstration of the role financial advisers play in the communities' life. The financial advisers have been sought out more than ever. There's been a lot of people in financial need, financial distress. Do they access superannuation? Do they not? How do they think about savings? How do they think about cash flows? This is front and center at the role of financial advisers. So really, the headwinds are dissipating, and we're getting that certainty from a regulatory perspective. The transition towards the profession is well progressed and revenue model clarity. So it's more tailwinds now than headwinds, and some of those tailwinds are really exciting when you look at the Centrepoint Alliance positioning and flight to quality. Industry disruption, we can take advantage of those new opportunities emerging, role of technology where we've made significant investments in that on our own, but also through acquisition. And the reality is that the fundamental drivers of financial advice demand remains strong. We've got a very healthy superannuation system in this country. We've got an aging population with significant wealth that needs to be transitioned to their next generation, and I think an understanding -- a maturing understanding of the community around the professional and financial advice, and the value it provides to clients. So with that, I'll end up -- I'll wrap up. But thank you for your time, and I'll hand back over to Tim.

Thanks, Angus. Thanks, Brendon, for that presentation. Thanks also to all attendees who have submitted questions. [Operator Instructions] First question that's come through just regarding the competitive advantage of the business. Angus, are you able to clearly define what your unique service offering is to advisers and if you're able to recap the benefits to advisers of using Centrepoint Alliance.

So I answer this question when I speak to new advisers and even our existing ones under 3 themes, and I'll drill into those in a little bit of detail. What advisers are looking for at the moment is a concept of transparency that there's been a lot of movement in the industry, a lot of business models, vertical integration, product subsidization. So I think, first and foremost, advisers are looking for transparency because that -- what that goes to is the certainty of the business. Now it sounds like a bit of a cliche, but when we're a small-listed company and you can see the results playing out, we're a very transparent business where you don't have the level of transparency that we provide in a lot of other parts. So that's probably a linchpin that advisers can come to us and know exactly who we are, what we stand for and where our revenue model is going and coming, and where our revenue is coming from. The other piece is the depth and quality of our services, and this goes to the core data piece of research. If we look at what do we stand for compared to our competitors and our actual offering, we really stand, I believe, heads and shoulders above others in our compliance, investment in compliance and governance services. And a lot of this has been borne out of the history of this business with what was a very long time ago, the enforceable undertaking in 2010, 2011 with the old PIS business. So that forced the business to invest very strongly in compliance and governance services, and that stands us in a very good position. And as you can see, that's the #1 thing that what advisers are looking for when they look to join the license. Advice technology piece coming through, as you can see, and I think the final piece of our differentiation is that we've got the breadth of the services that advisers are looking for. There's not a lot of other licensees of our size who've got that breadth of services. Often, you'll go to a license to have to -- there'll be an outsourced provider or other people providing all of those services. So just to sum it up, the transparency, so we're not owned or controlled by a product organization; the strength of our compliance function; the breadth of our services powered by technology; and the last one is just that we are fundamentally a business focused on advice, ASX listed and well capitalized.

Thanks, Angus. Very good. Next question's come through. This is touching on your recruitment of advisers and sort of the flows of advisers generally. The question is it looks like advisers are leaving the industry overall. What's Centrepoint Alliance's view on this? And flowing from that, where do you want to be in 12 months' time? And how many advisers do you want to have throughout your network?

Yes. So touching on the first question -- first part of the question. It's well documented that advisers are leaving the industry, down 13%. It's driven by a couple of factors. I would say 3 factors. Firstly, as you can see from Slide 14, there was a growth from FY '18 into FY '19, a significant jump up. There was a registration piece where, prior to that, I think it was the 30th of June 2019 calendar year -- or 30 -- sorry, 31st of December 2019 calendar year, you have to register. And as if, as an authorized [ revenue ], you didn't register by that time, you had to sort of almost start from scratch in terms of your registration process, not education but just the process. So we did see a jump in advisers coming in, and that has driven some of that decline. So some of it's in the data. But the other 2 fundamental factors, which it is driving a reduction, a bit -- it's a more steady reduction, is just the professionalism of the industry around education that we have got advisers who haven't had to have a degree now requiring a degree and are opting out of that. There's also a lot of advisers who are opting in and studying, but that is forcing a change as well as the business model. And you saw that from the slides that I presented, that a lot of the advisers that are departing the industry are ones that don't have sustainable revenue businesses. They haven't necessarily adapted their revenue streams around grandfathered commissions to a purely fee-for-service model going forward. And that's all going to be -- or it is [ outbought ] by the end of this calendar year. So that's why we're setting that decline this year as well. So I think what we end up with over the next couple of years from an industry is, as you can see from the businesses that are part of the Centrepoint stable going forward, a very sustainable recurring revenue businesses with high revenues per adviser. In terms of the numbers that we target, I wouldn't put an exact number out there just because you can drive to those outcomes. We will -- we're very conscious of the advisers that we bring on to our license because, effectively, we are taking on the risk as in managing that license. So we would turn away more advisers than we bring on, and that's through a very significant bedding process with our compliance teams. So we will bring those ones on. I think, from a scale perspective, ultimately, having 500 [ or so ] licensed advisers -- 500 engaged self-licensed advisers are the sort of numbers that we want to get to. Do we get there in the next 12, 18 months or 2 years? That just depends on how things play out in the market. But I definitely think, from a scale perspective, that's where you're truly getting that leverage of scale across both sides of the business. But will that happen in the next 6 to 9 months? I couldn't say given what's actually playing out in the industry as we speak.

That's good. Thanks, Angus. A question that's come in, this might be one that potentially both of you talk to with regarding the financial dynamics. With the annual fee per IFA increasing to 36,000 per annum across your base of 317 advisers, that implies an increase in gross revenue of $2.85 million. And the question is how much of that will drop to the EBIT level.

Yes. So without a change in mix of business, the cost-to-income ratio from the products transitioned to the advice is pretty much the same. So if you look at the gross and cost of sales in our underlying sale accounts, it's around 95%, at that level. So in terms of the mix of business, that's what you'd see in terms of ultimate EBIT drop. That's also going to -- it's a good question in terms of understanding our staff composition. So we've got 317 advisers, as the question says, in terms of that 36,000 per annum. So we'll get that EBITDA drop through that net profit, but also, it's worth pointing out the grandfathered fees that are rolling off. So we have an expectation of further runoff of grandfathered fees out for this financial year, so it's part of our replacement strategy as well. So it does have an EBITDA dropping impact, but in terms of the holistic EBITDA dropping impact, you have to understand the impact of offsetting rebates. And last year, you saw that with the numbers F '20 that we saw pretty much a parity of rebates running off an advisory coming in. So that's the continued trajectory of the business.

Sounds good. Thanks, Brendon. Question's come in. You did mention grandfathered rebates there. I guess another historical element that people are focused on is legacy claims. The question that's come in is do legacy claims continue to be an issue for Centrepoint Alliance.

Look, it's a question that comes up every round of investment calls that we do, so appreciate to take it. But the legacy claims are called legacy because it relates to advice provided prior to, I think, at 2010, 2011, and obviously, it's been going a lot longer than any of us anticipated. The reason for the provision being taken about the legacy claims coming in, in the last 12 months was that AFCA extended their look-back window, which opened up things to previously statute-barred claims. So it basically reopened that window and statute barreds, such limitations for claims is at 6 years. So whilst that was sitting at the beginning of the year, going -- looking back going to 2013, with the extension post Royal Commission, that took it back to 2008. So we did expect a few more claims to come through there. We did flag that at the full year and the half year, and this closes that out. Now can I be here on record and say we will never have a claim on legacy again? I wish I could, but I can't. But if I look at the dynamics of AFCA in terms of the effect of the industry onwards then, that extension has closed now. So that closed on the 30th of June. So that extension has closed, and anything now that comes in will be under the normal statute-barred limitations. So we wouldn't expect to be seeing a flood of claims coming through. But can I guarantee that? No, I can't. I wish I could. But if I look at the dynamics of how that played out in the last year, the AFCA extension closing statute limitations, then it gives us confidence to focus on the business going forward, and that's what we're very much focused on. And we think it's an exciting time. But the only thing I'd flag, the final piece on the legacy claims, and this is a conversation I do have with industry bodies and government, it talks to the quality -- whilst it's frustrating and has been frustrating for everybody involved in this company over the course of the last 10 years, especially the last few years, where we're trying to take the business forward, it talks to the requirement and necessity for this industry to be capitalized in some way or the transparency of licensees that you've got a lot of smaller licensees and so well, it's easy for them to sort of hold up and move on. And then you've got client claims and the consumer protection just not there. And I think that puts us actually in a really strong position going forward as there's more debate and commentary on the role of quality licensees and what that means for capital projection to the end consumer.

Yes. Fair point, Angus. I mean that does sort of echo your earlier point about the flight to quality and the fact that Centrepoint's expected to be a beneficiary of that, so that makes sense. Question that's come in, just sort of looking into the segments of the business. The question says good result, guys. If possible, could you shed light on the plans or the outlook for investment solutions, thinking Ventura and the like?

Yes. Look, we do have an investment solution business that sat there alongside the licensee for a long time. There's been significant support historically into things like Ventura and VMAPS, a number of other external platforms that we have relationships with. They're still a go-forward part of the business. They're investment solutions. Whether they're our own investment solutions or partnerships that we have with other organizations, well, is a core part of an investment or an advice business that we need to be providing investment solutions for our advisers that they can take to clients. And that's a fundamental part of an advice business. Does that mean we take a margin or can take -- continue to take a margin from those going in the future? Not necessarily. And so all our new platform relationships the likes of HUB and Netwealth have been naked and free of any margin, are our best interest. But we do still have some legacy arrangements under the investment solutions business. And we -- as we -- as Brendon talked to in the financial results, we've been pragmatic around price competitiveness that -- for those businesses to make sure that our advisers who are using those are still working within the best interest of their clients. And that's why we've seen some margin compression there, which is consistent across the industry. We feel that stabilized now in that business, but it's an important offering, not just products are aligned or products where we historically got a margin but those that we don't get any margin at all from as well.

Thanks, Angus. Turning to the M&A strategy. I know this is something that you'd go into detail with, Angus, with regard to Enzumo and other similar sorts of businesses. But it might be helpful if you're able to provide some more color. The question that's come is, having recently acquired Enzumo, do you see further M&A type transactions on the horizon for Centrepoint Alliance?

Look, we are absolutely being opportunistic about M&A, and that's why we have the balance sheet or to take advantage of the balance sheet that we've got. There's a lot of disruption, as we know, in the market. It is a market that's fragmented, so we don't have a number of just the players now that the banks are out of it. So that does point to opportunities for businesses that are well capitalized such as Centrepoint and have the access to the cash that we do and the capital structure that we can play with. So no, I think, definitely, we are looking and excited about where the industry will play out in the next 12 months. Doesn't necessarily -- I think that's where the Enzumo acquisition was very strategic for us. It was -- acquisitions is not just about buying another license or advisers, which I think was the thing of the past. It's about looking at different revenue streams that complement our core business, which are accretive, which are a consistent revenue model, a reoccurring revenue like Enzumo provides and a natural capability extension as well. Now there is a lot of commentary, and I do get a lot of questions about, well, are you going to buy up other licenses? What are you going to do? If we look at the underlying quality in the advisers and the alignment of the actual adviser business, as you can see, we just spent 5 minutes talking about legacy claims and that those legacy claims related from an acquisition of a license. So I think you need to be very cautious about going in and buying a license to get access to advisers. So when we do look at other advice businesses, we're very conscious of the separation between the license and what's being done on that, the risk that comes with just purchasing that as an entity but just versus the underlying relationships with the advisers and the commitment to continuing to service them and the revenue streams associated with that. So that would be the only thing I would just touch on that, just understanding that we're very -- we're not picky, but we're, I think, very strategic in how we think about the opportunities in the market playing out. Tim? So I'm not sure if anybody can hear me, but it looks like Tim has dropped off. So I'm not sure if we're still talking, but I'll just give him a call. Okay. So we're still on. So I just got a message through from Tim. So look, we'll wrap up now. Thank you for the questions. Hopefully, we crossed across legacy claims that always come up, M&A and the opportunities, some of a bit more detail on the underlying financials and also adviser growth. As I said, we see a lot more tailwinds now for the industry and our position in terms of Centrepoint Alliance, the scale that we've got, got good growth in advisers coming through. We've got a change in revenue model that's really played out in the financials and a really healthy financial position with a healthy cash balance that looking at the market opportunistically. So I think I'm wrapping up, but Tim is back, and I'll just hand over to Tim. We've got the contact details up there in terms of Tim for investor inquiries, any media inquiries to Suzanne but obviously, direct line to myself and Brendon. So Tim?

Yes. Thanks, Angus, and apologies, we just had the disruption in connectivity there. Look, really appreciate everyone's questions and everyone [ listening in ] and your continued interest in Centrepoint Alliance. We look forward to reporting our progress this year, and we look forward to the opportunity to talk to you all again. So if you've got any parting remarks, Angus, let's hear them. Otherwise, we'll wrap things up there.

No, I've wrapped up. I just didn't wrap up before, Tim, before handing over. So over to you.

Excellent. All right. Thanks very much, guys. Chat to you again soon.

Thank you.

Thank you.

Thanks.