WT Financial Group Limited (WTL) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to today's investor briefing by WT Financial Group to discuss WTL's exciting new joint venture with Merchant Wealth Partners. My name is Tim McGowen. I'm the host for today's session. Presenting today, we have Mr. Keith Cullen, who is the Founder and CEO of WTL financial group and Managing Director of the newly formed WTL & MWP Investco or Investco for short. And we also have with us Mr. David Haintz, AM, Partner at Merchant Wealth Partners and Executive Director at Investco JV. As many of you are aware, last week, WTL announced that it had formed a 50-50 joint venture with Merchant, called WTL & MWP Investco to invest in Australian financial advice practices. Today, we'll discuss the broader strategy; and take a look into the first planned investment by the JV, which was announced on Friday last week, a roll-up of 3 established financial advice is -- advice practices into a new hub with a working title of Hubco1. To begin, I'm going to hand over to Keith for a brief presentation. And then before diving into a live Q&A, I've got some questions of myself. And there's also been some questions submitted during the week. [Operator Instructions] Keith, let's make a start. Over to you.

Yes. Thanks, Tim. And thanks, everyone, for joining us. I've got a brief presentation to go through today. This was released to the ASX a little earlier today. Let's hop right into it so that we can get into our Q&A as soon as possible. Now important information here. I'd like you all to read that really quickly because I'm not going to hang onto it for too long, but anything discussed today is not personal advice. And you should consult your own advisers before taking any action on anything we talk about today. Let's have a look at the agenda. What I'm going to do is provide a brief background on both of WT Financial Group and Merchant Wealth Partners. I will take it as read, that most of you online have a good knowledge of WT Financial Group and the markets in which it operates, but of course, if anything pops up that you're unfamiliar with as we go through the presentation, as Tim said, don't hesitate to use that Q&A function. Once I've given those brief intros, we're going to have a look at the key drivers. What is it that's presenting this opportunity for M&A activity in advice networks and inside advice practices in Australia? We're going to look at the joint venture overview and dig into some more detail there and, of course, introduce our first planned investment. So let's start off with WT Financial Group. Well, over the last 7 or 8 years, WT has established itself as one of the very largest financial adviser networks in Australia. Our wealth management, retirement planning and personal risk insurance advice services are delivered primarily through a network of privately owned practices that come in under 1 of our 4 Australian financial services licensees. And those are Wealth Today, Sentry Advice, Synchron Advice and Millennium3, who are all 100% owned subsidiaries of WT. Each of them holds a financial services license. And each of those licenses, in turn, authorizes corporate authorized representatives. That's those individual practices that are sitting underneath us; and of course, the individual advisers within those groups. So whilst we've built this network through acquisitions, starting with Wealth Today then Sentry Advice, then Synchron and more recently, a year or so ago, Millennium3; and we've maintained those 4 brand names, we've brought everything together into a central services and support hub. And this aligns all of our group's networks under a unified framework, providing operational efficiency while enabling the practices in our group, regardless of which of those cohorts that they're in, to access our full range of support. So what do we do for our practices? Well, in short, our primary goal is to help them manage risk. Providing advice, obviously, has inherent risks in it. There's risk to the clients. There's risk to the advisers themselves. And it's important that we're helping our practices manage those risks while at the same time enabling and facilitating their growth. And that growth is delivered through them getting better and smarter in terms of their back-office operations. And also, increasingly, there's demand there for assistance with inorganic growth that is through M&A. I'll leave it to David, who's with us today, to talk in more detail about Merchant Wealth Partners, but in summary: Merchant Wealth Partners is the Australian subsidiary of the New York-headquartered Merchant Wealth Partners, LLC. And it's headed by one of Australia's best-known advice executives, David Haintz. And it's a private company that provides capital and strategic advice to independent wealth management firms and service companies that support the industry. And it utilizes a "patient capital" strategy emphasizing long-term investment without taking control, and we'll talk in more detail about that as we progress. Importantly, since its inception, Merchant has partnered with over 100 firms across 5 different countries. And within that network, there are some 235 underlying practices, more than 4,000 advisers that collectively manage more than $350 billion in assets and have an annual revenue in excess of $2 billion. Just to put that in perspective: Network-wise, that's about 10x the size of WTL and our network in the Australian marketplace here, so Merchant is a very significant international player. Let's quickly have a look at what industry tailwinds there are and the supply-demand imbalance that is -- and this is what's providing significant upsides. Look. If we go back to the royal commission in 2007, there was about 25,000, 27,000 advisers in Australia. Subsequent to that, in a really short space of time as the banks exited the space in particularly, is that number has dropped to 15,000 advisers. And a real chokehold has been put on supply because of now the incredible barriers to entry of the education requirements to become an adviser. We just haven't got the people coming into the profession to replace the natural outflow. And projections are that it's going to be well beyond 2026 before we get to that sort of equilibrium without even looking at trying to grow the profession. Whilst there's been a decrease in the availability of financial advisers, demand is growing. And it continues to grow in the key consumer groups that are seeking advice, and their willingness and capacity to pay for quality advice continues to grow. To put this in perspective. Between the last 2 census, the Australian population grew by about 8%, 8.5%. The retiree market, 65 plus, grew by a staggering 19% across that same period. And the primary asset pool of superannuation, this is the asset pool that most consumers are seeking advice on, it continues to grow. It's legally mandated growth that's baked into the market, and it's exceeding $2.5 billion a week now. So that's contributions to super minus drawdowns for retirement, plus capital growth, $2.5 billion of growth. It's absolutely incredible, every week. What's happened is that the traditional mass market industrial approach for advice has really transitioned to more focused professional services model. And this is allowing advisers to generate higher revenue whilst managing fewer clients. There's significant opportunity that remains. We intend to persist, that's WTL intends to persist, in really driving transformative changes to the licensee-adviser dynamic to enhance results for our practitioners, for their clients, and shareholders. And this JV is just one example of that. Quickly: The wealth management boom in Australia continues. This is a fast-growing market, but as I said, it's supported by compulsory superannuation contributions and favorable demographic trends. There is a wall of people and a wall of capital coming to retirement, but just have a look at the super pool in Australia as it stands today. Now over $4 trillion in total, that makes it the fifth largest pool of pension fund or retirement savings in the world. Line that up against the fact that we're the 13th largest economy by GDP. It's a massive market, and it's forecast to grow to more than $9 trillion by 2038. So a little more than 13 years away. Compulsory super is what's driving it. And it's delivering a regular influx of funds that people need advice on. That aging population I mentioned that's heightened the need for financial guidance is some 3 million Aussies that will qualify to access their super within the next decade. And we will see at least $750 billion out of that $4 trillion pension pool move from accumulation phase through to retirement phase. And this is the primary time that people are seeking advice, in the run-up to retirement and as they get on to the doorstep of retirement, so as more individuals move into retirement, they're going to require more frequent and more complex advice. The outcome of all this: substantial unmet demand and pricing leverage for reputable firms. So this is what's driving consolidation. Scale and resources are increasing as crucial factors for advisory firms, and it's fueling the demand for mergers and acquisitions. You think about it, supply-demand imbalance, a limited number of advisers, a chokehold on the inbound supply of advisers into the market. The only way to grow in those circumstances is to get more efficient, so we need to make sure we're using technology, management strategies, marketing strategies and risk management strategies as a competitive advantage. The best way to do that is with scale, so increasingly, we're seeing smaller practices wanting to merge or sell their practices into a larger environment that gives them the benefit of scale to be able to pursue those opportunities in technology and marketing and the like. Private equity firms are showing real interest in the Australian market from offshore, and that includes advise practices. International companies view Australia as a reliable high-growth opportunity in wealth management, particularly since we're seeing the valuations here are below what they are in global markets. You can look at recent transactions across the wealth manager -- wealth management industry more broadly to have a look at the amount of global capital that's being attracted. Favorable valuations are really driving that opportunity as well, as I mentioned. So WTL's aim has been to play a pivotal role in M&A within its networks and beyond as advice entrepreneurs seek assistance with accessing this capital and with M&A guidance. And we think we hold a distinct advantage. We've got a demonstrated history of achievement in M&A ourselves. And before moving into this B2B space, across the B2C space as well, we've got demonstrated success in effectively integrating acquisitions and scaling what's possible. This uniquely positions us. We've got this multi-brand strategy that's attractive to a broad range of advisers, but we're efficiently running it all throughout a central support hub. And I'll talk a little bit more about that later because, as we bring these practices together, that efficiency that we've gained through that central support hub is really critical and a real competitive advantage. So we've got this established track record of success in integrating. Every day, we're collaborating with our practices to help them modernize through technology and corporatization initiatives to help them serve their clients and broaden their profitability. We've got growing demand, and that's what's driven us towards this joint venture, from both within our network and externally for support and advice on M&A activities, including accessing both debt and equity markets, and assistance with legal and due diligence, so we think we're really well positioned to play a crucial role creating new revenue and profit opportunities. And we're really delighted to have partnered with Merchant to pursue that. So let's jump in and have a look at this partnership. We've entered into a 50-50 joint venture with Merchant Wealth Partners. The newly formed JV vehicle, [ with short name at ] Investco, intends to provide strategic growth capital to high-potential financial advice practices. Now in line with Merchant's global model, Investco will take noncontrolling interests and will offer the practices that it partners with long-term "patient capital." And this is a really important differentiator from traditional time-limited private equity. As Tim mentioned on the way in, I've been appointed as the Managing Director of Investco. And David, who joins us today, will serve as Executive Director. What's the investment philosophy? And what are our objectives? Well, put simply, we want to back financial advice entrepreneurs. We're going to focus on investments in advice businesses within our networks of Wealth Today, Sentry, Synchron and Millennium3. We're going to maintain noncontrolling interests, typically between 20% and 40%, to make sure that we preserve the entrepreneurial autonomy of the practices that we back. And we're going to minimize commercial interference. Now this is a big mantra of WTL's in the way we run our networks. Those advisers in our network will know it's a mantra of ours. It sits really comfortably with Merchant's position globally and what Investco intends to do. We want to encourage innovation and localize decision-making within practices but at the same time back them with resources and support and guidance that they need to spur effective expansion. Our investment model. We intend to create a series of hub entities. Each of them will represent either a single practice or a group of complementary practices but, in all cases, one with multi-million-dollar revenue. So in terms of practices to back. To be selected for investment by Investco and for capital injection, the practices will need to either have a scalable front-end or back-end administration or investment model that can be rolled out across multiple practices. Or they might come together because they specialize in a certain advice type. Let's say risk advice or retirement advice or wholesale advice, for example. Or maybe they operate within a specific market thematic such as they're advising rural asset owners as their core market or medical professionals, just as a couple of examples. Or they may have built a scalable, branded front end that can have other practices plug into it; that generates consistent and qualified client flow; and has the potential for broad geographical rollout and/or to be scaled digitally, which is another opportunity presenting in the market. From a capital structure perspective, 50-50 joint venture, Merchant holds primary responsibility for providing the investment capital. And obviously we're plugging into their global expertise in investing in financial advice practices around the world. 4 or 5 months ago, I had the opportunity to accompany David over to the United States and meet with the Merchant team when we had started talking about this joint venture opportunity. I was very impressed to see literally the hundreds of practices in the Merchant family, we'll call it, come together. The learning, the knowledge that's available to us and our practices through plugging into that group is exceptional. And we're really excited to be able to tap into that framework. For WTL's part, we hold primary responsibility for opportunity origination, for conducting due diligence, for the overall management of Investco. And we'll be leveraging our local practice development and support resources and our network here to deliver upon that. You think about it. In the market, we've got 10 regional managers plus our COO in those practices every day. They know the people. They know what their objectives are. They're so well placed to identify the opportunities for us to help those practices achieve their entrepreneurial goals and their succession planning goals. The fees associated with WTL's role in originating and facilitating Investco investments are convertible to either direct equity in the Hubcos or to Investco redeemable preference shares at our election. And as capital comes into Investco, that will be deployed out into the investments, the contributors, primarily Merchant, will be issued those preference shares as well. So WTL maintains the right but not obligation to match the capital contributions of Merchant, but from our perspective, our intellectual property and our network contributed to this relationship -- and Merchant bringing the capital to the table. So let's dive in and have a quick look at our first Hubco before we get into the Q&A. So we executed a heads of agreement last week. We announced this to the market on Friday: to bring together 3 great practices, Titan Financial Planning, Darwin Financial & Retirement Services and Wealth Connect Financial Services. Interestingly enough, each of these practices is in a different WTL cohort. So Darwin is in our Sentry cohort. Titan is in the Millennium3 cohort, and Wealth Connect in the Wealth Today cohort. Now that's -- that centralized support hub that sees each of these practices operating on the same approved product list, the same risk management framework, the same sets of policies and procedures, that's what's making it so simple to bring these practices together. It's not like we're acquiring something from outside the group and one of the practices needs to change the operating rhythm of the business. It's all of our practices running through that same centralized support hub makes it very seamless. So this newly formed entity has got the working title of Hubco. I'm sure that David and his team will think of a better title of that by incorporation. What it aims to do is bring these 3 practices together in a single scalable structure. And it marks the launch of a really ambitious strategy backed by Investco to help them expand and corporatize whilst preserving their entrepreneurial independence. In line with the terms of the heads of agreement signed with each practice, Investco will provide funding to facilitate partial capital realization for existing shareholders; the retirement of debt; and of course, further growth of Hubco. And it's a growth-focused model. Hubco will also leverage the operational capabilities of each founding practice and explore tuck-in acquisitions and shared service opportunities along the way. And it's a really experienced leadership team. David McLean from Titan will become the CEO of Hubco. Andrew Moo and Jeff Stella from Darwin and Wealth Connect, respectively, will remain as active advisers, contributing specialist expertise while partially realizing their equity interest now; and over time, will support further acquisitions, mentor new advisers and continue driving operational growth up to their retirement. Investco will appoint the Chair to the Board. And the WTL and Merchant teams will support Hubco's entrepreneurial endeavors. Its future growth plans. Hubco aims to create a more efficient infrastructure, to deliver a stronger adviser and client support and to explore those further acquisitions: operational integration, organic growth initiatives, targeted acquisitions with ongoing due diligence and strategic support from WTL to continue to source and evaluate further acquisition opportunities and provide that due diligence and strategic support. Quickly looking at the key transaction terms. Each of those founding practices will sell its shares into this newly created hub entity so that the Hubco will own 100% of each of those practices. Each of the vendors will be receiving a combination of cash and newly issued shares. Investco is expected to provide an initial $3.5 million of capital and hold around a 36% stake. And this aligns Hubco and Investco's growth objectives whilst enabling that local autonomy to be maintained. So the Hubco will be debt free on completion, with capital from Investco in part being applied to debt retirement, as I mentioned before. WTL has provided advisory and due diligence services, ensuring robust governance and operational support. And in line with that is WTL will hold a direct equity interest, or its nominee will, of around 6% of the Hubco shares, reflecting that advisory and due diligence contribution. From a settlement perspective, the transactions are subject to customary long-form documentation, just the final parts of due diligence. Completion is targeted by the end of next month. So there we go, 12:52. Tim, I told you I'd take about 20 minutes for that. I hope I didn't take...

[indiscernible]

Well, I think that was the 2 minutes [ you'd shed up at the front ]. Thanks very much for that, everyone. Over to you, Tim, for the Q&A.

Thanks, Keith. We've got a big audience online and so we have lots of questions to get through.

Before we introduce David with some Q&A, can you tell us, Keith, how this all came about, this JV? And what are you trying to achieve in the financial advice landscape?

Well, I think that just what we're trying to achieve is what drove how this all came about. What we're trying to achieve is help solve for the advisers because, Tim, adviser numbers have dropped. Look. That's been good for advisers. The cost of advice has gone up. It hasn't been awesome for consumers, but when you've got a supply-demand imbalance emerging like that is there's only one thing that can happen. Advisers are dealing with fewer clients, but it's still a relatively cottage professional, cottage industry in Australia. A lot of small practices not getting great operational efficiencies, and this has been brought to bear in this supply-demand imbalance, is advisers are going, "I'm spending time looking at outsourcing. I'm spending time on technology. I'm spending time on marketing and digital media strategies," but that effort can be spread and scaled so easily. But the way to scale it is to create bigger entities so that you're applying that effort across a much bigger revenue pool. And so advisers have been looking for, "How do I drive my M&A and at the same time run my practice?" And equally the same, there's a lot of advisers that are moving towards retirement. And they've got their eye on retirement 3, 5, 7 years out. And they're going, "What's a better model than just getting to retirement and having to sell at whatever the multiple the market will give me at the time?" Well, this is a better model, is M&A. And so advisers have been asking us, "How can you help in this regard?" We've had a lot of interest from offshore and locally from private equity firms, but we were really worried about that sort of shot clock running on private equity that you tend to see. And private equity is happy to come in and cut you a check, but the minute they do, they're watching their -- they're looking at their watch, going when is their money coming back [ by it ]. Well, that's not what advisers are looking for. The advisers are the entrepreneurials wanting to grow. We'd heard about Merchant. I've met David before. The model that we proposed to them here was slightly out of kilter with what they've done globally, but I put it to them. They're [ an innovative team ] and they saw the value in it. So that's been the evolution of it over the last 12 months or so.

And just quickly before I pass over to David. You speak about tailwinds, but was there any kind of specific dynamic or gap in the market you feel, felt needed addressing?

Well, I think it's just that lack of scale, Tim. It's -- look. If you trace the history of this profession is it was born out of compulsory super. The original advisers in the space were insurance agents. They were kind of 1-person or 2-person or 3-person operations. That model has prevailed, and yet we've now got this $4 trillion in super and such a massive profession. The model needs to evolve. And so it's just that underlying structural change that needs to take place that is driving it. Now that doesn't mean there won't be an ongoing home for single-adviser and dual-adviser practices for people who -- that's what they want to do. They just love operating like that. The same is in engineering or law or accounting. There's lots of 1- and 2-practitioner practices out there, but that doesn't suit everyone. And if you want to grow and you want to get scale is you need some help in doing that. So that's the key thing that's driven it, Tim.

And David, thanks for your patience, but -- so from Merchant's side, what are kind -- what appealed to you about partnering with WTL? And how do you see the investment model working in Australia compared to internationally?

Thank you, Tim. So look. From a WT perspective, they're a significant player in the market, 520-odd advisers. And we just see not only an opportunity there but the demand there. There are a lot of what we would call accidental owners that have exited a bank or exited an insurance company and all of a sudden recognize that they've got $0.5 million or $1 million or $1.5 million of recurring revenue, all of a sudden recognize they've got some goodwill there. And we just see an opportunity to help to corporatize some of that. The model that we're deploying within WT most certainly won't be for everyone. As Keith was saying, there's still going to be a role for the single-operator and small business, but for those that are looking to scale, the value chain has moved over the last 15 or 20 years. And the closer you are sitting with the client now, the more that you control that value chain, so there's an opportunity for us to help a lot of the entrepreneurial-type businesses out there to grow and scale and corporatize. So those that would like to do that, there's a lot of experience that we bring to the table, not only with capital but resources and expertise, to help those firms to grow.

And I think that capital is described, and I think Keith touched on -- as patient capital. How is that different from the kind of traditional private equity space or some of the M&A deals we've seen in the market?

So we did a very large merger in 2008 to create a firm called Shadforth Financial Group, which listed in 2011 and sold in 2014 to IOOF or Insignia. The last 10 years, I've been advising advisers. And what I witnessed in Australia was that the capital partners here are typically what I would call majority controlled partners where they're taking either 100% of the firm or 51% of the firm. And I've had a fundamental belief that, in any professional services firm, accounting, engineering, wealth, legal, you've got to keep the majority of the scrip in the people that are going up and down the elevator and doing the work. And so I was looking to bring to Australia a capital partner model that was minority noncontrolling. I think one of the keywords that we use, Tim, is alignment. We want to be aligned with our partners, not controlling. And so bringing that model to Australia where -- significant minority, not majority controlling. And our capital. Anybody that invests into Merchant is investing with what we call long-term "patient capital." So anybody that puts money into Merchant must commit to a minimum 15-year duration. And that is a massive differentiator from the traditional fund-driven private equity that would be working on a 6- or 7- or 8-year shot clock in needing to get their money off the table. So we think those points being significant minority, noncontrol; and not -- our money and our capital is not funded by a fund with a shot clock. We think those 2 points alone are key points of differentiation, Tim.

And Keith, just back to you. There's a question that come in here which is a good one. Will WT look at acquiring or funding further licensee dealer groups with this capital?

Well, certainly not with this capital. And I've said repeatedly, Tim, when we've been asked are we going to acquire further advice networks, as we call them now, it's not part of our strategy. I mean I'll never rule it out because opportunities do present themselves. And if they're presented and they're -- it's the right opportunity at the right price is we will pursue them, but it's not part of our strategy. What our strategy has been across the last 7 years is to build sufficient scale into this network to enable us to run a profitable business. Really a profitable professional services business is what providing advice licensing is, to build a best-of-breed offering for practices. We've done that now. We've consolidated all of these 4 groups into a centralized support hub. We've delivered consistent compounding growth above 50% across the last 4 financial years. We've returned to dividends. We're very comfortable. Now what we need to do is keep building that best-of-breed proposition, and that's all about delivering for our advice practices. This is what they've been demanding, is assistance with this M&A. And this joint venture positions us to be able to deliver on that. So we've -- for a long time, we've been providing them advice around M&A; and assisting them to exit, with their planning for [ an ] exit; assisting them reviewing the market for acquisition opportunities and so on; even helping them out with some mergers. This is enabling us to not just assist from an advice perspective but to actually deliver on facilitation for them.

And let's just focus on the deal announced on Friday, which may educate everyone a little bit better. So you've announced the formation of the first Hubco. And probably a question for both you: Why those particular firms? And how do you see them benefiting from coming together under one umbrella?

Well, I will start with that one, David, if you don't mind. Look. I love this one as our first Hubco because it's got every component of the different types of solutions that we're looking at trying to achieve for our practices. In David and Leasa McLean that are the principals of Titan financial advice or financial planning is you've got relatively young and spirited entrepreneurs that are really driven to grow that practice. And they've done a great job in corporatizing for themselves what is a relatively small practice. They've come together with some others in the group and worked out how they can get their back ends sufficient so that they're not all wasting time on the same sorts of things. So that's showing great initiative and great entrepreneurial flair. And they're really keen to grow. In Jeff Stella in Wealth Connect is you've got someone that's had a -- that -- excuse the pun, a stellar career over the last 40 years; has built a number of different advice practices, including this one; and is within a couple of years of retirement. And he's going, "Well, how do I exit but stay involved in the profession and continue to contribute to the profession? And how do I maximize my exit value and, hopefully, leave something on the table so that I've built really something from my estate that's a legacy investment rather than just selling the business and going?" And then in Andrew Moo, you've got someone very similar, 40 years in the profession; 5 to 7 years worth of -- to run to retirement, depending upon whether you ask him or his wife; and exactly the same scenario for him. How can he take some capital off the table now, free up time? By handling the -- handing the management of the overall group across to David and his team to really drive, to [ make rain ] in the meantime and ultimately end up, I think, with a retained interest and certainly a real legacy in the profession. So that's great. It's also got that aspect I mentioned before of they're from 3 different cohorts. This is a really terrific opportunity for all three of them. So it means something different for all the practices. The key thing is we knew what those objectives were of those individuals. We've known them for some time. This arrangement with Merchant, this JV, has enabled us to help them pull the trigger on that and to facilitate that. The key part of it was it's been really easy. Do the personalities fit well together? Because they could all have those objectives, Tim, and the personalities don't match. Just because you and I might work well together doesn't mean you and David are going to work together. And this is one of those classic scenarios. These three get on like a house on fire. You've got experience respecting the enthusiasm, and they're both respecting each other. And I think that presents the opportunity to do just about anything.

And David, is that a formula you've seen that's worked [ overseas ] with some of the other transactions...

Yes. So Merchant has got more than 100, we call them, cornerstone partners, but the model that we're rolling out with WT is very much, I guess we'd call it, a special-purpose vehicle where we're rolling out this Investco joint venture with hub 1, hub 2, hub 3. And who knows how many hubs we might have? I mean ultimately the identification of the underlying firms is a matter for WT. They know the firms inside out and back to front. As Keith said, there's a bunch of regional directors working -- management teams working with these advisers on a day-to-day and week-to-week basis. Ultimately what we're looking for is entrepreneurial advisers. We need -- to steal a line from Jim Collins and Good to Great: We want the right people sitting in the right seats and the wrong people off the bus. And so we're delighted to have David and Leasa running that business. And we think they're young. They're entrepreneurially hungry. They're looking to corporatize. I think they have hubris in that they know what they know and don't know what they don't know. And so some of the expertise that we can bring to the table to help them grow one on one [indiscernible].

And Keith, I mean, you touched on knowing those principals well. You are talking about bringing personalities and [ principles ] together. Can you talk about their kind of ongoing role in Hubco1?

Well, I think, importantly, we've said David and I aren't there to run these businesses on a day-to-day basis. We want to provide some guidance and some oversight and then get the hell out of the way, so it's imperative with each of these is that we've got the confidence that, number one, everyone is going to sign on to back the CEO. A fish swims with one head; in this case, David. And that's the importance of the personalities. I don't think bringing businesses together like this really works if you think everyone is going to run it like a committee. You know what they say. "What's a camel? A horse designed by a committee." That's not what this is about, and it's why the personalities were so important. It was the first decision for David and Jeff to make. "Can you put your faith in David?" They're both delighted to. Personality match is really strong. We want to back that entrepreneur. And as David says, we'll provide guidance and put some bumpers in the way to help them along the way. I know we've both made plenty of mistakes in our careers with M&A and in growing businesses. We want to learn from those mistakes. And if we can bring that to the table for these businesses as they corporatize and grow, then job done.

And probably another one for you. Settlement takes place at the end of May. Can you walk us through what remains to be done?

Yes. I mean I think we've got long-form documentation to do, so there's a bit of lawyering there, but this isn't the first rodeo for either us or for Merchant, in that regard, so I think that will be a pretty straightforward process. And the heads of agreement is pretty detailed in the way that the businesses are going to operate, so we don't expect any surprises there. And then we've got just the final legal due diligence components to be finished off. So a little bit of work to do. The -- and sometime during May is where we should settle this one -- or where they should settle the transaction rather.

And so the JV is contributing $3.5 million in capital, first Hubco. It will be debt free on completion. And WTL or its nominee should hold around 6% via the advisory fee conversion. Why do you think this structure sets the stage for long-term success and kind of more deals like this?

Well, you're delivering a debt-free structure with a strong capital partner. I think you've got a bankable business. Certainly the operational efficiencies will come. David -- I'd like David to talk a little bit about when they brought the Shadforth business together, taking the best of breed from each of the practices; and the impact that can have. Because I think that's a key contributor too that practices can learn from, that experiences...

Yes. So it's a little while ago now, Tim, that we were able to merge simultaneously scrip to scrip, from the 2nd of April 2008, 13 businesses, 3 in Brisbane, 3 in Sydney, 3 in Melbourne, 1 in Tasmania and [ 2 ] in Perth; $80 million revenue day 1, $25 million EBIT. And we -- it's like a large game of musical chairs. We needed to work out who had the skills and the ability and the desire to be on the Board. Who had the skills, the ability, the desire to be in management? And who wanted to be a technician on the tools? And I think what we're doing with the hubs is just a mini version of what we've already done very successfully. And that is finding great entrepreneurial people, getting the right driver sitting in the right seats and going from there. So we're very much relying on WT for the identification of the key people in these hubs, but we're delighted with what we see, so far, Tim.

And so how does the kind of profit share work within those structures?

Well, everybody is motivated for dividends, Tim. So I mean I think that's a key part of making sure that the majority of the capital stays in the hands of the practitioners. David, it's been -- Merchant has been absolutely committed to that globally since the outset, [ haven't they ]?

And look. The word I keep coming back to, Tim, is alignment. We want to be -- in that majority controlling model, if a capital partner owns 51% or 100%, the alignment starts to disappear from the people that are doing the work. And what we've got is a situation here where Merchant puts in the capital into Hubco -- into Investco and then down into Hubco and Investco is going to be sitting with about 36% of the scrip. So there's alignment there that -- everyone sitting around the table together looking to grow that business. And whilst M&A is a huge opportunity, we see a lot of sole person operators that -- the average adviser in Australia is in that sort of 55- to 63-year-old range, looking for succession. We see a real opportunity to help to corporatize that through M&A, but I wouldn't say M&A is the only way to go. We've looked at these underlying businesses. And we see a lot of organic upside as well in many different ways, whether that's pricing, whether that's value proposition and tightening some of that up as well.

And you've both been in the industry a long time. We're bald for a reason. Do you see a pipeline emerging? Has -- does this attract a lot of interest already?

Yes, absolutely. It is, from our perspective, as the interest was already there really, Tim; is in a manner, as I mentioned before, is -- taking to David, talking to the Merchant team. Getting this joint venture in place has been in response to the demand that's been there from our advisers. So there's a heck of a lot of demand both from inside the network -- and also I think we're really becoming a network of choice now in the way that we've -- we're running the business and the services that we're delivering to the advisers in our group. And that's attracting a lot of people looking at joining us. As they're talking about joining us is we're identifying more opportunities for people that are looking for capital to grow as well, so I think this is a -- in response to market demand that already exists. There have been -- there's no shortage of demand.

And Tim, I'll just add to that. I think, years ago, advisers were focusing on their client value proposition or what we call CVP, and -- but more recent times, in this battle for talent, they've been focusing on their employee value proposition or the EVP. But I think now a lot of these accidental owners have recognized they've got some goodwill, and so they're looking to get a return on that investment. And that's where we can start to roll out a new acronym, the VCP, the value creation plan, to help these people that have got significant goodwill on the table to get a return on that investment.

And a couple more questions before we finish up. Is there anything else shareholders and prospective partners kind of need to know in regards to the scale of this Hubco model?

Yes. Look. I think the scale of it, the demand, is there; is if you have a look at our network alone is we've got hundreds of practices in the network. We've got well over $200 million worth of revenue in the business, so the opportunity from a scale perspective is significant. We've had a look and talked already about the size and scale of Merchant's sort of global operation. And I think, David, I'll leave it for you to talk about how excited they are about the Australian opportunity...

So just to correct one point that was made earlier. Keith mentioned 4,000 advisers, 4,000 staff. So Merchant is a significant player, 5 countries, over 100 cornerstone partners. So we would regard WT or Investco as a cornerstone. And then the Hubcos are sort of partner firms. $350 billion in assets under management in 5 countries, 4,000 staff, it's a significant firm. And I think the point is that's all we do. We don't do anything else. We just partner with great entrepreneurial advice firms. We are operators, so we are hands on. We don't want to get in their way, but we want to help them where we can. We want our phone numbers on speed dial. We've got a really strong track record of growing the firms at significant above-average rates. Alignment, we mentioned a bit earlier. And I think, finally, the fact that we're not an aggregator. So we're not going to be looking to create a range of managers here. WT is saying, "Who's entrepreneurial? Where do these personalities fit?" and having some discussions to see if that's what they'd like to do, as opposed to putting firm A and firm B together like married at first sight and hoping they get on.

I'll just say there, Tim, it was -- look. We had a number of parties approach us over the last 12 months or so that all identified the opportunity in the Australian market here. And that's both private equity firms in Australia and also a number external. And look. A lot of PE firms are great, great people in them. And they've got a lot of capital, but David hit on the point of this is all that Merchant do. It's an operating business that's been established with the expressed purpose of investing in wealth management and financial advice globally. They specialize in the area. They're not off like a lot of PE firms investing in restaurants one day and travel agents the next and then dipping their toe in the water with advice. This is Merchant's business, as wealth management and financial advice is our business. And I think that's what's driving the alignment with us and presents a great opportunity for the Australian advice market.

[ And as I said ], we've got a big audience online and obviously a lot of financial advisers, but we've also got shareholders of WT Financial Group. So there's a couple of questions we can finish on. So what does this mean for WTL and its network? Is it a kind of departure or evolution of your business model, or is it something complementary?

Yes. Well, in a manner, it's an evolution, Tim, but it's an evolution of something that's core to the business, so the first thing I'll say to people is nothing is changing about WTL's core business. I mean our core business and our vision is to be the best-of-breed financial advice network in the country to support advisers in what their entrepreneurial endeavors are. So nothing changes about that model. We've got these relationships with our advisers. We're already motivated to help them grow their businesses. With most of the advice practices in our group, we've got our base fees that they pay to be part of the network. We've got the "pay as they go" things around risk management and other components. And most importantly, we share in revenue, which means we share in the upside with them, which means we're invested in their business every day. And that's why we've got that great team of regional managers. The more we help them grow, the more profitable both they become and we become. And there's great alignment there, so nothing changes about that. What this JV has done is it complements that and evolves, if you like, the practice management component that I talked about before. Practices are already seeking advice with M&A. We're providing it to them. This provides us the mechanism to help them execute on it. And really, the more successful Investco and these hubs are and the practices in them are, the more that then in turn supports WTL's core business and its endeavors here. So somewhat evolutionary and certainly complementary but not a departure from our core business by any stretch of the imagination...

And not a departure from paying dividends. Shareholders love dividends. You're not redirecting capital that could impact dividends.

Yes. No. It's again the core business is here. We are a profit-driven business. And you've seen us return to dividends, so we're not intending -- look. I always say to people Board and management of this business own around 30% of it. So there's great alignment. David loves to talk about alignment, and so do I. It's great alignment between our broader shareholder base and also Board and management in this business. We're very motivated to continue to be a dividend-paying stock, and so that's what our focus is. We don't intend sort of redirecting that capital into this scenario. Merchant has got that primary responsibility. We've maintained the obligation to do that, but our core focus here is to help deliver the upside and to get our return through that mechanism.

Tim, I think...

David, final word...

Well, I think that question is ultimately a question for Keith, on WT and dividends, but if you look at the value chain, I mean, these advice firms are typically running at 25% to 35% EBIT, paying out good dividends. Hub 1 is going to be debt free, so I think, if you look at that value chain, my view would be it could only enhance the cash flow and the dividends of the group.

Thanks, David. Thanks, Keith. That's all we have time for. Thanks for your time today.

Thanks very much.