Alexander Forbes to muscle into retail advice

Alexander Forbes wants to convince independent financial advisers to join its stable in a move that could see a huge consolidation of SA’s fractured financial planning industry and put PSG Konsult’s wealth advisory unit in its crosshairs.

SA’s biggest retirement fund administrator, which is in the final stages of exiting the insurance business, wants to double the R80bn in retail assets it manages via its 210 tied wealth advisers. CEO Dawie de Villiers hopes the group can achieve that over the next three years by buying out the franchises of independent financial advisers while building up its in-house adviser network with recruits.

“We’ve got huge aspirations to grow our retail advice business into the biggest in the country,” De Villiers said. “I would be disappointed if we couldn’t double our [assets under management] in the retail advice space within three years.”

The strategic repositioning of Alexander Forbes, which is 39.9% owned by the financial services unit of Patrice

Motsepe’s African Rainbow Capital, to focus on retirement fund administration and employee benefits, saw it strike a deal, announced in July, to sell its group risk and retail life insurance business to Sanlam for R100m. It also announced last month that it was buying 100% of EBS International to bolster its IT and independent fund administration capabilities.

The strategic shift was underscored on Monday when Alexander Forbes released interim results and announced it had struck another deal with Sanlam to sell its Individual Client Administration business to the insurance giant’s Glacier platform, the biggest linked investment service provider in SA, for R200m. As part of that transaction, Alexander Forbes will buy Sanlam’s stand-alone retirement fund administration business for R154m but will continue to advise clients, whose investments will now be housed on the Glacier platform.

“Through these acquisitions, we want to put more members on our retirement administration base,” said De Villiers, who has spearheaded the strategic shift at Alexander Forbes since taking over as CEO in October 2018. “As we get the scale from the administration business, we can also roll out more advice to members, which means we can retain their assets into the future as Alexander Forbes and grow our assets under management.”

While the move into financial advice will put Alexander Forbes up against PSG Konsult, which has a countrywide network of 579 wealth advisers under its PSG Wealth banner, there are some subtle differences. Whereas PSG Konsult’s wealth unit tends to focus more on higherincome clients with sizeable discretionary, non-pension fund wealth, Alexander Forbes wants to initially build its retail financial adviser business by focusing on lower- and middle-income consumers whose wealth is tied up in compulsory pension fund schemes.

“We don’t want to just focus on the top 1% or 5% of the market,” said De Villiers. “We want to work in the middle- to lowerincome bracket as well.”

Yet Alexander Forbes’s retail adviser network, which now gives advice to about 60,000 members, will have its work cut out if it wants to topple PSG Konsult, whose wealth unit oversees more than three times its assets under management, at R257.2bn. De Villiers said that is why Alexander Forbes is rapidly building up its adviser network with new hires, which he said could benefit from the group’s client base, as well as access to Sanlam’s Glacier platform and its array of unit trust options.

“We’re an obvious choice for someone who wants to start out in the financial adviser space, because we have the clientele,” said De Villiers. “You don’t have to build your book by cold calling — the people are there and so is the opportunity.”

De Villiers said Alexander

Forbes will look at buying out the franchises of independent financial advisers, though these were likely to need the requisite scale to make a transaction worthwhile.

He also does not rule out more buyouts in the retirement fund administration and employee benefits space.

“We still have room to grow from more acquisitions and will look at more opportunities,” he said. “It might not only be in the employee benefits space, it might also be in the independent financial adviser space.”

Alexander Forbes declared an interim dividend of 12c a share in its results published on Monday, which showed net profit slid almost 19% to R161m in the six months to end-September.

Headline earnings per share, which excludes one-off items, fell 12.4% to 12.7c, mainly due to the performance of the group’s discontinued life insurance units, which were affected by increased mortality claims and payouts linked to Covid-19.

Nevertheless, Alexander Forbes remains in a strong financial position with a surplus of own funds over regulatory capital of R1.24bn. The group reported a 6% growth in assets under administration to R423bn since end-March, thanks to a solid performance from financial markets.

“We’ve got no debt and lots of cash,” said De Villiers.

“We’re very keen to do more acquisitions.”