The document summarizes key developments in the retail investment distribution landscape in the UK, Australia, and South Africa. In the UK, the number of financial advisers has dropped by 20% since the Retail Distribution Review. Broker networks and restricted advice models are becoming more prominent. In Australia, retail distribution is dominated by large "dealer groups" affiliated with banks and insurers. In South Africa, larger independent financial adviser firms are buying smaller firms, and product providers are taking stakes in or fully acquiring independents. The document also outlines different emerging "independent" financial adviser models in South Africa involving various partnership and ownership structures.

1. Key Developments in the Retail Investment
Distribution Landscape
Kevin Hinton
Head of Investment Distribution
June 2014

2. • Agenda
1. Brief industry update
- Relentless global regulatory developments and its impact
on the advice arena
- What we have learnt thus far from the UK’s Retail
Distribution Review (RDR)
- And Australia?
- Early signs in South Africa….
2. The different “independent” financial models emerging

3. Competing in a new world
Regulations add complexity and costs

4. The Retail Distribution Review in the United
Kingdom
In the context of Retail Distribution Review (RDR) its mainly to do with the
removal of conflicted remuneration structures and issues around the
status of the adviser:
• Ban on all commissions (upfront and trail) on retail investment and pension
plans
• Replaced with adviser charging – fair and transparent charges for the advice
• Move away from volume driven incentives
• Regulation on % fees on assets under management
• Looking at “opt in” system for on-going trail fees – must be on going service
• Commission on pure risk products remains
• Regulation of Platforms – who benefits from rebates, status of adviser-
Independent, best advice, whole of market concepts and Restricted Advisers
• Review of Professional Standards – upwards and no grandfathering

5. 1. In the UK, the number of financial advisers has dropped dramatically, with
qualified reports suggesting numbers have declined by 20% with professional
standards, the high cost of professional indemnity cover and ‘economically
unattractive” business models being cited.
2. Broker networks and dealer groups have increasing prominence, with
recruiting of independents being aggressively pursued.
3. “Restricted” advise models seem to have prevailing precedence with the
UK’s Investor’s Chronicle suggesting that 8 out of 10 of the largest financial
adviser firms (Hargreaves Lansdowne, Close Brothers, Skipton Financial
Services, Towry, St James etc.) choosing restricted advice models.
4. Furthermore, large financial adviser firms are extending their services to
incorporate all elements of the value chain (advice/investment
management/platform administration). This is commonly referred to as
“vertical integration” across the industry.
What challenges are we facing?
Financial Adviser trends - UK

6. Distribution trends: mergers and acquisitions
1. Post-RDR the IFA industry has shrunk by more than 20%
2. Purchases of IFA businesses have fallen into three categories:
- Life companies
- Venture capitalists/private equity firms
- Network providers
3. A successful merger/acquisition has to have a repeatable/robust
process – most fail as they battle to demonstrate value
4. Most acquisitions acquire the client book and not the staff (risky?)
5. Valuations at 1.5 to 4X recurring income

7. Life companies
1. Aegon Distribution
- Bought Positive Solutions in 2002 (100 advisers - ₤163m)
- Then formed ORIGEN through the purchase of 5 additional IFA
firms (losses of ₤1.7m)
- 2013 Positive Solutions sold to Intrinsic (Aegon take equity
stake)
2. AXA Life
- In 2006, purchased Thinc Destiny for ₤100m (650 advisers and
₤3bn under advice)
- “It hasn’t worked”?

8. Venture capitalist and private equity firms
1. Succession
- 24 month transition plan on acquisitions
- Own white-labelled platform
- Robust integration into process
- Expected to achieve dependable recurring revenue to achieve
capital valuation of ₤700m
2. Ballpenny
- Targeting 60 IFA acquisitions
- Completed first 4 = AUM ₤325m
- Backed by Countrywide (property services) and US-based
investment management firm Oaktree Capital Management
3. Towry Law
- Shareholder Palomon Capital Partners (funding acquisition)
- 10 acquisitions (144 advisers and AUM ₤4.6bn)

9. What makes a successful acquisition?
1. You must have a robust repeatable sales process
2. Advisers will go the extra mile to prove their independence –
if you have too much bias towards your own solutions,
advisers walk…
- Aegon bought an IFA business with 700 advisers and retracted
to 40 very quickly
3. Advisers have a dislike of product providers – life companies
have failed in this endeavour (private equity firms and
national networks more successful)
4. Life companies paid too much

10. What challenges are we facing?
Financial Adviser trends - Australia
Name
No. of
advisers
Ownership
Professional Investment Services 1444 Centre Going Alliance (independently owned)
AMP Financial Planning 1360
Count Financial Ltd 864 Commonwealth Bank of Australia
Millennium 3 Financial Services 810 Australia and New Zealand Banking Group (AMP)
Commonwealth Financial Planning 613 Commonwealth Bank but multiple advice brands
1. In Australia, retail distribution channels are dominated by “dealer groups”.
2. These dealer groups constitute 85% of the total number of advisers. Many
of these large firms (Professional Investment Services, AMP Financial Planning,
Count Financial, Millennium 3 Financial Services etc.) have more than 1000
financial advisers working for them and are characterized by distribution
alliances/strategic shareholdings with large investment management firms/life
offices.
3. Top five dealer groups in Australia

11. Key developments within the industry
• This is following similar developments within the
UK and Australia.
• Anticipate a massive reduction of independent
advisors running ‘one man shows’.
• IFA are corporatising: IFA companies will typically
include 15-20 planners with a national footprint.
Larger independents
firms buying smaller
independents
• Currently there is a ‘turf war’ within the industry,
with service providers offering advice services and
independents developing their own solutions.
• Product providers have started buying a stake in
the independents (either full ownership or minority
ownership).
Product providers
buying a stake
in the
independents
• Dramatic reduction on third-party providers and
move to “on-balance sheet” solutions.
• Banks have favoured in-house products over
third-party products.
• Bank brokers are therefore becoming targets for
other corporates, as they are enticed by a larger
product portfolio and attractive fee sharing
arrangements.
Banks narrowing
third-party
product
suppliers

12. Key developments within the industry
• Average age of FAs is 52 and are desperate to sell
their books or move to a structured business, to ease
the administrative burden. The tied model is set to
grow and books will become cheaper.
• The younger generation of advisors may start out in
the tied model to gain experience.
The tied financial
adviser model
forecast to grow
• In recent years South Africa has seen new
multinationals, such as AON, enter the market.
• The aim is to use South Africa as a platform to get into
the rest of Africa.
• Multinationals play a bigger role in Africa and further
commoditise the South African market.
More multinationals
expected to enter South
Africa

13. The different “independent” models emanating in South
Africa
Semi-tied
• FA operators
under product
provider’s licence.
• Limitations in what
the FA can sell.
• FA receives on-
going business
support.
• Contractual
agreement, book
is retained by FA.
Dealer Groups
• Product provider
buys 100% stake
in dealer group.
• IFA’s business is
positioned as
independent.
• IFA licenced under
dealer group and
not product
provider.
• No limitations in
what can be sold;
there is an
expectation that
IFA should support
shareholder.
Minority
Ownership
• Product provider
buys minority
stake in IFA, e.g.
30%.
• Both parties share
in the dividends
and commit to
grow the business
two to three times
greater than initial
investments.
• Assistance in
business
management and
coaching is
important.
• No restrictions in
products sold.
Partnerships
• IFA signs
contractual
agreement to
partner with
product providers.
• Rebranding takes
places.
• IFA agrees to sell
business to
product providers
at a future date.
• In exchange
product provider
commits to grow
the business and
give business
support.
• No restriction in
the products IFA
can sell, but on
corporate’s
licences.
Large
Independents
• Independents
buying smaller
independents and
gaining national
footprint.
• These companies
are starting to
develop their own
solutions.
• Either a stake in
business is
purchased or the
entire business is
purchased.
• Business is
rebranded.
• No restriction in
products that can
be sold.
Across the models reviewed there was an understanding
that the IFA would support the service providers solutions.

14. Thank you