Beyond the Koda Deal: Understanding Value in Financial Advice Businesses

The recent acquisition of a 25 percent stake in Koda Capital by US-based Emigrant Partners has sparked discussions about business models and valuations in the Australian financial advice sector. However, according to Encore Advisory Group executive chair Tom Reddacliff, while the deal demonstrates the potential value of advice businesses, it shouldn't be seen as a template for the broader industry.

"It's a different scale, client and type of buyer," Reddacliff explains, highlighting the unique position Koda occupies in the market. With $10 billion in funds under management across 40-50 businesses and a focus on wholesale and high-net-worth clients, Koda operates in a distinctly different space from typical financial planning practices.

The path to establishing a business model like Koda's isn't straightforward. "You don't just wake up in the morning and decide to replicate the Koda model," Reddacliff notes. The business requires substantial infrastructure, including internal investment capabilities, sophisticated investor structures, philanthropy services, and expertise in complex tax arrangements.

Success at this scale demands significant investment and intensive operational requirements. "To set up a firm like Koda, it's quite a high-cost base and intensive," Reddacliff points out. "Paul and Steve know what they're doing and why they set it up. It's not something I'd recommend a firm just to decide to do."

For most advice businesses, the focus should remain on developing their own value propositions within their target market segment. Reddacliff suggests that typical successful advice businesses operate at a different scale, often with $2-3 million turnover and considerably less funds under management than Koda's billions.

The distinction becomes clear when considering international investment interest. "You have to be at a certain scale to get on a plane to New York and have those discussions," Reddacliff explains. "They were talking to players that aren't well-known here at all in the Australian market."

For the majority of advice practices, success lies in understanding their market position and building value propositions that serve their specific client base effectively. Rather than attempting to emulate Koda's high-net-worth focused model, businesses should focus on developing sustainable models that align with their capabilities and target market.

The Koda deal, while significant, represents a specific segment of the market rather than a blueprint for the entire industry. It serves as a reminder that there are multiple paths to success in financial advice, each requiring its own unique approach and strategy.

This article draws insights from "It's a different scale': Koda deal won't set industry standard" which appeared in Professional Planner, May 2022.

Read the full article: It’s a different scale’: Koda deal won’t set industry standard
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