The Volvo of financial advisers
PSG Konsult lacks the sexiness of its former PSG stablemate, Capitec, but the consistency of its profits is hard to beat
According to the recent Morningstar conference, financial advice is under less fee pressure than any other part of the investment value chain.
That is, presumably, good news for PSG Konsult, which, since the delisting of Peregrine last year, is now the only entry point on the JSE into the SA financial advice sector.
Konsult CEO Francois Gouws concedes that there is one similar business on the JSE — Quilter, previously Old Mutual Wealth. But it operates entirely in the UK. And local firm Investec Wealth & Investment focuses more on private client share portfolios than on Konsult’s unit trust-based model. Also, unlike Investec, PSG Wealth does not offer any loans or banking services to clients.
There certainly seems to be little pressure on advice fees, given the 7% increase in headline earnings from the core PSG Wealth advice unit to R234m for the first half ended August. Gouws says this was in spite of a substantial increase in spending on IT infrastructure and digital platforms. The company has also invested heavily in a graduate programme, which has given 400 people the chance to join the industry since
2014, 85% of whom are black.
Old Mutual Investment Group fund manager Neelash Hansjee says the Konsult strategy has been to become more urban and less Afrikaans, though it still has a competitive edge in its network in smaller towns such as Oudtshoorn and Upington.
Gouws says the demographics of the client base are changing (it was historically lily-white) especially in Joburg and Pretoria.
PSG Wealth now has 260 offices and 1,000 advisers, having brought 16 established advisers on board during the six months, more than it has recruited in any previous full year. Gouws describes the practice by many of his competitors of making clients visit their advisers at the adviser’s office as “very JPMorgan 1907”. He says PSG advisers are willing to do whatever suits the client.
“We haven’t seen an adviser leave us for a competitor over the past seven years, as we provide advisers with the best of both worlds,” says Gouws. PSG Wealth operates on a revenue-sharing model between the advisers and Konsult itself, and Gouws says: “We take care of all the stuff advisers don’t enjoy, such as compliance and administration, and allow them to advise their clients on an unrestricted open-architecture basis.”
Since the unbundling
of PSG’s holding in Capitec in May 2020, PSG Konsult has been the largest component of the PSG
Group, and it now accounts for 40% of PSG’s NAV, says Gouws.
PSG Konsult’s 22% increase in headline earnings over the six months to August, to R404m, was primarily driven by its two more cyclical divisions, however: asset management and insurance broking.
PSG Asset Management, which comprises the direct asset manager and the unit trust management company, increased assets under administration (including the PSG Wealth multimanager funds) by 13% to R161.5bn, while assets under management at PSG single manager are up about 50% to R38bn from their March 2020 lows. After some poor performance most of these funds have been in the top quartile over the past year; some in the top decile in their sectors. Asset management earnings almost doubled to R96.4m.
PSG Asset Management head Anet Ahern says the firm did not capitulate but stuck to its
positions in SA Inc shares, and it is also the only sizable asset manager which has held no Naspers or Prosus stock over the past two years. Ahern says that while about half of the assets are sourced from PSG advisers, the rest are held in the broader independent financial adviser market.
“We do not have institutional clients. There is a lot more scope to grow in the retail market, and the margins from pension fund business are often very low,” says Ahern.
The third leg of Konsult is PSG Insure, a commercial insurer that piggybacks off the PSG Wealth national infrastructure, giving it far wider spread across the country than other large brokers such as Marsh, Aon and Indwe. PSG Insure had R2.8bn of gross written premium — equivalent to about a third of the commercial insurance premium Santam wrote in the six months to June 2021. PSG Insure’s earnings were up 17% to R73.9m.
Hansjee says PSG Konsult represents the more mature operations in PSG, which might not have the same blue-sky potential as its investments in education, such as Curro, and its recent push into retirement villages.
It was also, until the unbundling of Capitec, completely eclipsed by the raging success of SA’s fastest-growing bank.
But Anthony Sedgwick, who manages the small-cap Nedgroup Entrepreneur Fund, says Konsult is a core holding, as it is an excellent, steady business with low capital requirements. “It is a bit expensive — on a historic p:e of 20, and a modest 2.3% dividend yield — but it looks like a reliable long-term performer.”
It is a bit expensive, but it looks like a reliable longterm performer
Anthony Sedgwick