Yellow Brick Road is selling its wealth business and will transfer 56 advisers to rival Sequoia Group in a $2.5 million deal boss Mark Bouris says will help his company better focus on the loans market.
The sale, which is is expected to wrap up in early 2020, also includes a cross-referral agreement for Sequoia to act as the preferred partner of wealth advice for Yellow Brick Road, and for Yellow Brick Road to provide mortgage advice to Sequoia.
The firm had already announced a wealth division restructure and potential offloading in May after Yellow Brick Road slipped to a $37.39 million full-year loss on $33.95 million worth of impairments against its wealth and lending unit.
Executive chairman Mr Bouris – who founded Wizard Home Loans and has hosted shows including Australia’s Celebrity Apprentice and The Mentor – said the wealth sector exit was ultimately driven by a lack of scale, and increasing regulation in the wake of the financial services royal commission.
Mr Bouris said the focus was now “100 per cent” on the mortgage business.
“The selection of Sequoia was made after a long marketing, evaluation and negotiating process,” Mr Bouris said in a release.
Yellow Brick Road’s share price has eroded to 8.8 cents over the past five years from an 11-year peak of 77 cents in mid-2014, with lending volumes dropping 19 per cent in 2019 and the threat of looming reforms putting doubt over trailing commissions for brokers.
Friday’s wealth sale is the latest in a string of divestments for Yellow Brick Road this year, including the sale of 50 per cent stake in Smarter Money Investments in July, and the sale of the Brightday online wealth and superannuation business in October.
The company in September also entered into a joint venture with US firm Magnetar Capital to conduct a mortgage-backed securitisation business through its Resi brand.
The Sequoia deal announced to the ASX on Friday is also set to transfer 56 selected Yellow Brick Road wealth advisers to Sequoia subsidiary InterPrac Financial Planning Pty Ltd.
Yellow Brick Road said these advisers will continue to provide wealth advice and services to their existing clients, and will retain their rights to income from their client books.
The firm said the remaining Yellow Brick Road advisers – which it did not number – will be assisted in selling their rights to income from their client book to others transferring to, or already within, the Sequoia Group.
Sequoia said it expected an additional $600,000 earnings over the first 12 months if the selected 56 advisers choose to transfer to InterPrac.
Mr Bouris said Friday’s wealth business sale does not affect the Yellow Brick Road mortgage distribution business or its Australian credit licence, with all Yellow Brick Road franchisees to remain operative under their existing franchise or licence agreements.
Shares in Sequoia climbed 4.65 per cent to 22.5 cents by 1330 AEDT on Friday.