Can’t sell your business? Expect the FSA to come knocking
IFAs that don’t sell pre-2013 could be forced to hire a locum adviser and may find their business loses value post-RDR.
With the Retail Distribution Review less than six months away, some IFAs are panicking.
Some have not got their qualifications yet, some haven’t decided on their business model and some are sweating the small details such as paperwork changes.
However, those that want to leave the industry but have so far failed to sell their businesses are likely to be the ones who are really stressed out.
Seeking an exit
Some IFAs are not going to stick around for the RDR for a plethora of reasons: they may not want to take the exams, they may have concerns over the move away from a commission model, or they are just plain old sick of working in an industry that struggles to leave the front pages.
There are many figures bandied around as to what percentage of advisers will leave the industry, everything from 5-10 per cent to 50 per cent. The Financial Services Authority says 20 per cent and others say 30 per cent.
The truth of it is that we don’t know. What we do know, according to Alan Lakey, partner at Highclere Financial Services, is that in the last few years, 20 per cent of advisers have already left the industry.
“We assume that there will be another 10-15 per cent going at the end of this year but then we have to add a further consideration and that is there will be people out there who won’t be able to adapt to customer charging and won’t be able to move across to protection or mortgages or perhaps won’t want to, so this figure may increase even further.
The FSA would expect authorised firms to have contingency plans in place for if they fail to sell - it leaves them in an extremely vulnerable position
“At one stage, there were around 44,000 IFAs and today there are around 26,000 but I think it will go down to 18,000 by this time next year.”
David Howell, chief executive of Guardian Wealth Management, previously told FTAdviser that IFAs who want to sell their business should have spent the last few years grooming it.
“You can’t just suddenly sell a business - and this is for businesses of any size that are in any sector, but particularly those in financial services.
“There are issues on legacy, the commission model. You need to look at the culture of the business, the DNA and ensure that the new parent has the same view, otherwise that is where things fall apart with mergers and acquisitions.”
But what if you haven't sold your business in time for the RDR - and are not ready for it yourself?
Julie Hepworth, group regulatory manager at national IFA firm Perspective, warns that adviser-owners seeking a sale that fail to offload their business pre-RDR can expect regulator intervention from the regulator.