Selling your business: Due diligence

It will not come as a shock when I say that financial advisory firms continue to face massive challenges ahead of the implementation of the proposals set out in the retail distribution review. But the need among UK consumers for expert, impartial financial advice is greater than ever.

There is little doubt now that the composition of the UK IFA sector is set to transform dramatically under the proposals set out in the retail distribution review.

Together with challenges presented by declines in the economic climate and significantly increased stock market volatility, many IFAs may find themselves finding it hard to compete. The FSA has, in the past, estimated that almost one in five advisory firms is loss-making and almost a quarter have reported profits of less than 5 per cent of turnover.

More recently, research by Momentum Global Investment Management stated that profit margins have declined considerably in the wealth management industry over the past two years and that the average profit margin in the IFA industry fell significantly, with over a third of IFAs making losses.

Ernst & Young recently predicted that the number of registered IFAs is likely to drop to 10,000 by 2013 – with the bulk of this reduction happening towards the end of 2012.

Whether they intend to sell their business and leave the industry or stay and thrive within it, advisers who develop well-managed businesses with a clear proposition and stable revenue streams are potentially building a highly valuable asset for themselves.

This may not be the best time to sell a business unless you have to, but it is certainly as good a time as any to start modifying a business to improve its value. After all, the attributes that make businesses more attractive to acquirers are also those that make it more able to withstand tough market conditions.

What do clients want?

The key findings from recent research found the following:

Post RDR advisory landscape

One in eight (13 per cent) individuals from mass-affluent to high net-worth households are specifically likely to seek out an ongoing fee-based service. However, a further 40 per cent were receptive to task-based advisory services. More than 80 per cent said they would seek professional advice to some degree with only 19 per cent wanting to be fully self-directed.

Key advice triggers

The need for expertise and lack of own knowledge was identified as the most common trigger for seeking out professional financial advice. Retirement concerns continued to dominate as the key area for seeking out advice, followed by investments and mortgages. Retirement planning was a concern for three quarters (75 per cent) of respondents and half of those said they would want a professional to research and/or set up an appropriate pension for them.

Winning attributes