An adviser firm has predicted that a second rush on advisers selling their firms is set to begin due to issues around legacy trail commission and increased regulator scrutiny.
Speaking to FTAdviser, Sheriar Bradbury, founder and managing director at Bradbury Hamilton, said that many advisory firms had resisted selling in the last couple of years while prices were forced down, but are now struggling to keep up with increased regulatory scrutiny so may be forced to sell.
“For some firms the writing is on the wall, it’s just not cost effective to move legacy investments onto a customer agreed model.
“Legacy commission was allowed by the regulator to keep firms in business, giving them long enough to transition and have an orderly exit from the market.”
Cash rebates on new business were banned this April and legacy payments from managers to platforms will stop from April 2016, at the same time as a banning of legacy commission on auto-enrolment schemes.
The Financial Conduct Authority has stated that it has no intention of changing the rules on remaining legacy trail commission, expecting it to diminish as the profession evolves.
Mr Bradbury added that as firms are generally valued on recurring revenue, so once trail commission is banned in 2016 many will have to sell off cheaply. He previously said that better preparation of data and more engagement with clients can help IFAs maximise the price paid.
He also took aim at the current network model, commenting that the recent FCA recruitment ban on Financial Limited and Investments Limited for inadequate control and supervision of appointed representatives and individual advisers was just the tip of the iceberg.
“There is years and years of legacy client advice risk and if the regulator really digs deep it might find some fundamental problems that could bring down even the largest networks, causing chaos. The FCA has a delicate balancing act on its hands.”
Mr Bradbury said: “I’m asking for a 15-year long-stop, because these issues are putting people off joining the IFA sector, to be honest I think if I had my time again I’d choose something different, with less headaches.”
He added that Bradbury Hamilton was cautious and spent a lot of money on back office support and compliance, with only nine out of its 32 staff being registered individuals. “If you’ve got low overheads I would question your compliance.”
