A greater number of larger advice businesses driven by consolidation among more established firms and buyouts by providers, and a new stream of smaller advice outlets being set up by former bank advisers: the post-RDR advice market is beginning to take shape.
FTAdviser has spoken to several senior advisory industry figures to get their view on several trends that point to the shape the advice industry is in today.
Many predict the consolidation will continue as a number of firms seek scale to cope with rising costs and regulatory burden, while others have found evidence that registered individual numbers are steady due to former employees of axed bank advice arms setting up their own businesses.
Although not all commentators believe that the consolidation phase is solely due to changing regulation, most agree the RDR has played a significant part in reshaping the industry as smaller businesses struggle with tighter margins.
At the beginning of this month Novia Financial acquired at significant stake in advisory business Tavistock Investments. Previously, Intrinsic was acquired by life and pensions and investment giant Old Mutual, and discussions of other providers buying distribution are common.
Bill Vasilieff, chief executive of Novia, said: “Since the RDR advisers have found it increasingly more expensive to stay as a small business and a lot of them are looking for a bigger home.
“A lot of people looking to join a bigger organisation right now. RDR has certainly been a trigger.”
Chris Hannant, director general of Apfa, agreed that merger and acquisition activity is set to continue.
“Some of the survey work that I have seen about firms - this is a bit old and I think it was done about four or five months ago - at that stage two thirds [of firms] were doing well and one third were struggling.
“So obviously there is a group within the sector that haven’t quite got the client proposition right and in the signs of the subsequent survey they were beginning to develop and change, so hopefully if they were in the group that haven’t quite got it right they will adapt and have a stronger proposition.
“Obviously stronger businesses with deep pockets are looking to buy good quality businesses... so maybe we are going to see a slightly different shape of the industry in the medium term.
“All the signs are that it will [continue] and obviously some people if they have been struggling are maybe looking for exits and looking to sell.”
Despite industry figures’ acknowledgment of the flurry in activity in consolidation, statistical evidence does not yet back up this phenomenon.
Figures from Threesixty Services showed that 73 per cent of firms have three or less registered individuals per firm, actually up from five years ago when it was 69 per cent, according to Steve Moseley, business development director at Sterling McCall.
However, there may be a number of reasons for this. Firstly, there may be a time lag on the data so that it is not yet accurately representing the trend.
Secondly, Mr Moseley explained that alongside consolidation, a lot of bank advisers have also been exiting and setting up as IFAs, which could in part explain the figures.
Mr Moseley said: “The statistics do not show this [consolidation] trend coming through in terms of the average number of registered individuals per firm.
“[However] there has been a lot of bank movement, a lot of people exiting banks and setting up as IFAs. The statistics are saying ‘no’ at the moment.
“We are experiencing a lot of interest from smaller firms looking to consolidate into bigger firms. Alongside this, bank advisers are also setting up one or two man bands [independently of the banks].”
Matt Phillips, managing director at Broadstone, believes the key driver of consolidation in the industry is that post-RDR businesses are looking to change their models. “There is a fundamental change from being an industry to a profession.”
He added that moving away from an industry model is hard because historically some businesses have been based on product sale alone. Now, the value of this model is decreasing and some advisers are finding it hard to change to a new model late in their career.
Another reason, Mr Phillips stated, is that “investment managers are buying more financial planners because they need to add [an extra dimension of] value to their business.”
A third reason, is that banks got rid of financial planning post-RDR because it was too difficult, but are now starting to go the other way and bring it back into their business.
Mr Phillips added: “Having cut [advisory business] post-RDR I think banks will start to look at financial planning again, but not on an independent basis on a restricted basis.”
