Sole traders are expected to start putting themselves up for sale in the run-up to the sunset clause in 2016, the founder of Ripon-based IFA business consolidator Retiring IFA has warned.
Stephen Hagues, founder of Retiring IFA, said that the business had been seeing a sudden increase among IFAs for its services.
Mr Hagues claimed the impending sunset clause was the main reason, along with a very slight improvement in sales prices.
He said: “There is also a fear that as firms are generally valued on recurring revenue, once trail commission is banned in 2016, many will have to sell off cheaply.
However, sellers must remember that their business is worth what a buyer will pay for it and valuation goes beyond just a straightforward multiple of recurring income.”
According to data from the firm, 127 UK sole traders had come to market with Retiring IFA between December 2012 and December 2013.
However, this had dropped off between January and September 2014, when 42 sole traders had registered to be sold.
The FCA has banned platform cash rebates from April 2014, with all legacy business also required to move away from rebates after a further two-year grace period ending in 2016.
After this all business will have to move to a platform charge structure for both new and existing business.
The rules regarding new business came into effect in April 2014 and the legacy business sunset clause comes into effect in April 2016.
Retiring IFA was set up in 2009 to match the buyers and sellers of IFA firms, as well as to handle negotiations in the mergers and acquisitions of IFA businesses.
Adviser view
Simon Mansell, managing director of Temple Bar Financial in Worcester, said: “If the sunset clause were an issue then surely it would be an issue for the buyer purchasing the business. I would suggest it is just one of many factors that would cause an IFA to sell up. Many of these IFAs are probably coming near to retirement age.”
