A growing number of advisory sector consolidators will eventually be forced to consolidate themselves, as business models that are based on buying swaths of smaller IFAs into a wholly restricted model ultimately fail to bear fruit, Simon Chamberlain has said.
The chief executive at Succession Advisory Services, a high-profile consolidator which has set a target to bring in £7bn in assets by 2017, said that firms have a choice about how to best service clients and there are different competitors in each space.
However, he continued: “Many so-called competitors are in the consolidation space but only offer clients a restricted proposition. Clients of IFAs who are acquired, invariably are acquired by a consolidator with a restricted proposition.
“The client doesn’t have a choice whether they want to remain with an independent adviser. At Succession, the client can choose between our independent and restricted advice arms.”
Earlier this year, Aim-listed consolidation vehicle Tavistock Partners caused a minor stir when its owners revealed newly acquired independent wealth manager Sterling McCall could go restricted as part of a move to drop independence across the group.
The firm said it was initially seeking to build a network of 200-300 self-employed advisers and to launch a restricted network, and would examine the case for moving all advisers to a fully restricted approach over time as this would be “an easier compliance regime to run”.
Tavistock’s model, which is similar to Succession’s, involves adviser firms joining the network and then eventually being bought out under a pre-determined calculation which sets purchase price based on assets under management.
An analyst note from WH Ireland today gave a thumbs up to the model, which was described as a way to grow adviser numbers in a “relatively low risk and earnings enhancing”.
Mr Chamberlain said Succession had similarly “industrialised” the acquisition process, with a specific formula for acquisition, dependent on achieving recurring income levels and a profit target, along with 20 more conditions in the transition process from member firm to vendor.
Succession now has 68 member firms, but Mr Chamberlain said it has looked at around 500 IFAs to get to this point. By 2017 the firm expects to have 111 member firms with £7bn on the platform.
Mr Chamberlain said: “The main reason for not working together [with rejected prospective targets] is that many were lifestyle businesses that found it difficult to produce the paper trail we require for all their clients.
“We aim to acquire the best 50 - we have already acquired ten to date - and have minority shareholdings in 55 others.”
The firm was setup in 2009 by Mr Chamberlain, along with partners Tim Parsons, Paul Morrish and Andrew Smith, after he had taken a closer look at the market during gardening leave from advisory network Thinc Destini, following its sale to Axa Advisory Services and rebranding as Bluefin.
He decided to take a new approach to the existing model, creating the UK’s only vertically integrated advisory business that owns its own open architecture platform.
The venture was initially backed by Australian private equity manager Committed Capital, and in January this year Succession sold a majority shareholding to another private equity firm, Inflexion, to help free up more funding to develop growth plans.
Mr Chamberlain explained that the acquisition model lets business owners remain part of the team until the group seeks a capitalization event in 2018.
“This model is perfect for IFAs who wish to continue to look after their clients and develop further their own value, and we continue to pay a lifetime annuity to the adviser to continue servicing the clients we have acquired.
“Most business owners are already very wealthy – they just don’t know how to harness it – and with £3 trillion sitting in old style insurance products, it is likely they have client assets sitting in the wrong environment for the client who is often paying far too much to the wrong people.”
peter.walker@ft.com
