A rival network has raised the question of a potential longer-term shift or bias to restricted for advisers within the Financial Ltd network, which looks set to be acquired by listed advice sector consolidator Tavistock.
Yesterday, Tavistock announced it had agreed to purchase the troubled network for £2.7m in a deal the group’s chief executive Brian Raven described as “transformational”.
He said that the network’s new management team has “remedied every possible issue” following a Financial Conduct Authority recruitment ban last July for failures to control appointed representatives.
Speaking to FTAdviser, Tim Newman, managing director of the Sense network, suggested that Financial Ltd would have found it difficult to trade had it not been able to do a deal like this.
He referenced Financial’s latest accounts which revealed it was looking for investment, following post-tax losses of over £120,481 for the year ending March 2014, compared to a loss of £28,193 in the previous year.
Auditor Nexia Smith and Williamson had warned the group may not have been able to continue to operate if it did not secure an investment that would “satisfy its commercial and regulatory capital requirements”.
Mr Newman also questioned how Financial Ltd could integrate its IFAs, which account for 75 per cent of its member base, into Tavistock’s strategy, which is backed by its own discretionary fund management arm.
Previously in the wake of the buyout of currently wholly independent national Sterling McCall, Mr Raven told FTAdviser that restricted is easier to manage from a compliance perspective.
“There are certainly implications for independent members of Financial Ltd,” Mr Newman added.
Mr Raven stated that synergies between the two would be looked at in more detail in coming weeks, but he told FTAdviser that the new business would support both independent and restricted financial advisers.
Brian Spence, managing partner at financial services consultancy Harrison Spence, said that while no-one outside the deal will know exactly why it has been done, there must be nuances that make it attractive.
He added: “I also think that the question of restriction is outdated, most IFAs now realise that the proposition is far better than it was even a year ago, there’s more money and more time with clients using the restricted model.”
Lee Hartley, chief executive at Moneygate, said that the deal seems to be different to many of the transactions seen in this space over the last couple of years, but from the information publicly available there seems to be a good degree of common sense applied from both parties.
“Tavistock should be applauded for taking over the Financial Ltd operation and safeguarding the livelihood of the advisers that operate within the network – without Tavistock the future of Financial Ltd did not look very bright.
“Clearly, I’m not aware of the finer details but Tavistock appear to have protected themselves well through the structure of the deal. All things considered this is positive news for the IFA sector.”
Timothy Harvey, a Financial Ltd network member and director at H R Independent Financial Services, told FTAdviser that he would wait and see how the integration goes.
“If things change dramatically then my viewpoint might change as well, but why would you destroy the existing business model, advisers really have no reason to leave.”
Following a statement to the market detailing the massively discounted share issuance to raise funds for the buyout, listed consolidator Tavistock Investments saw its share price drop 60 per cent yesterday, trading at 2.10 pence per share, from Friday’s closing price of 5.25p.
Brian Raven, the group’s chief executive, said the share price plunge was an understandable market reaction to the firm trying to raise a “substantial amount of money at a substantial discount”.
peter.walker@ft.com
