There are three different types of IFA consolidator, according to Dominic Rose, acquisitions director of Bellpenny.
The ‘network model’ involves buying a business and using central services and investment propositions. Mr Rose says this model will allow the business to continue trading under the existing brand, with their existing service propositions.
In contrast, an ‘integrated model’ will buy the business and integrate the clients and people under one brand and deliver a consistent service to clients across all acquired businesses. This is about expanding an existing brand rather than buying the income capability of another.
When it comes to a life company or discretionary fund manager (DFM) purchasing an IFA, Mr Rose says this is purely a distribution play, i.e. buying distribution. Recent examples include Standard Life’s purchase of Skipton Building Society’s Pearson Jones advisory business.
The provider stated the move - which was trailed by bankrolling IFA acquisitions - was in response to fundamental changes that are driving unprecedented demand for advice from customers.
Pearson Jones has 39 advisers and paraplanners in a team of 102 employees and is anticipated to bring assets under advice of £1.1bn. Standard Life has named the new unit ‘1825’, after the year it was founded, and will expand the restricted advice business to 150 advisers.
Intrinsic, which is part of Old Mutual Wealth, has also recently launched a practice buyout scheme for advisers within the network. The scheme will connect appointed representatives of Intrinsic that are seeking to sell their business with others that wish to expand through acquisition.
Richard Freeman, chief executive of Intrinsic, says those wishing to sell their business will be able to realise value from their business while at the same time ensuring continuity for their clients who can continue to seek advice from another Intrinsic adviser.
Mr Freeman says financial backing from Old Mutual Wealth will enable advisers that are looking to expand their business to borrow from Intrinsic at preferential rates in order to fund purchases of other advice firms.
Whatever type of purchaser you are dealing with Simon Chamberlain, chief executive of Succession Group, says it is vital to understand the potential longevity of your purchaser.
He says you need to look at who is paying the cheque and make sure you are not caught out by IFA consolidators who may appear to be strong but have little liquidity.
Your diligence on a consolidator should focus on their client service and investment models as well as the firm’s financial security, says Bellpenny’s Mr Rose.
He says: “It is no good selling your business to a firm where the client service levels match, only to find that the firm in question can’t pay you your deferred payments.”
However, advisers need to remember they should not just explore IFA consolidators: there are alternatives such as a management buyout.
The difficulty with a management buy-out is often around securing sufficient capital via this route, Bellpenny’s Mr Rose adds. They typically work by partnering with a financial backer, such as a private equity firm, though they will want influence in return for the cash.
Another option is to remain as a shareholder and put a team in place to manage the business on your behalf and treat the annual dividend income like an annuity, Mr Rose says.
