There has never been a better point for IFAs to turn their businesses into a cheque, according to the boss of one consolidator, as it reports a 29 per cent increase in revenues to £17.4m for 2014.
Speaking to FTAdviser, Fairstone Group’s chief executive Lee Hartley added while this seller’s market can be capitalised on by advisers, many firms are nowhere near ready to be bought.
“Most firms are just not in a position to be acquired, as their management structures are poor and they have a lot of legacy issues to sort through,” he explained.
His views were backed up by both market analysis from consultancy Harrison Spence which suggested valuations achieved by advisory firms being sold at the moment are at an all-time high, and commentary from Standards International founder Michelle Hoskin that most IFAs do not apply the same quality standards to their business practices as they do to work with clients.
Fairstone has based its acquisition model on purposefully not looking at firms with partners or principals looking to sell-up and retire, preferring those that want to grow their business before realising the best price.
This ‘Downstream Buy Out’ programme sees Fairstone buying a minority stake, agreeing a purchase formula and then fostering growth through loans - later deducted from the deal price.
Access to its investment committee, chartered adviser board, centralised paraplanning, IT and administration services is granted.
During 2014, 11 such deals were secured, coupled with organic growth within the community of partner firms already on board.
Mr Hartley said that after “bootstrapping” for the first few years after a 2008 launch, the business bought three IFAs in 2011, but quickly found that all the value was in the integration phase, rather than the actual acquisition.
Later that year, Fairstone changed tack and started its model of gradual acquisition, which has led to the incorporation of 38 firms since then.
As at the end of September, the group had £5bn of client funds under influence, of which £2.1bn is classed as funds under management. Current revenues now stand at £30m, with over 230 financial advisers contracted within the regulated businesses.
There are also over £100m of client funds within its managed portfolio products, which operates under the regulated entity Fairstone Private Wealth. The firm’s investment management arm administers a range of managed portfolios which operate under the Marketstar brand.
Mr Hartley commented that the group is already ahead of forecasts for 2015, with a “very significant series of deals” at various stages of maturity.
Given the firm’s focus on younger firms - the average age of its advisers and principals is 47, 11 year’s younger than the industry average - he added that they rarely get into bidding wars with rivals and appear to have a large enough pool not to have to compromise on quality.
“I’m critical of other consolidator models, which often mean clients end up paying for the acquisition, either through increased cost burdens or being moved into a restricted fund range,” added Mr Hartley.
Elsewhere, Fairstone recently achieved Corporate Chartered Status from the Chartered Insurance Institute and launched its own academy to fully support advisers within the group to achieve Chartered Financial Planner status.
Last year saw the creation of a new subsidiary to take advantage of the opportunities in the workplace pensions sector. Fairstone Corporate Solutions Limited began trading early in 2015, following the creation of the Fairstone Pensions Trust, which offers a low cost auto-enrolment solution to employers of all sizes.
Meanwhile, on the back of the Mortgage Market Review, the group also established a dedicated mortgage business - Fairstone Mortgage Solutions - in the latter part of 2014, which again started trading in the first half of this year, once authorisation had been granted by the regulator.
As for the current regulatory landscape, Mr Hartley said that he is constantly keeping an eye on changes, for instance they are currently formulating a concrete policy on the issue of ‘insistent clients’, but for the time being advisers are encouraged to steer well clear and not facilitate access to small pots.
“We always have to be giving advice and not making a sale,” he added.
peter.walker@ft.com
