FTAdviser.com

Advertising

Advisers who do not embrace new technology, or who are too eager to expand in the current volatile climate, could end up having to shut down, industry members have warned.

Industry analyst Plimsoll Publishing last week claimed 151 adviser firms among nearly 1400 across Britain were in danger of "becoming extinct" due to their failure to adapt their business models.

Plimsoll argued that "zero growth, sliding profits and escalating debts" had pushed a third of intermediary firms around the country "to the brink of failure".

Those in the danger zone had seen their profit margins fall to only 1 per cent of sales, with the majority making a loss overall.

Most firms in this area were also taking on debt at an alarming rate simply to cover costs, the report added.

David Pattison, senior analyst on the report, said: "A great deal has been written on the general slowdown in the UK, but until now no one has measured the impact on the IFA market, and crucially who is most exposed.

"These figures just prove the point we have all been aware of – that a period of consolidation is long overdue. Bit by bit the weaker players will be removed from the market."

Adrian Shandley, managing director of London-based IFA firm Premier Wealth Management, agreed there was potential for a number of IFA businesses to collapse.

He said: "Of those firms in danger of closure, it is mainly confined to the bigger firms. Many have expanded without looking at the profitability of expansion. Some of these major firms have been continuously expanding. They are now in trouble because of bad business models rather than bad market climate."

Mr Shandley added: "They are taking on too much business and are now being bogged down with administration issues. Many of these firms have become quite complacent about reducing risk. Expansion is increasing costs but diminishing income."

Andrew Lockington, director of IFA Genius Partners, agreed the problems did not relate to the current volatile market, but firms' unwillingness to adopt new technology.

"They will risk becoming extinct unless they move with the times," he said. "Firms need to be open architecture, have transparency and justify fees on their funds rather than following a transactional model.

"In order to survive they need to start using technology that allows access to third-party fund managers. Discretionary fund mangers can see the assets they are managing on the platform, rather than having to rely on their own systems – it saves us time and work."