IFA warns of ‘disaster’ for firms selling ahead of RDR

IFAs who want to exit the market prior to the Retail Distribution Review and are seeking a sale of their firm this year are heading for a “disaster” and will likely not extract maximum value for their business, the chief executive of an international IFA firm has told FTAdviser.

In an interview with FTAdviser, David Howell, chief executive of Guardian Wealth Management, said that unless IFAs had groomed their business over several years to sell now, they will not be able to get the maximum value due to “legacy” issues.

He said: “If someone wants to exit the market now, they should have started to groom the business for an exit four years ago. You need a good lead-in time as it’s like any ‘for sale’.

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“You can’t just suddenly sell a business - and this is for businesses of any size that are in any sector but particularly those in financial services.

“There are issues on legacy, the commission model. You need to look at the culture of the business, the DNA and ensure that the new parent has the same view, otherwise that is where things fall apart with mergers and acquisitions.

“Oil and water do not mix. In some cases, there hasn’t been the continuity of the ethos/culture to make it work going forward.”

Mr Howell believes that “selling now would be a recipe for disaster” unless you have groomed the business over the last few years.

He said: “You also have to look at how long the advisers and everyone else are locked in for, how the valuation works - whether it’s trail, the number of clients on the books, assets. There are all kinds of questions there.

“The average locking in would be two to three years. Lock-in means they [advisers] can’t move and can’t get out of the business. This will help ensure the maximum value, to make sure the business sticks on paper but also to make sure the assets and management work out.”

Earlier this month in an interview with FTAdviser, Simon Chamberlain, chief executive of Succession, echoed Mr Howell’s warnings over potential parent company dissonance in his discussion of the plight of his previous company Thinc Group following its sale to Axa.

Mr Chamberlain said that when he was approached by Axa in December 2006, he was told that they wanted 6,000 advisers across the UK and 30 per cent of the distribution market “and they bought a business that had this infrastructure”.

He left the company in July 2007. Within two years, Bluefin lost its entire board and “now has 32 people in it”.

Mr Chamberlain said: “This shows you what can go horribly wrong... After I left they sold off the sales force to Sesame and then tried to introduce an employed-type culture into the small businesses that had been acquired and the rest is history.”