Despite “looking constantly”, however, it is not doing much in the way of buying. A number of businesses and books of business were purchased in 2012, but the chequebook has yet to be opened in 2013.
Speaking to FTAdviser, chief executive Roger Brosch reveals that agreeing valuations has proved a major blocker in many cases. Of course, he also echoes the refrain of most would-be consolidators: many that are no over-priced are simply not the right stuff.
“We are in the market and looking constantly and we do meet a lot of businesses, some of which are good but perhaps we can’t agree valuations and others are not really what we are looking for but our expectation is that the market will begin to open up again next year.”
Mr Brosch outlines that the firm has an ambitious plan to grow by 50 per cent over the next five years, with this coming in part through acquisition and also by bringing in new advisers. The firm is currently running recruitment seminars to increase its pool of “partners”, which currently number around 100.
“We have a very strong recruitment programme going on and our future is very much about growth. We have a very strong and deep platform to build from here as, financially, we are very secure and our results have been very successful over the last couple of years.
“We are are looking for manageable growth and that will be done through recruitment, attracting new partners to the business and also through acquisition. We have done two or three acquisitions in the last couple of years and we are looking to make some more.
The RDR model
The firm is made up of a mix of level four advisers and a number of chartered financial planners. Although Mr Brosch believes that chartered is the direction of travel the regulators are moving in, Foster Denovo is encouraging rather than forcing their advisers to become chartered.
“Although we are not forcing it, we do encourage this. We strongly support partner development here and chartered is one of those things that we do support very carefully and fully. Medium term I certainly see us working towards that.”
As for the status of the firm under the new defintions, Mr Brosch says the firm is mainly independent but that it offers a more cost-effective restricted offering for clients for whom a less expansive process that excludes particular investment types is “more than satisfactory”.
“We tend to start with the client and decide which one would be the most appropriate for the client. At the moment we still operate significantly on an independent basis, but there are some clients where a restricted offering is more than satisfactory for their needs.”
Mr Brosch states that the move to adviser charging has been a smooth one, not least because it gained extensive experience from advisers using multi-asset, risk-rated funds from Sequel, its investment company spin off launched in 2009 with Allium Capital.
This stands the firm in contrast to providers, many of which Mr Brosch believes are still “behind the curve” with their systems, having “come to the party late”.
“We were way ahead and we wanted to have it that way so our partners got used to adviser charging early. I think the biggest difficulties we’ve had have been with the suppliers and the providers – system support, technology and back office.
“I mean these guys were well behind the curve relative to us as we had been thinking about this for two to three years.
The system support of product providers that we work closely with were very, very late coming to the party and that was intensely frustrating“We found that the system support of product providers that we work closely with were very, very late coming to the party and that was intensely frustrating for us as we were a little bit ahead of the game.”
Platform decisions
Mr Brosch is also seeing a change in providers’ models as many consider going direct to market, citing the example of Standard Life which recently launched a D2C platform.
This highlights an evolving divergence in platform models that Mr Brosch says is likely to continue - and is going to continue to make choosing platforms “an interesting challenge”.
“Others are really just becoming an administrative platform and you do have to wonder about the viability of their model with very thin margins. So there is quite a polarisation of business models with providers.
“A lot of them will have to make platforms their main business as that is where the market is headed and I think it’s difficult for them not to go where the market is.”
Foster Denovo uses five to six platforms but Mr Brosch adds that it will go even broader if there is a specific requirement. He says that while some platforms “are really getting their act together”, a lot of them “are a little untried and untested”.
Like many in the market, Mr Brosch ultimately therefore predicts consolidation in the platform market.
“I think there are currently 26 to 28 platforms out there at the moment and I am not sure if we need that many really.
“I certainly can’t see the need for much more than 10 or 12 and maybe a few more boutique small specialist platforms of which there are already quite a few. The market is big but it’s not so big that it is really sustainable for that number so I would expect it to probably halve over time.”
Transitional turmoil
Like most in the industry, Mr Brosch read the FCA’s first sic-month review into RDR implementation with interest. The paper revealed that some firms are not being clear about what proposition they are offering clients and the regulator said intermediaries must use the terms ‘restricted advice’ or ‘independent advice’ in describing their service to clients.
Mr Brosch states the FCA paper did emphasise that a lot of “transitional turmoil” is still occurring in the adviser market.
This, he says, is one of three issues affecting advisers, with increases in the minimum level of regulatory capital that adviser firms must hold being hiked over the coming two years. He predicts this could lead to the demise of the smaller IFA firms, as many merge or join with larger firms. This would be a positive outcome for a national firm looking for acquisitions, of course.
“The FCA’s paper is helpful as it gives a little bit more certainty on what their expectations are and some of these key areas, and all of that will help.
“But I do think there is still a certain amount of change required for many advisory firms and that will continue to cause some difficulties through this year.
“I think we will see those challenges start to play out during the middle of next year, where I think those that have made a successful transition will start to thrive and others will start to find it more difficult.
“Overall yes I do see the RDR as positive. We are very supportive and we have worked hard getting where we are. We are excited about the future.”
