Acquisitions of advisory firms funded on a presumption of trail commission will dry up and look expensive in hindsight, Ashley Clark has warned.
The chartered financial planner for Staffordshire-based NeedAnAdviser.com, said he believed that trail would be pulled across all products, meaning that any advisory firms valued and bought on the basis of trail commission-only recurring income rather than true retainer fees would look expensive.
He said: “One day, the public, politicians, the Treasury select committee and the FCA will wake up to trail commission and the compounded detrimental effect it has on client returns.”
Mr Clark’s comments followed news that listed advisory company AFH Financial recently bought its fifth IFA firm since the implementation of RDR 11 months ago.
In a statement to the London Stock Exchange, AFH Financial said it has acquired Herefordshire-based Robert Magee & Associates in a deal worth up to £486,000, comprising an initial cash payment of £204,000 with further payments depending on the performance of the target firm over the next 26 months.
AFH Financial also recently bought Wales-based IFA AG Financial Planning for an initial payment of £195,000. Robert Donaldson, former owner of AG Financial Planning, is being retained by AFH Financial as an adviser.
Mr Clark added: “AFH is going to be a supertanker IFA and I wish it well. No doubt it has completed in-depth due diligence for both this and future acquisitions.
“However, I still remain unconvinced on deals that have upfront capital and then what appears to be an earn out deal funded by recurring income.”
AFH was founded 22 years ago by chartered financial planner, Alan Hudson.
The group is based in Bromsgrove, Worcestershire, and advises clients across the UK
AFH has made 18 acquisitions since listing in 2011
In November 2013, AFH Financial announced the acquisition of Origin Financial Limited.