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Bradbury predicts bargain buyouts due to sunset clause

Bradbury predicts bargain buyouts due to sunset clause

Acquisitive advisers should be on the look out for expansion opportunities in the lead up to the sunset clause for platform rebates next year, as firms dependent on legacy income streams begin to accept hefty discounts to exit, according to Sheriar Bradbury.

Mr Bradbury told FTAdviser acquisitions are likely to accelerate towards the end of this year as some firms realise they are nowhere near prepared for the switch-off of swaths of trail bundled up in rebates from providers to platforms which must end under new rules coming in next April.

He said his own firm has been moving to fees over the past eight or nine years and that it stands to lose around 5 per cent of recurring revenue, which he reckons increased income from buyouts will more than cover.

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“This will impact profitability, but I think we will then generate profits through a thinning out of the market. Some advisers will want to exit, potentially at lower prices, so we’ll be looking at that for acquisition opportunities.”

He argued that those that have not looked at their book of business will have issues, as for many the passive trail income from clients they may not have seen for many years is effectively cross-subsiding other activities.

“When it’s switched off they will have to become a lot more hard-nosed about answering basic client questions, only responding to those where there is the potential for new business,” Mr Bradbury added.

The intervention is the second prediction in quick succession of looming consolidation in the adviser space, coming after FTAdviser reported this morning (25 March) on several experts predicted more advice buyouts and especially provider encroachment into distribution.

This is ahead of retirement freedoms which many expect to boost demand for advice and amid concerns over the accessiblility to formal intermediation due to the high cost of service.

Adviser broker Retiring IFA’s managing director Steve Hagues previously told FTAdviser sister title Financial Adviser that advisers have no excuse not to speak with clients about transferring to paid fees after trail commission ends in April 2016.

He pointed out that there could particularly be issues for firms which have inherited client banks, making it difficult to contact legacy customers still on old systems.

By this point most providers have completed their transition from legacy ‘bundled’ share classes paying commission and Mr Bradbury explained that many have policies of cutting agency ties if there has been no contact between adviser and client for more than a couple of years.

Cofunds’ head of marketing operations Stephen Wynne-Jones previously told FTAdviser that platforms have to respect that relationship - “we can’t steam in and directly contact clients” - but there will come a time when they will have to be made aware, regardless of any relationship.

Mr Bradbury has already tried to raise awareness of the so-called sunset clause, but warned that those that have not tackled this issue by now will struggle in a year’s time.