Your IndustryMay 28 2015

Pros and cons of IFA consolidation

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Simon Chamberlain, chief executive of Succession Group, itself an IFA consolidator, says in this post-Retail Distribution Review age, it shouldn’t just be advisers looking to beat a hasty retreat or make some quick cash who should talk to a potential sector buyer.

He says IFAs who are considering the cost synergies of being part of a large organisation should contemplate a consolidator.

Mr Chamberlain says you can achieve high capital, scales of economy, and if you remain with the acquirer you will be able to focus on the bits of job you like doing, such as face-to-face advice.

On the downside, Mr Chamberlain says this route does mean you will have to prepare your business for a sale, which might involve a lot of work.

He adds the acquirer may work in a different way than you are used to and will take over things you maybe were doing before, such as strategic development. Letting go of the reigns can be tough, especially for older advisers that left the likes of life offices to work in their own way.

Dominic Rose, acquisitions director of Bellpenny, another consolidator, says one of the greatest things an IFA consolidator can do for your firm is help give it a direction.

He discusses this in particular relation to succession plans for advisers not looking to retiree yet, but with no clear picture on what will happen to the business and its clients when that day does come.

If there is no clear succession plan in place for business owners to hand over the day-to-day running of the business or if that succession plan doesn’t facilitate a ‘capital event’, then Mr Rose says the entrepreneurial business owner should consider talking to a consolidator.

Obviously there are the more basic financial implications to consider. New businesses may pay income or organise remuneration in a different way - and in any case you are unlikely to benefit in the same way if the business expands if you an employee rather than an owner.

This is where the structuring of any potential deal could be important: earn-out clauses and the like can help advisers to ensure they are properly rewarded if the business continues to grow due to the work they put in the early years post-acquisition.

In this day and age, advisers need to recognise a potential buyer can come in many guises.

From private equity investors, to IFA consolidators to even a similar business looking to expand: potential buyers can come in many forms and their upsides and downsides will therefore vary greatly.

To fully understand the pros and cons of your potential purchaser, you need to really drill down into what they want from your business and what they can offer in return.

This latter is also important for those sellers that are looking for an ‘out’. Advisers will want to ensure that their clients will be looked after and so the ‘cultural fit’ and approach of the acquiring firm will be all-important.