Your IndustryNov 20 2015

One third of IFAs consider selling over age and risk

Search supported by
One third of IFAs consider selling over age and risk

One third of IFAs would consider selling their business in the next 12 months if the right buyer came along, and age is a major contributing factor.

According to retail financial services consultancy Harrison Spence, 33 per cent of 24,000 IFAs on its database of would consider selling their book, with age being a major contributing factor.

Brian Spence, managing partner at Harrison Spence, said: “With age comes risk and their own attitude to risk. When they look at the financial services retail market, logically they can see that values are at an historic post-RDR high, with a hike of more than 25 per cent in the past 12 months.

“Their own experience/instinct tells them that this is unsustainable – they can’t go higher as margins for purchases are not there. Many people consider the value of IFAs to be at a premium. So what choice do they have? Waiting for five years before considering a sell means the formula is likely to change over five years from a multiple of recurring income to a profit formula.

“Many IFAs are still lifestyle businesses with good business but little profit. Therefore, for them to increase profit is a big step, so selling now to the smaller business makes more sense and offers less risk. Who knows where values will be in five years. Valuations have plateaued and will change over the next five years.”

Mr Spence also added that age also means that the demands of regulation are significant and are reducing income for many small IFA business. He said: “Pragmatism is ruling over sentimentality, but hard facts say there’s never been a better time.”

In May, AFH Financial Group made its 10th acquisition since listing on the Alternative Investment Marketin June 2014, while Succession Advisory Services bought two wealth management businesses from its membership in August when it acquired Lymington-based Highcliffe Financial Management and Worcester-based Highgrove Financial Planning for a total of almost £7m.

In November, Fairstone also bought Devon-based South West Financial Planning.

Adviser view

Kim Barrett, IFA at Hertfordshire-based Barretts Financial Solutions, said: “All of this from Mr Spence smacks of a sales mentality, but why would an IFA want to sell their business right now? There is no certainty in taking over a client that you will keep that client. The bottom line is that you can’t make a business pay.”