The mergers and acquisitions specialist sent a survey to its community of IFA contacts, with 125 responding in November and December. It revealed more than a third thought they would be restricted in five years, up from the 13 per cent that said so in the first half of 2015.
This included 4 per cent who said they make the move n two years and another 9 per cent in five years.
Some of the drivers persuading increasing numbers of advisers down the restricted route include business risk issues and rising professional indemnity insurance premiums, Harrison Spence suggested.
Other perceived benefits include the security of a pre-agreed exit formula, and, where the adviser stays on post-sale, more overall regulatory support and client facing opportunities; all raising the potential for increased profitability.
| Do you see your business becoming restricted? | |
| Response | Percentage |
| Within the next 12 months? | 22.4% |
| Within the next 2 years? | 4% |
| Within the next 5 years? | 8.8% |
| Not at all? | 64.8% |
Managing partner Brian Spence said that IFAs are spending more and more time on qualifications, new income structures, client offerings, regulator’s returns and thematic reviews.
“This leaves less and less time on acquiring and serving clients – the part of the job most of them enjoy – and the part that makes the money.
“IFAs are coming to realise that moving from independent to restricted status, for all or part of a business, is a way to potentially reduce costs and risks, along with freeing up more time to spend with clients, without fundamentally changing the offering.”
However, the research also showed that 65 per cent of those asked said they did not believe they would ever move to restricted status.
Mr Spence said that while this is admirable, particularly in smaller practices, administration and bureaucracy can threaten to overwhelm everything else.
He suggested that independent firm Almary Green’s recent acquisition by Standard Life restricted advice business 1825 could be the first of several ‘regional hub’ deals, part of a wider trend of smaller IFA consolidation across the industry.
Almary Green director Carl Lamb said that he did not take the restricted move lightly, but added: “I do feel that the argument for independence has weakened with the pressures on affordability and access to advice, and that the competitive nature of the industry means that our offering will remain in our clients’ best interests.”
The Financial Advice Market Review’s final report did not directly tackle the independent versus restricted issue created post Retail Distribution Review, but instead called for a government consultation on amending the definition of regulated advice so it is based upon a personal recommendation, in line with in the Markets in Financial instruments Directive.
Graeme Mitchell, managing director at Galashiels-based Lowland Financial, said that while he would still love to still be an IFA, as the RDR approached and after taking guidance from compliance consultants, “I figured it would be all but impossible for a one adviser directly authorised firm to be truly independent in the FCA definition of the word”.
He said that explaining this has never been an issue. “I’d say go for it – you might find it’s not as bad as you fear and you can focus on the things you are best at, without having to satisfy FCA diligence requirements for things you may never use.”
peter.walker@ft.com
