Opinion  

Beware of the consolidator’s pull-in price

Ian McIver

How many of us have had experience of being quoted £x by an online car purchasing facility for that Ford Mondeo we’re selling?

Okay, okay, we’re in financial services so perhaps selling the Jaguar.

We get the quote, then find any eventual blemish, dent, scuff, or tyre wear is used as a gradual reduction from the enticing ‘pull-in price’ – hold this thought.

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Presently the consolidator market is a busy place. By definition consolidator simply means anyone wanting to by an IFA firm looking to exit the market (or, in individual terms the adviser retiring/de-authorising).

It would be busy of course. Despite being told the average age of the financial population is decreasing I’m not unconvinced this means everyone is being included in the calculation, such as paraplanners, administrators, etc.

That’s a good thing but the CF30 adviser audience still seems old and, importantly they hold the value.

Consolidators fall into two groups: those wanting to buy you for cash, or those agreeing to pay an ongoing percentage of any recurring income.

There are pros and cons to both, with Nexus in the latter camp.

In the former camp where there is a cash sale, the first thing a seller suddenly realises is actually all the cash doesn’t arrive at once.

It’s normally paid over three years – the buyer is making sure what was being bought on day one still looks the same one or two years’ hence.

If an IFA feels he can sell his £100,000 recurring income for 3x and therefore expect £300,000, then he’s in for a shock when he receives £100,000 in year one, less in year two and even a bill in year three.

It’s the same ‘pull-in price’ principle, with the buyer then looking for as many blemishes, dents and scuffs as possible to reduce the year one and two payments.

I recently heard a suggestion that a solution to the problem is to be quoted a guaranteed price. It’s a lower price of course but is this really a solution?

Someone offering a guaranteed price of anything less than £300,000 is simply admitting to the seller that a valuation which starts at 3x was never likely to materialise.

Too many scuffs and dents again, you see.

Ian McIver, development director for Nexus IFA