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Bank lending could help IFAs grow, says consultancy

Bank lending could help IFAs grow, says consultancy

A number of big banks are looking at lending to IFAs in a move that could stop the “torrential” number of advisers becoming restricted, Brian Spence has said.

The founding partner of Harrison Spence said advisers have been moving to restricted status because there has been a lack of funding to help with acquisitions.

He added that one bank had already moved into this market, although a confidentiality agreement meant no more details could be revealed.

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He said: “There are a handful of banks that see the opportunity and they are now in the position to lend money to IFA businesses which have good profitability. They are out there, and are moving into the market because they see an opportunity to help regional and smaller practices grow.

“It has been very difficult to borrow from banks. In simplistic terms, IFAs have been driven down the restricted road probably because of the lack of available money to expand.”

Restricted advice has been on the rise in the years since the retail distribution review (RDR), which saw the rules around independent advice tighten.

According to the Association of Professional Financial Advisers, 9 per cent of income in the financial advice industry in 2013 came from restricted models, while in 2014 this surged to 20 per cent. It went down slightly in 2015, but remained broadly similar at 18 per cent.

Standard Life is among those companies buying firms for its restricted advice arm 1825, with Almary Green, Munro Partnership and Baigrie Davies all getting snapped up since March.

Carl Lamb, managing director at Almary Green, said at the time that he did not take the status switch lightly, but added: “It has become clear to me over the past 12 months that many traditional small to medium-sized firms will face almost insurmountable challenges if they are to continue to provide affordable advice.”

Meanwhile, Temple Bar Independent Financial Advice director Simon Mansell complained that large life and pension companies were threatening the spirit of RDR.

He said: “Shakers and movers of the tied world have slipped back into positions of authority and are well-placed to recreate the industry in their ugly image, warts and all.”

Mr Spence added: “Had money been available to grow financial advice firms, then the direction to restricted would not have been as torrential.”