If you are running an IFA firm you could be forgiven for thinking that Christmas has arrived early. The acquisition of IFA firms for handsome prices is becoming relentless
In the past few weeks we have seen IFA consolidator Succession buy Maze Wealth for £1.2m and announce it had received £25m from HSBC to fund further acquisitions. Old Mutual has bought Devon-based DQS Financial Management, and Standard Life’s 1825 arm continues to eye further purchases after its acquisition of Almary Green and several other IFA firms.
The list goes on, and rarely a week goes by without a new acquisition being announced, usually by a consolidator or financial provider seeking to grow its wealth management and financial planning arms.
For all the talk about robo-advice and direct-to-consumer operations, it seems that firms offering face-to-face advice are increasingly highly valued. So is it all good news? Well not quite. I have concerns that, like previous buying sprees, some of these deals will end in tears, and there may well also be an erosion of independence with more IFA firms nudged one way or another into the restricted camp.
Of course, all of this is easy for me to say. I am not an IFA who has put years of blood, sweat and tears into his or her business and wants to boost their retirement pot. That is perfectly natural and completely understandable.
I also know from my conversations with IFAs who have sold or are selling their firms, that the sale process is not always an easy one. Many have said it can take 12-36 months to find a buyer and ‘disengage’ from their business. In some cases, the search for a partner to buy the business is fruitless.
It can take 12-36 months to find a buyer and for IFAs to ‘disengage’ from their businessFor those IFAs in their late 40s or 50s, a robust exit strategy will grow in importance as the years move on, and that is common sense.
I have always been impressed, by the way, with the care that many IFAs and financial planners take in ensuring that their clients are looked after when an exit strategy is put in place.
The common view might be that clients are simply seen as ‘assets’ to be sold on to the highest bidder, but I have mostly found the opposite to be true. The best exit strategies, in my experience, involve clients in the process, with the reassurance that continuity and good service will continue under a new owner.
So all this is good. But why do I say some of it will end in tears? Past experience is one clue. Older readers will remember several occasions in the past when providers have launched spending sprees, snapping up firms all over the UK. Due diligence may not have been a strong point with some of these acquisitions, some of which came badly unstuck.
In most cases too, very large firms are buying very small firms. That is an immediate clash of cultures, and needs to be handled very carefully.
On the positive side, I sense that some of the consolidators and providers building up their wealth management arms through IFA acquisition have a clear strategy and focus, and will bring some welcome efficiencies and more investment into the IFA sector, and that is no bad thing.
The new investment is a sign that IFA firms are valued from a business point of view, and are seen as firms with a long-term future. That is a welcome show of support for the IFA sector and often forgotten.
Not all IFA firms will have a sale value, of course. Some are badly run, still see themselves as product sellers and may be too small to be of value.
It is interesting that many of the firms being bought out are those focusing on wealth management, where clients come first and recurring fees provide the financial bedrock. Assets under management, which are really what acquirers want, are often impressive.
These are firms that have concentrated on well-off and high net-worth clients, and have prospered as a result.
For those IFA firms being chased by acquirers, these are golden days, and I hope many are well rewarded for their years of effort and hard slog.
For the regulator, it is time to take a closer look at this shift in ownership in the IFA sector. It is not necessarily a bad thing, indeed may be positive, but it will change the nature of advisory firms and the shape of advice being delivered, and requires close monitoring and understanding of the consequences.
Ultimately, clients have to come first, and their interests must come ahead of everything. Any acquisition deal which sees clients disadvantaged in any way is not a good deal in my book and should be avoided. The new investment in the IFA sector is very welcome, but the price must not be a poorer deal for clients.
Kevin O’Donnell is a financial writer and journalist
