Why do I say this? Well, for all its challenges, the signs are that IFA businesses are increasingly being sought after, in some cases fought over, by suitors. IFA businesses are in demand. There is rarely a week that goes by without Succession, Fairstone or another consolidator announcing it has taken over an IFA business or even several businesses at a time as Succession did recently.
Financial advisers are increasingly being headhunted too and finding themselves in demand. Salaries for some financial advisers and wealth managers are going up and up, with expectations of £50,000 or £60,000 a year now a starting salary in some areas and salaries of £100,000-plus increasingly common. Compare that to the rest of the economy with its zero hours contracts and people struggling to get by. The contrast is huge.
Paraplanners are also being hunted by the recruiters with a zest never seen beforeParaplanners are also being hunted by the recruiters with a zest never seen before. A decent paraplanner would not find it hard to command a salary of £40,000 or more in London. For a graduate in their 20s that is not too shabby.
At the corporate level I doubt there is a successful IFA firm in the UK of any reasonable size that has not been approached. What we now take for granted in the IFA sector is not how it always has been. Just a few years back some IFAs were struggling to find an exit strategy or a buyer. So what is behind all this frenzied activity?
In many ways I believe it comes down to the growing maturity, size and professionalism of the financial advice sector and the potential for the future. Firms are better run, better regulated and increasingly profitable. They are simply worth buying.
Robo-advice potential is also attracting interest and this sector is poised to grow. Last night I watched a TV commercial for a robo-advice business offering an easy way to build an investment portfolio with the help of online guidance. Robo has made the financial advice sector even more attractive to investors.
IFA firms are no longer just one-man bands struggling to get by. Consolidation is driving mergers, greater investment in businesses and more focus on client satisfaction. Many IFA firms are bigger and better run than firms of old.
I was reminded of all this recently with news that St James’s Place, arguably the UK’s largest wealth management business, now has more than 3,000 advisers – almost as many staff who work at the FCA.
St James’s Place is not popular with everyone, but there is no denying it has prospered by delivering good customer service and giving clients what they want. In many ways, it is the model for a successful wealth management company. It has more than half a million clients and in 2015 client numbers grew from 484,000 to 525,800.
Soon it will get a new chief executive in the shape of Andrew Croft who will take over from David Bellamy. It will likely be a smooth handover.
Hargreaves Lansdown, Tilney and several others are also growing; in fact many are growing so rapidly they would shame non-financial businesses.
I do not see all of this as a temporary movement. It underlines that the entire shape of the financial advice sector is changing and that, after many years of hardship, key players have realised there are good returns to be had from offering financial advice and wealth management services. Recurring fee income is especially robust and valuable. But with the changes there needs to be a recognition that old models, if not dead, may be harder to make work in future.
Realistically, many smaller advisory and financial planning firms need to review their business model. Launching a very small, one-man firm in future may not be a wise move. Launching a firm with several colleagues or like-minded individuals and the support of a bigger partner may be much wiser.
Being part of a bigger franchise or brand name could well be the best way to move ahead. Advisers also need to focus more on exit strategy now that a financially rewarding decent exit is not just a pipedream.
From the clients’ point of view, things will change. They will be looked after by increasingly large firms, but these firms will be more able to cope with changing regulatory and business demands.
The days of the cottage-industry IFA are coming to an end, to be replaced with a bigger, professional practice approach. It may be less personal perhaps, but clients will get what they want and ultimately advice will be better and clients will benefit.
Kevin O’Donnell is a financial writer and journalist
