Regulation  

IFA owners face lower sale values, consultant warns

IFA owners face lower sale values, consultant warns

Advisers looking to sell their firm in the future may find it harder thanks to regulation, a consultant has warned.

John Joe McGinley, founder of Glassagh Consulting, said increasing pressure from the Financial Conduct Authority on remuneration would have a knock-on effect on advisers.

He commented: “The elephant in the room is the FCA musings on trail in the Asset Management Market Study.

“While this looked at the asset management sector, advisers must be aware it will have major implications for their profession, particularly when it comes to remuneration – an attractive element of the embedded value of a business.

“This could have a big impact on adviser sale values.”

In the City watchdog's study, the FCA said it would "drive competitive pressure on asset managers" by "supporting the disclosure of a single, all-in-fee to investors". 

With the end of commission for advisers after the Retail Distribution Review (RDR), the way in which adviser firms were valued for sale has been changing. 

There were high multiples on offer immediately after the RDR came into force on 31 December 2012 - some even up to 12x renewal - and headlines at that time suggested these might not be around for long, especially with the death of trail commission.

Currently, according to Henry Blunt, managing director of Retiring IFA, multiples of earnings before interest, tax, depreciation and amortisation (Ebidta) are still strong - up to 4 times in some cases.

He said: “Multiples are definitely not coming down. If anything, for a business interesting in finding the opportunity for the right price, they are increasing.”

Mr Blunt added where some price pressure has appeared, this is where there have been serious underlying reasons.

For example: “Businesses selling due to a regulatory reason will experience lower prices.”

However, Keith Richards, chief executive of the Personal Finance Society (PFS), said there is a move among acquirers to "become more sophisticated in the way they calculate value.

"They are examining closely not only profit and loss, but also the risks associated with the business, how many advisers they have and the age of their client base."

Mr Richards added there is also a growing emphasis on the level of recurring fee income received, which will put the onus on the seller to make sure their profits are as rosy as possible.

The comments came as part of FTAdviser's latest Guide to Buying and Selling an IFA Firm, which qualifies for 60 minutes' worth of structured CPD.

simoney.kyriakou@ft.com