Survival of the biggest as tie-ups take effect

Survival of the biggest as tie-ups take effect

Is adviser consolidation a positive step? Many in the direct-to-consumer investment industry may think so, but that’s not the case for the co-founder of platform giant Hargreaves Lansdown. 

In March, Peter Hargreaves raised fears that the recent glut of advice firm consolidation could result in a smaller number of “mediocre” adviser practices. This would ultimately be bad for client portfolios, he claimed, as investors would be left with a more concentrated pool of funds to choose from.

As the backer of a small fund house trying to get on to as many buy lists as possible, Mr Hargreaves now has a different kind of stake in this area. But there is no doubt consolidation activity continues to affect intermediaries.

The most eye-catching deal has been Quilter’s purchase of adviser network Lighthouse for £46m, but small firms as well as large ones have been looking to get in on the act. With regulatory costs continuing to rise and the Financial Conduct Authority casting a keen eye on adviser charges, many firms may feel that survival lies with achieving greater scale. Whether this will ultimately benefit consumers is another matter.

Stuart Dyer, chairman at Soprano, which offers consultancy on advice firm acquisition, echoes Mr Hargreaves’ concerns, but says the trend towards investment outsourcing may have more of an impact when it comes to portfolios.

“[The concentration of investment offerings] has been happening for some time. If you go back perhaps 10 years, it was quite frequently the case that individual advisers would be constructing portfolios for clients. But you rarely see that anymore.”

The jury is still out on whether concerns over discretionary fund managers’ charges and performance will change that dynamic. Regardless, there are other aspects of adviser consolidation that mean some businesses are welcoming the uptick in deal-making activity.

Kay Ingram, director of public policy at LEBC Group, says: “Consolidation of advisory businesses will make them stronger and provide consumers with a sustainable source of ongoing independent advice. While many smaller firms have been able to provide a local and highly bespoke service to their clients, the sustainability of this model is under pressure. 

“While consolidation of micro advice businesses would in one sense reduce consumer choice, it is likely to leave the advice sector in better shape and make affordable advice more sustainable and accessible to the mass affluent.”

The data, at least, is unequivocal. A report by the Personal Investment Management and Financial Advice Association shows that the number of companies declined every year between 2014 and 2017, dropping to a 10-year low of 13,690 at the end of 2017. This was in spite of the total adviser population rising from 22,168 to 26,311 in the four years to that date, as Chart 1 shows.

Does this mean the future of small practices is hanging in the balance? Philip Hanley, director and independent financial adviser at Philip James Financial Services, feels smaller firms should sit tight. “Those that hang on in there will see yet another industry and corporate ‘full circle’,” he says.