Regulation 'unquestionably' driving more advisers to retire

Speaking to FT Adviser, Jeffreys discussed the increasing rate of consolidation in the advice market and the potential reasons behind why advisers are wanting to sell up.

Data from Gunner & Co’s annual survey 2023 found for 66 per cent of advisers, retirement was the main reason why they wanted to sell their business. 

But Jeffreys said regulation was 100 per cent coming up more as the reason why advisers were wanting to retire. 

“With the implementation of consumer duty, many smaller firms are saying they don’t have the resources, or the time, to not only run their business and look after their clients but also to produce the additional documents the FCA wants them to and to have everything documented the way the regulator wants,” said Jeffreys.

Advisers are saying they're getting the message the FCA doesn't want smaller firms in the space Louise Jeffreys, Gunner & Co

Jeffreys highlighted that the ‘Dear CEO’ letters from the FCA about having increased capital adequacy was also becoming a big motivator to retire and sell. 

She said: “I’m hearing advisers say they keep getting the message from the FCA that it doesn’t want smaller firms in the space through the regulation it is introducing.

“The FCA has such a broad mandate and so by arguably reducing the number of firms they have to regulate, that is going to make their job easier. So smaller advice firms on the ground are really feeling that's the position the FCA wants to take.

“It wants to push and put pressure on the sector to reduce the number of individuals and small firms, as well as reduce the concept of being able to get financial advice from a small firm that doesn't necessarily have the entire support network a bigger firm might have.”

While regulation is having an impact on smaller firms, Jeffreys pointed out it can also shine a spotlight on larger firms and affect their ability to buy other businesses.

“I had a client who wanted to sell his business for retirement reasons, but he didn't want to experience too much change.

"But the buyer was saying with consumer duty, if the seller was to come on board [to the larger firm] he would find the compliance oversight was much heavier.

“That's not to say smaller businesses are not running compliantly but they don't have the FCA spotlight quite so much to make sure that they are ticking every single box.”

Age of clients affects attractiveness of firms 

Jeffreys discussed how in the past two years a factor affecting the attractiveness of an advice firm to a buyer was the age demographic of the seller’s clients. 

We're seeing a greater proportion of clients who are coming into their 70s and that is a big risk factor for a buyer Louise Jeffreys, Gunner&Co

She said: “Not only is the profile of advisers getting older but so are their clients. We're seeing a greater proportion of clients who are coming into their 70s and that is a big risk factor for a buyer. 

“We’ve always said to advisers to work out, especially when we're talking about retirement, the right time for them to sell.

"Whereas now if we look at the age of the advisers' clients, and they are older, but the adviser wants to sell in two or three years, we do point out this will have a real risk and impact on the attractiveness of their business. 

“I've seen transactions where the price isn't really where the adviser wants it to be. But the buyer is discounting because of the number of clients that are in their late 70s, coming into their 80s, and the risk of them not getting any sort of longevity of return on investment.”

Future of consolidation in advice sector 

Jeffreys said the rate of consolidation in the sector has not abated and looking to the future she said the profession may start to see the consolidators themselves being bought out.

“Four years ago or so we saw this group of ‘startup consolidators’ coming into the market like Amber River who has done very well. Then there's a number of firms that didn’t do quite so well in terms of the growth that they would have expected over that period. 

“Some firms may be sitting on £1bn-£1.5bn assets under management after three or four years of being in this acquisition world, which is not great and that’s because there's a number of parties offering similar things.

"Therefore, for those companies to get a sense of scale that their backers are looking for, we're going to see consolidation of those actual buyers, which to a degree will reduce the buyer market and change the supply and demand curve.”

alina.khan@ft.com