Platform offers exiting advisers help with management buyouts

Platform offers exiting advisers help with management buyouts

Owners of financial advice firms are increasingly looking to sell their businesses to internal management when they retire, as scepticism about the motives of consolidators plagues the industry, according to Nucleus.

Succession planning has become a hot topic over the past few years, largely caused by rising regulatory bills and the surge in providers buying advice businesses. 

The growing number of advisers hitting retirement over the next few years also means more business owners are working out their exit options.

According to a survey of 200 advice firms, conducted by Nucleus, 30 per cent of business owners expect to sell their company internally.

This still outweighs the 40 per cent that would consider selling to another advice firm, but the platform pointed to evidence which suggests advisers are increasingly seeing internal succession planning as the best option.

The internal succession route means advisers are taken on board to run the management of the company, eventually buying out the original owner’s equity in the business.

Speaking to FTAdviser, Barry Neilson, business development director at Nucleus, said the poll of businesses conducted by his platform showed advisers were becoming less keen on selling to major consolidators such as Old Mutual, Succession and Standard Life’s 1825. 

Figures gathered by Nucleus showed that 13 per cent of advice firm would sell their business to a consolidator, and less than 2 per cent would sell to a product provider.

“There is scepticism developing around the success and motivations of the big consolidators," he said.

“If you were cynical, you would say the big consolidators are not expecting to be profitable through the advice businesses, it’s more through the manufacturing margin on their platform and investments.” 

This, he said, created a strong incentive for advisers to shoe-horn clients into those investment funds and platforms that create value.

The business development boss also pointed out that firms are beginning to be concerned that consolidation exit plans probably were not the best route for their staff and clients.

“For a lot of advisers, securing a deal is no longer about getting the best price,” he added.

In September last year, Standard Life’s proposal to purchase Almary Green fell through, with the advice firm claiming the decision to ditch the plan was in the best interest of both staff and clients.

In 2014, Bellpenny was embattled in a dispute with a group of advisers after the consolidator’s acquisition of an advice firm went wrong.

Mr Neilson said succession planning is straightforward, but urged advisers not to leave it until the last minute. 

“Many elements of a robust succession plan come to fruition over time and require long-term resource commitments, so the longer advisers wait, the fewer options they may have.” 

But he admitted it was a “tricky balancing act” between solving leadership issues, addressing the financial interests of the founder, protecting staff, and minimising disruption for clients.