The amount of money Quilter has lent to its members to support their acquisition of other advice companies in the network has risen tenfold in just four years as consolidation in the marketplace starts to accelerate.
The number of acquisitions funded by the network more than tripled from nine in 2015 to 29 last year. That resulted in Quilter lending £10.6m to support acquisitions worth £11.9m in 2018, up from the £838,000 it lent to fund deals worth £1m in 2015.
The company predicts a further increase in industry consolidation amid continued regulatory pressure and an ageing adviser population – the same drivers that are being blamed for the adviser exodus from the profession over the next decade.
Scott Stevens, head of recruitment and acquisitions at Quilter Financial Panning, said the Quilter network was growing because of its own acquisitions, but also those of its member companies.
The company’s practice buyout scheme has completed 112 transactions since it launched in 2015 to connect appointed representatives looking to sell their business with others looking to expand through acquisition.
Quilter loans member companies the capital to fund purchases of other advice companies in its network and connects sellers with buyers without a charge and with the offer of a free valuation.
In total, the company has now lent £25m to fund deals.
Mr Stevens added that he has “absolutely” seen an increase in independent financial advisers approaching Quilter with a view of selling their business, pointing to capital adequacy requirements, regulation linked to Mifid II and increasing professional indemnity premiums as the cause.
Rising PI premiums in the advice market have largely been attributed to, and coincided with, the increase to the Financial Ombudsman Service’s compensation limit in April, which saw the maximum award grow from £150,000 to £350,000.
As a result, advisers have told of premiums increasing fourfold and insurers shunning defined benefit transfer work, with the Personal Finance Society warning the changes had seen advisers forced to increase their overall charges and consider ceasing business in this sector of the market.
But a shrinking advice market is one that the Financial Conduct Authority anticipated as a result of the ombudsman changes, with minutes from a meeting at the regulator in February showing its board backed the increase because it would create a more focused advice market.
That came amid predictions of an acquisition boom in the advice market, with introducer Soprano Mergers & Acquisitions pointing to increasing minimum capital requirements, qualification and compliance requirements and a retiring IFA population as catalysts for consolidation.
According to Soprano, transaction numbers in the advice sector have stayed steady at around 100 per year over the past two years, but the introducer said this number may be on the low side as many smaller deals go unreported.
Soprano predicts transactions are set to “accelerate significantly” with an expectation that 3,000 companies could exit the industry over the next five years.
In January, the Heath Report Three, which surveyed 249 advice companies representing 865 advisers in the market, found 35 per cent of principals intended to sell their advice company as a means of succession planning and only 3 per cent planned to run the business down.
Alan Lakey, founder of CI Expert, said: “The various regulatory initiatives hit small, directly authorised firms harder as they cannot dedicate time and funds as easily as a network.”
rachel.mortimer@ft.com
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