Support services have cited consolidation in the adviser marketplace as a key factor, claiming this trend has accelerated this year amid a backdrop of retiring principals, the growing cost of regulation, and professional indemnity premiums rising exponentially.
Last month Tatton Asset Management announced Paradigm Consulting, its IFA support service, lost five adviser members in the six months to September, which it attributed to consolidation within the advice market.
Paul Hogarth, founder of Paradigm Consulting, said the problem presented by adviser consolidation was one which his company had known was approaching for some time, so the slight drop in member numbers was expected.
Mr Hogarth said: "The challenge that people like ourselves have, IFA support services and networks, is how we actually go about getting new people into the industry and what we can do to assist on that.
"And that’s something we have been busy with at Paradigm Consulting."
Recently, advice giant Quilter predicted 10 per cent of the current adviser population would leave the industry each year over the next three to four years.
The knock-on-effect of mergers and acquisitions picking up pace in the market is now materialising in an industry which is intrinsically linked to the IFA landscape: compliance support.
What happens on the back of consolidation is you get more one- and two-man bands setting up - Russell FacerParadigm Consulting has recently launched its Odyssey programme, which supports entrants to the advice profession by offering work experience with its member IFA firms, and is in the process of launching a recruitment consultancy to place candidates.
Mr Hogarth said: "For IFA support services like Paradigm Consulting, it’s incumbent on them to do something about it and that’s what we are doing. We are excited about our Odyssey programme and it has gone down well with our firms."
Russell Facer, managing director at Threesixty Services, agreed the impact of adviser consolidation on compliance support providers was an issue which has been on the horizon for years.
Mr Facer said: "There’s always stuff that comes along which prompts people to leave and, likewise, we talk about the age of the advisers and consolidation, firms selling, and it is a constant challenge.
"It is the biggest reason we’d lose a firm because they get bought; it’s not competition - it’s because they get bought out."
But Mr Facer said the knock-on-effect was not necessarily negative.
If an acquiring firm is impressed by the seller's compliance structure, Mr Facer said, this can often lead to the business looking to join the same support provider as a result of the deal.
He also pointed to advisers who are part of a company which is bought by another, but not its principal, as potential new clients for a support firm.
The departing advisers may see an opportunity to set up their own advice business and create a "multiple of additional firms" in the marketplace, Mr Facer said.
He added: "As can be seen in the FCA's market data, there is a small increase in big firms in the advice market but quite a big increase in small firms.
"This is because what happens on the back of consolidation is you get more one- and two-man bands setting up.
"So from our perspective, we’ve always got between 20 and 40 applications on the go at any one time, so you’ve got new companies coming through.
"And then arguably those companies get authorised, you’ll help them and at some point further down the line they’ll sell their business. There’s a constant flow on that side."
rachel.mortimer@ft.com
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