Podcast  

Advice after coronavirus: Consolidators disappear

 

The number of consolidators in the financial advice market could shrink in the wake of the coronavirus pandemic, it has been predicted.

In the second in a series of podcasts examining what the advice profession will look like after the coronavirus pandemic, Lee Hartley, chief executive of Fairstone, and Paul Morrish, a director at Succession, discussed the future of consolidation.

The number of consolidators in the financial advice market has ballooned in recent years, but both Mr Hartley and Mr Morrish believed this would contract in the wake of the pandemic and the ensuing lockdown.

Mr Hartley said: "I can't see how all of the consolidators in the marketplace will come out in great shape. I am expecting a consolidation of consolidators in some respects.

"That is something we are definitely not looking at - we wouldn't be looking to acquire one of our peers but there is definite logic for two or three of those to either merge or one to acquire the other in order to create greater scale, greater stability."

He said the key question determining whether a consolidator would come out of the coronavirus in healthy shape would be "continuity of capital".

Mr Morrish said: "There is going to be a tightening of criteria upon which people can draw down cash for anything, let alone acquisitions. So, no, I don't think we will see the same feeding frenzy, if one wants to use that phrase."

He added that consolidators which had come into the financial advice market as an investment - rather than as financial planning businesses - were less likely to continue to be acquisitive.

They also discussed whether the pandemic would change the assessment consolidators made of which financial advice firms they would want to acquire.

Mr Hartley said: "We may become more selective and also I think we are reshuffling the shopping list. What are we looking for within a target that makes them a good long term investment? Within that new shopping list resilience, robustness of revenues, how well they have been able to adapt to a zero touch environment, client retention rates.

"All that sort of stuff that has always been there in the analysis of an acquisition target but those things are now taking a slightly higher order in the priority list, as important as profits and funds under management."

But Mr Morrish disagreed: "Deals are about people selling to people.

"The operating environment - I guess we all know that buildings will be less popular to own as a piece of real estate or asset going forward - we work around that because we bring people into our scaled operation."

To listen to the full podcast click play on the video above or listen on Apple Podcasts, Spotify, Stitcher or Acast.

damian.fantato@ft.com