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Will private equity interest shake up the advice sector?

Will private equity interest shake up the advice sector?

Not so long ago, retail financial advice and its offshoots were seen as particularly unglamourous part of financial services, inhabited by small businesses using ancient systems and outdated business models.

Now, from a certain perspective, financial advisers and platforms, even life offices, have suddenly become the place to be.

Hundreds of millions are being invested in the sector, the vast majority of which is coming from private equity.

Just last week, the platform Parmenion was sold to private equity business Preservation Capital Partners for £102m, while a bidding war over rival Nucleus was ultimately won by James Hay’s private equity owner Epiris.

Advice consolidators are also in the spotlight. At the start of March, Flexpoint Ford came back with an improved bid for AFH, to be voted on at the end of the month, after shareholders rejected its initial offer.

Many will be wondering what has prompted this flurry of interest, and whether it is a force for good. The consensus seems to be that, as professional investors, private equity companies know when a good opportunity to make money presents itself. Whether that translates into a good outcome for businesses and their clients is another question. Either way, some think private equity’s presence could reshape the financial advice industry long into the future.

Private equity businesses are set up to invest client assets – for institutions such as pension funds and family offices – with a very specific goal of making an exit several years down the line. This may be three, five or seven years, but the intention is to have an exit strategy, not to be a lifetime investor, and to achieve a return on their capital.

This may be through finding cost efficiencies, or bringing various companies together – be they adviser businesses or platforms – and achieving economies of scale, all done with varying degrees of quality.

Very often, they move from industry to industry, having invested and exited earlier opportunities. Evidently, such businesses now see an opportunity to do a deal in the financial services sector.

Andy Bell, chief executive of AJ Bell, who has kept an eye on other platforms being bought up, says: “Private equity goes where the action is and that action is in the platform space. Platforms are where the money’s going, and platforms control distribution – it's what the asset managers rely on.

“If you’re an advised customer or direct customer, or seeking help on an investment, you’re far more likely to use a platform than 10 years ago.

“10 years ago you would fill in a sheet from the Daily Mail and send in a cheque. People don’t do that now, they go into Hargreaves, or us, and they get an Isa online.”