Only 9 per cent of advice firms expect to be owned by a consolidator within the next five years, according to the Lang Cat’s annual State of the Adviser Nation research.
The research, which surveyed 445 respondents, showed 65 per cent of advisers expected their firm to remain as it was.
Over the past few years the number of consolidators in the advice sector has boomed, many backed by private equity and some acting as start-ups - coming into existence solely as consolidators.
Indeed the number of mergers and acquisitions in the advice market surged by 50 per cent during 2021.
Approximately 17 per cent told the Lang Cat they expected someone else to own the business as part of an existing succession plan and 9 per cent believe it will be owned by staff or management as part of an employee ownership trust or management buyout.
But despite only 9 per cent expecting to be owned by a consolidator, 28 per cent said they were approached by a consolidator in the past week and 12 per cent said they had been on the date of the survey.
Speaking at a virtual event this morning to launch the report Lang Cat principal and founder Mark Polson said: “Over half of firms have been approached within the last month by a consolidator. One or two things is true, either that 9 per cent are completely unrealistic and lots more people are going to be owned by consolidators, or there's going to be a lot of very, very sad business development managers from consolidators come bonus time in March.
“I don't know which of those is true, but one of them has to be and I'm just starting to wonder whether the gold rush in terms of consolidation - I wonder if we're just starting to see that come off a little bit.”
A third of advice firms (32 per cent) said they would need a 'significant offer' to consider selling to a consolidator
found 24 per cent of advice firms said they would need continuity of client ownership from a consolidator and 20 per cent said continued independence to consider selling.
This was followed by security for staff (16 per cent) and a clean exit (14 per cent).
The research also found around 40 per cent of advice firms also said they were concerned about being swept up by a consolidator (13 per cent concerned and 27 per cent somewhat concerned).
Only 6 per cent said they are extremely concerned and 54 per cent said they are not concerned at all.
Polson added: “Valuations for firms are still nuts but we all know that the value that you get quoted on the deal is for seven times [or so] and often has only a tangential relationship with how much money as a business owner you actually make.
"I equally just wonder if we might see the velocity of consolidation start to drop just a little bit. We're looking for mismatches and I think we see one here, where the appetite for consolidation is huge but the appetite to be consolidated is perhaps lower than many people believe and it's certainly lower than I thought it would be walking into doing this wave of studying.”
A great year
The Lang Cat research said one of the biggest conclusions from the report was the fragmentation and segmentation seen in how advisers approach key decisions such as centralised investment proposition adoption and platform selection.
This evidence was clearest when it came to matching platforms and investments to client requirements, with most firms running more than one platform relationship while assets held on a legacy basis are spread all over the place.
Of the 88 per cent of advice firms who run a CIP, a fifth use more than one type of CIP methodology within their firm and the plurality (34 per cent) choose to have a degree of optionality underneath their adviser-led or DFM models such as ethical, active or passive portfolios.
Steven Nelson, insight director at the Lang Cat, said: “The clearest message from our latest research is that the sector doesn’t think one way about anything. Indeed, one of the few consistencies amongst the variety of adviser approaches we see is that all roads lead to client suitability.
“This is a sector where there is clear, demonstratable, quantitative evidence that advice firms are choosing client outcomes over an easier set of processes for themselves.”
The report also found advice businesses were emerging from the challenges of the pandemic in good condition with almost 80 per cent of business leaders from advice firms expecting to report an increase in turnover for 2021 compared to 2022 while 76 per cent of businesses are also happy with their current level of organic growth.
Nelson added: “What these turnover levels and organic growth aspirations tell us is that this is not a distressed profession looking for the means to pay its next bill.
“Is it little wonder then that the metaphorical vultures are circling, with the majority (64 per cent) of advisers stating that they are being regularly approached by consolidators?”
sonia.rach@ft.com
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