Advice firms call for action to ease consolidation pressure

Advice firms call for action to ease consolidation pressure
Photographer: Chris Ratcliffe/Bloomberg

A handful of advice firms have called for action from regulators and lenders to make it easier for them to remain independent against the backdrop of increasing consolidation.

Some 49 advisers, the majority of whom (71.4 per cent) were business owners, cited issues such as capital adequacy, a lack of lending options, and “disproportionate” fees for small firms as just some of the hurdles which make remaining independent difficult.

A significant majority (84 per cent) of these advisers have been approached by buyers over the past year, with most citing three or more approaches during this time period.

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But despite incessant interest, these advisers and their firms are determined to remain independent.

A survey of their thoughts, conducted by boutique investment consultancy Albemarle Street Partners, has resulted in a five-point manifesto called ‘Coalition of the Independent’.

The points call for:

  1. Action on the cost of borrowing to help advice firms meet capital adequacy requirements to help smaller firms grow through acquisitions;
  2. More education and awareness of advice as a profession to curb worries over staff retention and recruitment;
  3. An Independent Academy to encourage advice as a second career in order to tackle the profession’s ‘recruitment gap’;
  4. A closer look at the cost of compliance to ensure smaller firms are paying “a proportionate sum” for regulation; and
  5. A “light-touch regulation” approach for those firms that cause the least harm to the financial services industry.

Most advisers surveyed (59.1 per cent) said the biggest drawback to a consolidated advice sector is a “weaker focus on the best interests of clients”.

They also cited drawbacks such as “less individualised financial advice” (28.5 per cent) and “a loss in the diversity of approach across the sector” (12.2 per cent).

George Goward, managing director of George Square Financial Management, said one way to curb larger firms’ acquisition appetites would be to make it easier for smaller firms to grow through acquisitions.

He said the Financial Conduct Authority “makes it so difficult for companies in the mid-size” to be able to take on another firm due to capital adequacy rules.

"Why can’t we come up with a way that we can borrow money to get these [IFAs] into us, into smaller companies, rather than having to be mopped up by the likes of St James’s Place?,” said Goward.

He also suggested the FCA could consider making it “easier to borrow”.

Ray Tuffield, managing partner of Courtney Havers LLP, put the issue of borrowing down to how lenders view ongoing fees. He said while they are not guaranteed income streams, they are “secure income”.

He explained: “This needs to be looked at more carefully so we do not fall foul of FCA capital adequacy rules because of loans with high interest rates because if you take out a loan you could be in breach.”

On regulatory fees advice firms face, Simon Dickerson, a director at Medical & Financial, said if he could encourage advisers to join together to push for one achievable goal, it would be for a reduction in the Financial Service Compensation Scheme (FSCS) levy.

"This could be achieved with a change in the operating environment for advisers, including ‘simplified regulation and reporting’ as well as a redefinition of what a ‘small firm’ is,” Dickerson explained.