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Categories:Advisers

The age of enlightenment

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David Hesketh, group M&A manager at Perspective Financial Group, says many IFAs are realising that becoming part of a national group can help small firms increase their margins and concentrate on advising clients

I meet significant numbers of IFAs every week. It is fair to say that no advisory practice is the same. Our profession houses not just an inordinate number of opinions on every conceivable issue facing the industry but also a huge array of approaches on how best to advise and conduct business. We are all governed by the same rules and regulations but the way we go about generating income and profit can differ greatly.

It is these differences that make this industry interesting and mean clients do not have to accept the same vanilla offering from every IFA. However, while these variations are important, looking forward to the new RDR environment, I am also enthused by the shared challenges we all face and how we intend to deal with the big issues that all practices are coming up against.

This shared connection and the awareness that advisers have similar hurdles to overcome was emphasised during the recent PFS Tomorrow’s Client Conference, supported by Money Marketing.

Out of a number of thought-provoking presentations, the one delivered by Phil Wickenden of So Here’s The Plan stood out. Phil outlined the results of some research by Technical Connection following an in-depth survey of 100 advisers. Although 100 advisers may not seem like many out of an industry of many thousands, the level of detail offered by those respondents offered a real insight into the IFA community and reflected the opinions I hear regularly.

Respondents to the survey were asked one particular question: “What are the biggest issues facing your business?” The responses were perhaps unsurprising but say a lot about the environment IFAs are working in. The two top answers were increased costs and thinner margins.

These issues are in the minds of almost every IFA in the country. They also represent a situation that many find themselves in across our profession. Nobody should take that lightly because it presents difficult consequences for practices, particularly given what needs to be put in place before 2013 and the resources and investment that have to be used to achieve RDR-readiness.

Why is this of particular interest to someone who works on the acquisition side of a national IFA group, especially given that these answers were hardly surprising? The reason is that when practice owners contact us about a potential purchase, they are generally doing so for a number of reasons.

One is to release capital from their business but two of the primary drivers for IFA principals is assistance with maintaining their margins and help in managing their cost base, in effect, helping them deal with the two biggest issues highlighted by IFAs in their response to Technical Connection’s survey.

These principals are choosing to become part of a national group to benefit from the natural economies of scale of a bigger operation and to tap into centralised support to manage down their cost base and increase their margin.

This shows that practice owners are going through something of a change in priorities. Having welcomed over 25 IFA practices into Perspective Group and met with over 300 interested parties, this has been very noticeable. It is evident that the pressure of increased costs and increased compliance responsibilities has brought about a mind-shift for many principals. They have essentially undergone a period of self-enlightenment about their business, their role, how they can continue to deliver for clients and employees and how they can best secure both their and the firm’s future.

On top of this, many come to the conclusion that being the management rather than the adviser is not what they entered the profession for.

Many have reached that point in their career where they have had enough of the overbearing management costs and responsibilities that come with running a firm. By opting into a national arrangement and benefiting from a central support team, principals know they can have all the resources they require to maintain and usually grow their margins after acquisition.

The national group delivers in terms of bringing costs down and helping margins to rise, an appealing prospect to many who understand the industry and want support but historically have been unsure where to source that support.

Within the survey, advisers were also asked what deliverables they believe clients rate most highly from their adviser. Again, the answers were not unexpected, with the most popular deliverables being phone contact, regular meetings and technical expertise.

Interestingly, after the RDR, advisers expected their clients to value the same deliverables but predicted that one area would see biggest expected increase in importance. This was access to online valuations, an interactive web presence and access to online dealing. My ears pricked up at this point, given the focus and resources we are putting into these areas - essentially, it appears that a national operation such as ourselves can provide a competitive edge in this area as well.

The research provided a level of reassurance for us as a business and also delivered some insight into what IFAs expect the future to look like and what challenges they will face in that future. I do not expect the twin concerns of increased cost and thinner margins to disappear overnight but firms may simply need to reconsider their options when it comes to tackling them. Joining a national group may not have been on the agenda a few years ago but times change quickly.

One word of warning to those who are considering this option - making the move sooner rather than later will be of benefit. For example, Perspective acquires IFA practices based on profitability and therefore potential vendors will increase the value of their business if it enters the acquisition process while their margins are thicker and costs lower. If you are a principal who sees margins threatened and costs increasing, then perhaps now is the time to join a group to maximise your company’s existing value.

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