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Advisers back Nucleus float to beat conflict of interest concerns

The now confirmed stock market listing of wrap platform Nucleus has the support of advisers, who say it would offer an opportunity to sell their stake in the business and avoid conflict of interest issues.

Nucleus confirmed today its plans to list on the Alternative Investment Market with dealings in the shares expected to start later in July.

Nucleus, set up 12 years ago, recently wrote to advisers about floating on Aim, asking for responses to its proposals by the end of May.

Reports that the platform was mulling a listing first emerged in March when it was suggested the business had appointed a broker to oversee a float.

Nucleus was exploring floating in 2016 but withdrew its plans after feedback from advisers suggested it should concentrate on innovation and efficiency improvements before any listing.

The May letter, seen by Money Marketing, was addressed to shareholders of Nucleus IFA Company Limited  and said the directors of that business had been told by the board of Nucleus Financial Group that it was giving “serious consideration” to floating.

The document says Nucleus would be aiming to have a valuation of between £100m and £120m on admission to Aim.

The letter proposed a float would take place in June, but Money Marketing understands that time frame was pushed back because the exploration phase of the process was taking longer than expected, due to the number of parties and shareholders who would be affected.

Nucleus IFA Company owns a 22.8 per cent stake in Nucleus Financial Group, which is predicted to increase to 23.4 per cent in the event of a listing and its capital is “reorganised”.

Platform pressure: Will stock market floats breed adviser conflicts?

As part of the listing process it is understood adviser shareholders in Nucleus IFA Company can either sell their shares or they will stay invested as shareholders of Nucleus Financial Group.

The letter mentions there would be no new shares issued as part of a listing to raise additional capital.

Some advisers are supportive of a listing because it would help eliminate any questions of a conflict of interest, following increased scrutiny after the introduction of Mifid II.

One adviser tells Money Marketing that while they understand it was always the plan for Nucleus to look to float, Mifid II has been a useful push for it to make such a move now.

The adviser says: “A lot of us who want to maintain our IFA status have been saying to Nucleus we are uncomfortable and need to sell our shares to avoid a conflict of interest.”

Other reasons advisers might be supportive of a float have been suggested, for example the ability to release capital to retiring IFAs.

The time frame has been pushed back because the exploration phase is taking longer than expected

The letter explains that the management team of Nucleus Financial Group will not be able to sell more than 50 per cent of their shares within 12 months of the listing. There will also be a further two-year period where they will not be able to sell the remaining 50 per cent.

It says it is understood advice and investment network Sanlam UK, currently a major shareholder, has agreed not to sell its shares for six months and will be subject to a further 12-month period under an agreement.

According to results filed to Companies House for Nucleus Financial Services Limited, the business reported record operating profit of £5.1m for the 12 months to 31 December 2017.

Just over 50 advice firms, with a total of around 200 advisers, signed up to the platform as new users in that period.

Editor’s note: Platforms need to make sure they can cash the IPO cheque

Assets on the platform increased to £13.5bn in 2017 from £11bn the previous year, and revenue grew by 21 per cent to £40.4m.

In the results statement, Nucleus says it provides a “white label platform solution” for support service provider Paradigm Partners. In 2017 this accounted for a quarter of new business on to the platform.

Nucleus also has a relationship with investment and advice firm Sanlam, which is the largest institutional investor in the platform, and whose chief executive Jonathan Polin sits on the Nucleus board.

Nucleus is the latest in a string of financial advice market businesses to have either floated or to be considering  doing so.

Elsewhere, AJ Bell is set to launch an IPO on the London Stock Exchange either later this year or in early 2019.

Fellow platform Transact floated through parent IntegraFin earlier this year and Embark, which owns Sipp providers Rowanmoor, Hornbuckle and the Embark platform is reportedly also eyeing a listing.

Adviser support service SimplyBiz floated on Aim in April with a valuation of around £130m.

This week the former Old Mutual Wealth business listed on the London Stock Exchange as Quilter with a valuation of £2.7bn.

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Who would have ever guessed… advisers supportive of receiving windfall from a conflict of interest to eliminate that awkward conflict of interest…

    Once they have the money in hand history can be ignored and no harm done then.

  2. Game Keeper Turned Poacher 3rd July 2018 at 6:37 am

    I find it amusing that MiFID II is cited as a reason to get rid of the potential conflict….the rules have always been there. This is no more a conflict under recent changes than it was before….FCA principles and SYSC rules are quite clear on that point…..of course the best way to have managed such a conflict in the first place is to a)not have brought the shares or, if buying the shares b) never using the Nucleus plstform on yoir customer panel…..I wonder how many advisers considered either of these an option at any point? Hmmmmmmmmm……

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