AFH chief executive Alan Hudson on leading the industry’s most prolific advice firm consolidator
After announcing four acquisitions in just two weeks earlier this month, AFH chief executive Alan Hudson knows the market has questions about the sustainability of the group’s success.
AFH is becoming a mainstay of adviser-press headlines as it continues buying up advice firms around the UK while maintaining top line profits. It recorded a 177 per cent increase in profit after tax in the first half of the year.
The group will pay a maximum of £6.7m for the four most recent deals. Its acquisition of Bedfordshire-based Ashton House IFA will cost up to £2.6m and its purchase of HTH Group, including subsidiaries Thomas Heald and Thomas Heald Solutions was agreed for up to £5.1m.
There appears to be plenty more in the AFH warchest however, after a £17.5m fundraising round 10 months ago and a £10m sold-out rights issue in April 2017.
Back-to-back consolidation is not all that AFH has kept its eyes on, with the group announcing its intention to scrap platform fees from 1 August.
Money Marketing spoke with Hudson about the strategy behind AFH’s growth, further plans for expansion and the reasons behind the platform price move.
Getting the right mix
AFH acquisitions fall into three categories, which Hudson says helps the group keep track of its overall targets.
One strategy is to buy one-adviser firms whose owners retire straight after the business has been integrated into AFH. Another is focusing on acquiring medium-sized businesses.
Both the acquisition of London-based IFA Parker Sage and Ashton House fall into this second category. Hudson says these purchases allow the advisers selling the firm to spend more time with their clients.
The third prong of the strategy is buying advice firms that have more than one adviser working for them.
Hudson says this lets the business keep buying firms with one adviser so there are enough advisers for clients to be distributed between.
Hudson says: “Like with HGH and Lyn Financial Services, it allows us to continue with our first type of acquisition category and service clients whose IFA has retired when we have bought them.”
While confirming the group has no plans to target specific regions, Hudson says continuing acquisitions will result in a diverse offering across the UK.
Strength in numbers
Hudson says the firm will continue following a simple plan when it comes to future acquisitions.
He says: “It is just ‘acquisition’ in name and the danger is people will look at the number of deals and think there’s a big problem waiting to happen, but what we’re really doing is recruiting advisers and recruiting clients and those advisers who join are just continuing to look after their clients.
“It might be ‘acquisition’ in name but it’s very similar to normal organic growth.”
The group has now surpassed £4bn in assets under advice.
Hudson says: “We have no intention of slowing down as a business. I see more deals now than I have ever done and so without a doubt, it can be said that the pace of consolidation is quickening as more and more businesses come to the market.”
AFH is targeting £75m turnover, £5bn AUA and a 20 per cent profit margin by 2019.
Hudson does not provide numbers but says the group continues to be approached by advice firms wanting to be bought by it. Those offers come through its website as well as direct approaches and AFH also works closely with brokers.
The integration process post-acquisition is eight to 12 weeks, and includes the rollover of client details onto one back-office system.
Hudson says: “Integration is no time constraint for us. We will not run multiple back-end systems, all clients are migrated, so our business is homogeneous and simple.”
Platform purchasing power
The group is also looking to better distribute cost-saving initiatives to clients.
Hudson says: “IFAs are looking to find a good home for their clients and by not charging platform fees and using segregated mandates and passing on the cost advantages to our clients, that stands us in very good stead.”
AFH has had a standing agreement of close to a decade with one platform provider, which it does not disclose. Acquired firms are given the option of keeping clients on their previous platforms or moving to AFH’s provider.
Hudson says negotiating fees with its platform at an institutional rate rather than a retail one has allowed the group to negotiate costs down enough to now absorb them.
He says: “The providence of the client doesn’t matter with platforms, which we thought was crazy, and we’re now in a position where we can afford to absorb that cost, which is lower than a traditional platform cost, and create a platform fee-free arrangement.”
Hudson expects the offering will boost AFH’s popularity.
He says: “You have to show clients there’s an advantage to being looked after by a big business and so you have to simply explain that.
“There’s a misconception in the market that consolidation is all about bolting businesses together and making lots of money for shareholders.
“We wanted a strategy that also meant clients benefited from scale and so our view is that as we get bigger, we want to use the enlarged purchasing power to that purpose. Absorbing platform fees is a logical conclusion to that strategy.”
Hudson says AFH will stand by its initial pledge not to increase other fees despite the platform change.
He says: “The cynics will say we are putting our fees up in other ways, but we are just absorbing the fee in full because we are fortunate that from a financial strength and profitability perspective, we can afford to do this for our clients.
“We are not slowing things down, so watch this space.”