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Are consolidators RDR scaremongers?

In Partnership director claims firms are playing on advisers’ fears

Pittaccio: Concerns at giving away recurring income
Pittaccio: Concerns at giving away recurring income

In Partnership investment director Mark Pittaccio claims that some IFA consolidators are scaremongering about the retail distribution review to get IFAs to join.

Pittaccio says consolidators are playing on the fears of advisers that they will not be able to transform their business in time for the RDR.

He says: “They use scare tactics. If you are looking to leave the industry before 2012, then joining a consolidator may make sense but it means giving away such a lot of recurring income. It makes no sense for businesses that want to build and grow or advisers who want to stay in the industry for the foreseeable future to give this away.”

Pittaccio’s comments come as IFA Client Sale, a firm which introduces buyers and sellers of adviser businesses, predicts that IFA numbers will drop to 10,000 following the RDR. But director Jack Robertson says there is high demand for good quality firms, with demand from potential buyers outstripping the supply of firms by nine to one.

He says: “There are many more would-be buyers than there are people who want to sell, which is a very bizarre situation because on January 1, 2013, there will be a huge chunk of people who will be leaving the industry.”

But Threesixty partner Phil Young is not seeing the same demand from purchasers at IFA Marketplace, which offers a similar introducer service for IFA buyers and sellers.

He says demand from advisers to sell is high and IFA Marketplace is struggling to find sufficient buyers.

He adds: “Part of the reason is that not many buyers are offering up-front capital for businesses any more and lots of IFAs will need to continue to need income so selling outright is not necessarily an option.”

Succession chief executive Simon Chamberlain says IFAs would be “crazy” to sell at the moment on the basis of recurring income for funds under management as asset values are depressed.

He says: “You are better off holding on for three or four years as the fund values increase and that is what Succession’s whole business plan is based on.

“We are working with firms to increase their value through to 2013 so that they are all fee-based and service-led, with an audited investment process. If they get through that process, we would like to consolidate them but at their true value.”

Chamberlain also says it is “a bit rich” for networks to criticise consolidators.

He says: “Old-style networks have no interest at all in crea-ting capital for members bec-ause they make money by char-ging members a percentage of turnover. Name one network that has been sold where its members have made any money out of the deal? Members are normally tossed around from one network to another like cattle.”

For those advisers who are unsure whether to sell up or stay in the market, Robertson says if you refuse to meet the RDR requirements, then consider selling your practice now.

He says: “I think it would be very unwise for people not to consider selling this side of Christmas. I can see that there will be a significant glut in sellers in 2012 so the prices are going to fall dramatically.”

Young agrees that there could be a surge in advisers on the market as the RDR draws closer. He says: “If advisers leave it too long, there could be a lot of sellers on the market at the same time in the run-up to and shortly after the RDR deadline.”

Thomas and Thomas managing director Darren Lloyd Tho-mas does not believe that many IFA firms will sell.

He says: “I accept that the original RDR would have put many IFAs out of business but the new RDR is an easier pill to swallow for most successful practitioners. People quickly forget that the IFA can manage change in a far better way than nearly every other professional occupation.”

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