View more on these topics

Are IFAs past their sell-by date?

Last year&#39s acquisition bonanza has virtually fizzled out, leaving parent-seeking IFAs left without buyers. After three years of bear markets, prospective buyers no longer have big appetites for making acquisitions and there is a glut of IFAs looking to sell, stemming from concerns over the costs of administration, regulation and professional indemnity insurance.

Aegon has so far been the most acquisitive provider, buying three IFAs and taking major stakes in two others while collecting an assortment of minority stakes throughout the industry. Skandia Life, Norwich Union, AMP and Friends Provident have also taken stakes in IFAs in a bid to increase distribution and keep a foothold in the IFA market.

However, IFA Group Consifa has now bucked the declining trend by throwing its hat into the ring, announcing last month plans to list on Aim in a bid to raise funds for an acquisition programme.

Skipton Financial Services managing director Simon Holt says: “It is an odd time with seemingly conflicting environments. On the one hand, you have industry issues such as the PI insurance crisis and piles of regulation making selling a more attractive option. Many seemingly healthy firms are actually very close to trading on the margin. All this is pushing more people into a selling posture. But market conditions mean that there simply are not any buyers.”

Both directly and through its IFA holdings, Skipton has been one of the more acquisitive product providers in the past year, building up its combined IFA revenue to around £40m-45m through the purchase of Pearson Jones, Direct Life & Pension and, most recently, medical insurance specialist MIA.

But Holt believes market conditions mean that buyers are becoming very choosy. There are fewer firms willing to buy.

Aegon UK distribution operations director Keith Robinson says IFAs are not as profitable as they were two years ago. Robinson explains that Aegon&#39s rationale for its aggressive acquisition round last year was different from many other providers.

“IFAs that we buy are set profit forecasts that they have to meet. The agenda is not multi-tying. Any IFA we buy outright, or take majority stakes in, we see as an investment proposition in its own right. The strategy is to gain profit from successful businesses and add value to the overall Aegon UK group,” he says.

Friendly society Royal Liver came relatively late to the IFA marketplace, with its purchase of Park Row last March being its first IFA acquisition. Chief executive and director of IFA operations and development Mike Warr says this has meant it has benefited in terms of value. “We came on the present acquisition scene much later than everyone else but buying later has meant better value,” he says.

Warr believes the present marketplace works well for prospective buyers. Royal Liver was looking for an IFA to buy but could not find one that fitted its strategy. The present climate allowed it to cherrypick IFAs on offer and demand a better price. But even though Park Row is believed to be the first of a number of planned IFA buys, Warr says any future purchases will not be as easy: “As a provider, buying your first IFA is somewhat simpler than bringing one into a larger group. There are issues with brands, duplication, building common businesses. The more you buy, the more complex the integration process.”

Berkley Berry Birch has also been on the acquisition trail over the past year, with a war chest of £20m that still has not been spent. Deputy chief executive Stephen Ingledew agrees with Holt: “Initially, we were looking at companies with turnover of £1m to £4m but we were surprised when, three to five months ago, bigger firms around the £10m-plus size were knocking on our door, wanting to be part of a larger group. This signified a dramatic change in the IFA marketplace.”

The move from a seller&#39s market to a buyer&#39s market has meant acquisitions are now driven more by the buyer&#39s selection. For BBB, this has meant that it now looks more towards big firms with respectable profitability rather than focusing on increasing geographical coverage. It also means that the firm can demand a tighter handover policy for new acquisitions.

Ingledew says: “We have structured our deals so that we pay as little in cash as possible, preferring to tie sellers into earnout deals that sustain continuity for the acquisition.”

Industry players such as Holt and Ingledew believe that the acquisitions of bigger IFAs is changing the face of the marketplace, substantially altering the economics of the advice business. Holt believes IFAs are becoming increasingly concerned with future security and are embroiled in a race for the market&#39s top five slots.

Holt says: “IFAs will find it incredibly hard to survive if they do not get big fast. The industry has about two or three years left before people start getting squeezed out. By this stage, if you are not big, your chances of survival will be slim.”

Warr says: “One of the attractions of being bought out is the protection that it gives you from regulations and market forces. It will be a brave person who says they can call what will happen with the market in the next few years.”

But with potential buyers setting their sights substantially higher, many smaller firms are looking for safe havens beyond acquisition and towards IFA networks. Although lacking the cash injection that a sale can provide, networks such as newly consolidated Misys (IFA Network, Countrywide, DBS, Financial Options and Kestrel) and IFA group Tenet offer most of the solutions that IFAs are looking for from a sell-out, including annual and succession planning, compliance and IT and sorting out authorisation.

Misys Networks managing director Steve Pearson believes that even the more successful small IFAs are looking to join networks now that they have been priced out of the market: “Firms as large as £5m turnover still are not likely to have adequate resources to deal with PI and regulation requirements, such as expert policy writers and negotiators.”

Pearson says that he has seen an increase in enquiries from firms with turnover of £1m-plus looking to join Misys: “This is a pipeline that continues to grow. We already have many members in this range but networks are becoming increasingly more attractive to those firms that were initially looking to sell their way out of the PI crisis.”

Although much of this movement is at the lower end of the marketplace, many commentators agree they are yet more signals of a consolidating industry.

Robinson believes consolidation of the industry has only just begun: “In five years time, there will probably only be about five to six providers and no more than 20 IFA groups. These groups will consist of providerdistributor partnerships and network groups. I do not see this as the demise of the small IFA but unless they are organised into bigger networks, they will find it very difficult to survive.”


Liberty Ermitage discovers golden opportunities

Liberty Ermitage has established an offshore Oeic that aims for capital growth by investing in gold and precious metals. The Liberty Ermitage gold & resources fund will invest in a combination of gold & precious metal stocks and specialist gold funds. Large caps comprise the largest weighting in the portfolio at 32 per cent, while […]

Another bonus blow from AMP

AMP&#39s already shaken with-profits policyholders have been struck another blow after being told many of them can expect no bonuses ofany kind in the future.The latest news follows AMP&#39s announcement earlier this month that under its plans to demerge its UK and Australian operations it would also move its with-profits funds out of equities.Policyholders received […]

Exploding IFA myths

I recently took up an invitation by the London Insurance Market Professional Indemnity Forum to provide a more comprehensive ins-ight into the IFA market to help in its continual quest for education and to challenge a few commonly held myths about IFAs.It was quite clear from the outset that the insurance market representatives were cynical […]

Brown keeps the crown of power

Chancellor Gordon Brown takes the top spot in this year&#39s Money Marketing Power & Influence in retail financial services list for the second year.Brown, the architect of the FSA, claims the crown ahead of outgoing FSA chairman and chief executive Howard Davies and Bank of England Governor Sir Eddie George in second and third respectively.The […]


Guide: what you need to consider for your auto-enrolment project

In this guide, Johnson Fleming reveals what items you need to understand to gauge the impact of auto-enrolment on your business. The guide focuses on: the impact that your auto-enrolment scheme will have on you; assessing your workforce; understanding your staging date; reviewing your current provision; and modelling contribution levels and costs.


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm