Benchmark Capital acquisition process under question over fund flow ‘assumptions’

Questions have been raised over Benchmark Capital’s acquisition process after it appears the group gave a potential acquisition target “assumptions” for flows going onto its platform and in to its funds.

A document seen by Money Marketing, was initially given to an advice firm in sale talks with Benchmark Capital.

It is a spreadsheet which lays out financial details of the advice firm and assumptions and projections about the business from Benchmark.

On the a section labelled “Assumptions”, the document lists figures labelled “% of asset flows to Fusion funds”, “% of asset flows to Fusion platform” and “% new asset flows to non Fusion”.

The figures are, annually, 70 per cent, 20 per cent and 10 per cent respectively. This appears to indicate where it is assumed new assets will flow.

A section labelled “Projections” shows a continuing upward trend in platform and fund assets under management over a 10-year time period.

It also uses formula for enhanced multiples on projected new business figures giving an idea of what the earn-out could look like.

The ways of calculating considerations are split into three models: multiple of ongoing revenue, EBITDA and assets under management.

The highest multiples are for assets in Fusion funds. Using the multiple of ongoing revenue model this comes in at five times revenue from assets invested in Fusion funds. Using the EBITDA model this is ten times.

For funds on the Fusion platform the figures are 3.25 times when looking at the multiple of ongoing revenue model and eight times with the EBITDA model.

Using the assets under management model the consideration is 2.5 per cent and there appears to be no change to that regardless of where assets are held.

The document was authored by Benchmark director Keith Hare.

Benchmark Capital says it is not aware of where the document came from and that it has nothing to do with the way the group buys advice firms.

Benchmark Capital is a vertically integrated group including the Best Practice network, chartered IFA Aspect 8, network and chartered financial planning firm Evolution Wealth, investment platform Fusion Wealth and technology firm Creative Technologies.

Investment manager Schroders took a significant stake in Benchmark Capital in 2016 and increased their holding to 77 per cent in May 2018. In December last year Benchmark Capital took a 49 per cent stake in ratings and research agency Rayner Spencer Mills Research.

The Fusion Wealth platform, launched in 2011, runs a discretionary fund manager Fusion Wealth Investment Solutions. According to a Fusion Wealth Investment Solution bulletin from last year the DFM managed £1.6bn of client assets at the end of June 2018. The service is exclusive to the Fusion platform and uses research and expertise from Schroder and RSMR.

Asked for comment on the document Benchmark Capital chief executive Ian Cooke says the group does not offer firms a higher price for directing asset flows to Benchmark products:

“This is not one of our standard documents or indeed anything I recognise.

“I can absolutely say that Benchmark has never bought any firm on any enhanced multiple because of provider usage and we never will.

“The primary measure of due diligence for us is the suitability of advice and professionalism of advisers.”

He acknowledges the vertical integration aspect of the group but emphasises there is no financial incentive to use more than one part of it.

“We have a platform business, we have Schroders, we have [Shroder’s-owned DFM and private advice business] Cazenove, we have funds that Schroders has built for us. All of this could be considered an incentive if you put a premium on it. But we don’t put a premium on anything. Never have and never will.”

Cooke also says why Benchmark would not offer enhanced multiples.

“We would regard it as an inducement so we wouldn’t do it.”

One industry professional said they were not surprised to hear about this exchange between Benchmark Capital and an advice firm.

They say: “The game has not really changed, all that has happened is firms have got better at covering their tracks to make sure this sort of thing does not appear in anything formal the FCA might see.

“Distribution deals can be done on a nod and a wink and hints of a promise of a future pay off.”

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. I don’t normally comment on MM articles but this one really necessitates comment and fact.

    I sold my business to Benchmark Capital nearing two years ago. I might have got only slightly more in the market, but the transition has nothing short of fantastic, my clients are happy and all of them stayed with the firm and are being looked after by an employed chartered financial planner.

    On the subject of commercials, I was paid an amount upfront which had absolutely nothing to with where the assets were, or which fund I used and there was absolutely no bias or incentive whatsoever, in fact quite to the contrary and in my shareholder agreement.

    My deferred consideration is just about to be paid out and is significantly higher than expected because the business has grown organically, and I participated in the upside – again, my deferred consideration has absolutely nothing to with where the assets are held.

    In addition to the above I have taken a consultancy role to aid transition to another planner and I am also remunerated for that.

  2. I have just read this article and again have to echo Brian’s comments.

    Benchmark and its subsidiaries do not do this. I am aware of my buyout terms which actually state that there is no requirement to place business with any provider. This is absolutely clear and written down.

    To make it clear there are no incentives offered to purchase my business and I this includes all of my colleagues who have been here longer than me.

  3. I am not sure there is much of a story in an excel spreadsheet read out of context – is it a quiet news day ?

    When we decided to speak to numerous acquirers over the last 2 years we were offered significant financial enhancements to move our clients assets, or churn as I prefer to call it, onto their platforms and DFM service. It was explicit and back end loaded to “reward” us achieving the agreed targets.

    We ended up becoming part of Benchmark group last summer ( for less than we had been offered elsewhere) there has never been a conversation about targets or moving AUM or rewards for doing so, it was a simple financial transaction and has remained as such.

    Perhaps I missed a trick here and should have asked for a secret kick back deal for churning clients, although I suspect Ian Cooke would have kicked us out the door.

  4. Roderic Rennison 6th March 2019 at 3:13 pm

    I have read this article with some bemusement.

    Having introduced a number of businesses to Benchmark Capital/Succession, I have never seen any document of the sort mentioned used in meetings or discussions.

    In addition, Ian Cooke and others within Benchmark are at pains to emphasise that that there is no compulsion to place assets on the Fusion platform.

    Rather, Fusion has to compete based in its merits.

  5. Clearly someone at Money Marketing will look a bit silly running this ‘nothing’ story. After all most of us in business have all manner of XL spreadsheets sitting on our laptops containing various ‘what if’ scenarios. Money Marketing should know that having sight of one such spreadsheet hardly constitutes a ‘smoking gun’.

    For our part Sandringham has benefited enormously in the three years we have employed Benchmark’s Enable and Fusion fully integrated back office and front office technology.
    A key factor in our decision to switch to Benchmark was the insistence by both Keith and Ian that there was no compulsion to place assets on the Fusion platform. Their approach, which is almost unique in my experience, was to provide a high level of functionality at a price which makes it compelling to use. In other words perfectly placed to deliver customer outcomes as well as making the adviser look good.
    For heaven’s sake there are plenty of companies out there who fail on both these fronts and I would expect that these firms are the ones that require your attention and efforts, not the good guys.

  6. Important news flow must be light!
    Like Roderic, I have also introduced several high quality, Independent financial planning firms to Ian and the team at Benchmark Capital and the Best Practice Group. The basis of valuations has remained aligned to the consistency and quality of advice provided to clients underpinned by the efficient and robust operating procedures.
    I have also worked with the group in my capacity as a Distribution head of an Asset Manager and in all my dealings with them, over 20+ years, they have consistently and passionately remained fully committed to supporting Independence and I would therefore cast significant doubt as to the representative nature, accuracy significance of the “excel spreadsheet”.
    Ian & his team continue to extol the virtues of independence in all my dealings with them and one small example is provided by evidence of the continued additions of third party investment solutions available through Fusion.

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