Last February, buried among the rest of its busy schedule, the FCA published a report into the advice firm consolidation market. On the back of an increase in acquisition activity since the RDR, the regulator decided it was about time to check up on how clients that moved firms were being treated.
While the FCA was unable to pin down any widespread suitability failings, some of its findings looked pretty serious. Firms who paid advisers based on the charges they could get for replacement business risked bad outcomes, for example. Overall firms thought too much about making a commercial success of acquisitions and not enough about whether the clients were treated right.
A year on, what large players like Bellpenny, Succession and AFH actually offer advisers for selling their business – their best defence against the regulator’s criticisms – remains opaque. I have on several occasion been contacted by advisers who have been approached by third parties on behalf of acquirers outlining the vague parameters of a potential deal. When I have asked each consolidator in turn if it is their offer that is being discussed, it is denied swiftly by each in turn.
As our feature this week marking the year anniversary of the review notes, consolidators do not appear to have made significant changes to their models because of the FCA’s review. When we approached the FCA for the piece, it declined to comment on any action it has taken since the review.
While the regulator, in fairness, often has very good reasons for keeping its cards close to its chest, it does seem as though consolidators are free to continue as they have been from a regulatory perspective, and are still trying to keep the details of their services under wraps.
On the one hand, the reluctance of consolidators to come clean on their merger offerings is understandable. Their entire business model is based on the template they use. If their competition knew what was in it, they would be in a much better position to undercut or tweak their own deals to poach business.
But it is in equal measure baffling and unproductive for advisers that this situation continues. We certainly want transparency in the marketplace, for IFAs, retiring or otherwise, to know exactly what is out there when they come to sell, so they can assess different offers and ensure the best deal for their clients.
More importantly, if acquiring firms had complete faith that their model is the best choice for selling advisers – as they all profess too – then surely they should be queuing up to lay their hands on the table and let advisers see just how much better their deal is that the rest of the competition’s?
“It depends on the firm” is the common refrain when asking what consolidators offer as a carrot to sell up, and why they can’t disclose it. But that offer must fall within certain parameters and structures set by the acquirer, otherwise they would not have a repeatable business model. This is particularly key when it comes to charges and centralised investment proposition construction. “Some people will pay less, some more” and “we have CIPs that cater for all types of client” aren’t really good enough answers but are still being trotted out.
The reason they have not come clean is because there is no first mover advantage here. Consolidators are waiting for each other to blink. You can only imagine how the rest of the market would tear apart the offering of whoever had the temerity to make their merger template public first.
When it released its review, the FCA said: “We expect all relevant firms to now consider the content of this report and assess whether they need to improve their own practices and procedures.”
But it was not as clear on how it would follow up its work with further supervision or enforcement to make sure that happened. Maybe I’m being too sceptical. After all the FCA did also rule that “all firms involved in the project have since taken action to improve their practices.”
Still, it would be nice to see something from the FCA to prove that they really have done.
Justin Cash is editor of Money Marketing. Follow him on Twitter @Justin_Cash_1