One way of looking at this would be a company that has financial problems being taken over by a company that has financial problems. And when that new company fails, allowing it to be taken over by a company that has financial problems. All sanctioned and all legal. Surely this couldn’t happen again though, after the failings of banks and the spotlight being put on “large” organisations?
Eight years ago, this process of transferring bad to bad would have been revolutionary, now it is horrifying. Despite several of these purchases going wrong, there is collective insanity in the market, a belief that somehow, despite all the evidence to the contrary, these deals could be a good for advisers and clients.
Surely the test of whether you would be a good owner of these new clients would be: What is your track record of success so far? How much money have you made? Can you run a small business without losing money?
Here is an even simpler test, what makes the most logical match – allowing a company that is losing money to take over a company that is also losing money or using a company that has made a profit (and therefore the directors may know what they are doing) to help those advisers.
You may be one of those advisers that, through no fault of your own, find yourself being bartered over, and not for the first time. You may even be witnessing the authorities colluding with that bartering by steering you towards a firm of “choice”, a choice based on convenience, not on any com-mercial or market logic and, worse, based on a mechanism which has been used in the past to repeat the same failure.
The new firm inevitably fails (Why? Well they couldn’t make a profit when they were smaller, so the same directors cannot make a profit when the challenge is greater), and then another firm, also losing money steps in with golden hellos, big promises and a convenient way to switch clients, takes over, and fails.
The above are merely symptoms of the deeper underlying issue which is that the medium to large IFA firms struggle to make any form of profit. In the short term it means that such takeovers lead a product provider to keep a firm running longer than it should have through a further injection of funds.
Why would providers do this? To turn them into a single or multi-tie later on when no one is looking (and then watch the competent advisers leave).
The true answer should be – stop the artificial life-support of these companies, close them down and let the adviser deal direct with the client and the FSA. Call a halt to further insanity. Make the directors and shareholders responsible for the debt they have created.
David Harrison is managing partner at True Potential