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Evolutionary forces shape Inter-Alliance

The sudden departure of Inter-Alliance founders Stuart McGreevy and David Garofalo leaves the UK&#39s IFA firm with the most registered individuals the task of finding a strategy to turn in a profit sooner than its current prediction of 2003.

The boardroom reshuffle, which follows the stake taken in the IFA by investment bank Evolution Group, comes a week after Inter-Alliance issued a profits warning.

It blamed poor market conditions and an expensive court case with Lincoln International UK for its losses but its rapid expansion may also have strained profitability. Absorbing staff from Lincoln National and Prudential has seen RI numbers soar from 584 to 1,263. Making that massive increase in numbers return a profit will be the new management&#39s biggest task.

Last week&#39s deal places Inter-Alliance under the management of former non-executive director Keith Carby, who becomes chief executive and chairman. He has an impressive track record.

Carby, now in his mid-50s, joined Hambro Life, later to become Allied Dunbar, in 1981 when he became sales director and then managing director. In 1991, he left to co-found J Rothschild Assurance, where he was managing director until the company reversed into St James&#39s Place Capital in 1997 in a deal valued at £1.4bn.

He is promising to give the company a clear direction. On combining the roles of chief executive and chairman, Carby says: “We want a distinctive focus and doing both jobs means all our resources can be aligned.”

Founded in 1994 by chief executive McGreevy and managing director Garofalo, Inter-Alliance has used a strategy of growth by acquisition and organic expansion. With the integration of the Lincoln National and Prudential salesforces, it is now the UK&#39s biggest IFA in terms of salesforce size, with 1,263 RIs spread over 90 offices, with 10 branches overseas.

The takeover of Lincoln&#39s direct salesforce in September 2000 brought an extra 600 RIs on to Inter-Alliance&#39s books and turnover was up by 255 per cent in 2001 compared with the previous year. Targeting the Prudential salesforce has seen fewer new recruits, with less than 250 joining from the insurer.

It is not surprising that Inter-Alliance is spoken of as a candidate for investment by product providers. Norwich Union already has a 4.72 per cent stake and the proposed lifting of the better than best rule will make the IFA a target.

Carby says: “We are keeping an open mind but providing independent financial advice is key. Inter-Alliance has immense potential. It has what everyone wants, which is a big force of highly qualified financial advisers. I am sure that we are a target for a single provider but the company&#39s preference, and mine, is to remain independent.”

The court case with Lincoln International UK was heard in November and December, with the judgment later this month. Inter-Alliance blames this case for recent poor performance and Carby believes it has distracted the management from focusing on pointing the company in the right direction.

Carby says: “The Lincoln litigation has slowed progress significantly and if it had not taken place we would have moved into profit.” The maximum damages that Inter-Alliance could receive in the claim, which relates to office property Inter-Alliance says it is due, is £35m. Lincoln&#39s counter-claim is worth less than £1m. Victory would clearly help the Inter-Alliance bank balance and, if it wins, McGreevy may be wishing the judgment had been made a little sooner.

Inter-Alliance&#39s share price is around 55p after a year of decline from a 52-week high of 378p. Evolution bought its stake at 24p a share, paying £1.75m for 12.6 per cent of the company from McGreevy, Garofalo and former chairman Vincent Isaacs. It is also offering a £4m loan that it can convert into shares, which could see its stake increase to 29.9 per cent.

Under McGreevy, the company was active in moving towards a multi-channel cli-ent-servicing strategy. An expansion of its e-commerce programme is at the heart of this multi-channel approach.

FundStore, Inter-Alliance&#39s online fund supermarket, gets 2.2 million page impressions a month, with some clients buying online and some window-shopping.

Inter-Alliance sees the multi-channel approach as using the various technologies to complement customer service rather than to compete with other advisers.

Corporate relations manager Charlie Andsell says: “We want to build a customercentric model . We encourage the customer to buy online as it saves them and us money. The cost base for any other model is prohibitive and there are products such as Isas where customers will be happy to purchase online.”

Whatever changes are made to the regulatory framework, Inter-Alliance&#39s strategy is to target high-net-worth individuals, new affluents and small to medium-sized businesses. It is looking to expand links with other professions as a way of getting new clients through its Professional Alliance division, seeing N2 as a real opportunity for this, with fewer accountants and solicitors regulated to give advice.

Last year, fees represented 15 per cent of income but it has a target of 30 per cent this year.

Carby will have the advantage of the Lincoln court case behind him soon, as well as more financial backing, and is promising to concentrate on operational effectiveness.

But with the scramble for distribution in full flow, there will certainly be more on his desk than that to deal with.

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