We are told the FSA has had what can only be described as an influx of applications to cancel permissions ahead of the end of March deadline so firms can avoid paying regulatory fees for another year.
Firms with a reliance on mortgage advice have been particularly vulnerable but they are not the only ones. Any IFA business continuing to run with the so-called old model is at risk.
News about acquisitions of client banks or entire firms is on the increase and we hear there are a lot of disappointed retiring advisers. Dreams of a capital payment for a client bank as a multiple of recurring revenue are turning out to be an illusion. At best, a multiple of one to two times recurring revenue is available and this is being paid out over a one to two-year period. Even these low figures are on the decline.
All this is not to say there is no value in an IFA client bank but nowhere near as much value in a traditional IFA client bank as was expected by practitioners now considering an exit.
Value is in the combination of four things – brand, people, processes and assets under management. One factor in isolation has minimal value. All four combined results in a valuable IFA business.
Looking solely at assets under management, this needs qualifying. A client list of 750 names with policy records and renewal income of £150,000 a year represents equivalent value as 150 clients with recurring annual revenue of £120,000.
In fact, the latter client bank demonstrates a thinking IFA that understands the 80/20 principle. It means they have been through a segmentation, disengagement and re-engagement exercise with their clients. It should mean they have written service agreements with each of those remaining clients.
The £120,000 a year is more profitable than the £150,000 and has significantly less risk.
There are challenges with segmentation and disengagement. In the main, these form a mental barrier to making the move away from a firm with a large number of customers to one with a small number of clients. Get past that and the experience is liberating.
Your life will change for the better. You will work less but earn more. Your clients will thank you, your staff will thank you and so will your PI insurer.
What will accelerate business failure over the next few months is practitioners who cling on to the vision of being all things to all men and hold on stubbornly to their bloated customer lists. Disengage and enjoy the ride.
Martin Bamford is joint managing director of Informed Choice