Nobody could accuse Alan Hudson of letting the grass grow under his feet. In the past 26 years, the chief executive of financial planning and wealth management firm AFH has been busy expanding the business he founded in 1990, both organically and through acquisitions.
The firm was selectively buying small advice firms even before its flotation on the PLUS stock exchange in June 2011, when it laid out its strategy to grow through acquisitions. In 2009, for example, AFH bought the IFA arm of the West Bromwich Building Society.
But the speed at which AFH acquired smaller advice firms between 2011 and 2015 seemed as if it had hit the accelerator button, determined that the buying opportunities that had started to emerge because of the RDR would not slip away. Between 2011 and June 2014, when it listed on Aim, AFH had made 21 acquisitions. Another 12 followed, with the final one completing in July 2015. This level of M&A activity has led to the firm being labelled a consolidator, much to Hudson’s disapproval.
“I dislike AFH being referred to as a consolidator,” he says. “A consolidator is typically a private equity vehicle bolting businesses together primarily to take advantage of commercial arbitrage. I am a financial planner and the firm is growing organically. We will only buy businesses where the companies add value to our group.”
For Hudson, the differences between AFH and consolidators are clear. He says AFH is not under pressure to buy businesses, unlike the private equity vehicles that focus on buying up advice firms. “We stopped buying in July last year because we wanted to make sure the business could keep up with it. It’s not right to continue expanding without having the infrastructure in place to support it.”
After hitting the pause button, AFH tried to buy advice network Lighthouse Group in March but its £17.4m takeover bid was rejected and, according to Hudson, Lighthouse was unwilling to enter into negotiations with AFH. So, what makes a successful acquisition in his view?
“It’s the people – culture is everything. I see a lot of acquirers bolting together businesses quickly. For them it’s all about short-term financial engineering. But we’re not in it for the short term.”
Hudson says he cares about who and what is going to work well together, and that a successful deal needs those involved to support the structure and direction of the transaction. “Over the years you develop an insight for who is ‘on page’ and who isn’t. It takes time. If you don’t rush with the potential vendor and you take time to understand the business and have enough meetings, it can mitigate the risk.”
One thing he has noticed is the types of buying opportunities have changed in recent years. In the run-up to the RDR and in the aftermath, it was all about demographics and acquiring small client bases from advisers who were retiring because of the RDR.
“Latterly the deals are slightly larger, in between the £1m and £3m turnover range.”
Many of the current buying opportunities are successful firms with owners that realise they are sub-scale and, without access to capital to expand, they will find it difficult to be where they want to be in the future.
“But they are discerning about who acquires them. They need to crystallise value and are mindful of the proposition or acquisition. We can satisfy vendors on culture and proposition.”
If the AFH acquisition strategy is not fuelled by the same targets and pressures as a consolidator, what’s the driving force behind it? The answer, it seems, is its founder’s determination to keep AFH moving.
“Like most entrepreneurs, I’m driven by the fear of going backwards. I believe that in
business you can’t just stand still, you’ve got to go forwards or backwards.”
Hudson traces his entrepreneurial spirit back to his early days in financial services as a sales adviser with Target Life, which later became part of Abbey Life. “Prior to Target Life I was an industrial chemist. It was interesting, but I realised prospects were limited in that career. A friend I used to play squash with gave up his job to become a self-employed adviser and he persuaded me it was a great career. So I joined Target Life in 1984 and ended up running the Birmingham office.”
Hudson describes Target Life as an entrepreneurial venture that helped him learn how to run a business.
“Each office was run as a profit centre. I was just a successful sales adviser who took over from the Birmingham branch manager.”
In 1990, a change of directorship meant the firm was under pressure to recruit more advisers and Hudson was concerned that quality would be compromised under the new regime.
“I did a deal with them to buy out the Birmingham office and that became AFH. It remained an appointed representative of Target Life and its successors until 2000, when we went independent.”
It seems incredible now but when Hudson started out in financial services, there were no requirements to carry out factfinds for clients. “The industry is better now than when I joined – the RDR raised the standards and that’s a good thing.”
However, he believes the move from commission to fees was “a bit of an overkill”.
“There was nothing wrong with commission – all that was wrong with it was too much smoke and mirrors. If it was made transparent, it could have stayed, at least for some products.
“The issue is that the RDR has disenfranchised a strata of society from getting advice. With banks leaving the sector, that wasn’t necessarily a good thing. Robo advice has a place going forward. It is a good way of engaging young clients and those with less assets but its not the definitive answer.
“It will work best in tandem with face-to-face advice – as a starting point that can move gradually to face-to-face advice.”
Hudson says AFH regards itself as a financial planning-led wealth management business and that it will remain so in the future. “We think the wealth management market will naturally polarise, so you’ll have models where investment management is the lead and models where financial planning is the lead.
“Our aim is to be financial planning-led.”
What’s the best bit of advice you’ve received in your career?
Our chairman John Wheatley persuaded me to bring in outside shareholders as he knew it would be better for the business and for me personally.
What keeps you awake at night?
What has had the most significant impact on financial advice in the last year?
Brexit – in particular the recent issues with commercial property funds.
If I was in charge of the FCA for a day I would…
Any advice for new advisers?
Do a thorough job and don’t fall into the trap of going for low-hanging fruit. By that I mean don’t do a factfind for a client in name only and look for a quick sale of financial products.
Chief executive, AFH
Self-employed adviser, Target Life
Industrial chemist, Parkinson Cowan