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Jolly floating weather

Firms of IFAs are increasingly looking to the London Stock Exchange as a

means of satisfying their strategic aims. It would seem that investors are

welcoming them with open arms.

Inter-Alliance Group has recently reported results which show an increase

in turnover of 235 per cent and the recent flotation of Millfield Group was

heavily oversubscribed by institutions, no mean feat in today&#39s choppy

markets.

What is the rationale for IFA firms going through the time and expense of

flotation? There are a number of reasons why this is an attractive option,

some which are applicable to all businesses and others more specific to IFA

businesses.

It can provide an opportunity to offer incentives to staff and attract

quality recruits.With people businesses, the major assets go up and down in

lifts and senior management have to strive hard to ensure they do not also

walk out of the door.

Share-option schemes are an invaluable tool in encouraging staff to stay

and attracting new staff. After a flotation, optionholders can see the

benefits of their options as the share price hopefully increases.

It is no coincidence that Inter-Alliance and Millfield have adopted many

and varied share-option schemes up to the maximum approved limits.

Perhaps the major benefit of a flotation to an IFA business is the chance

of achieving the holy grail of brand recognition.

The IFA market is still highly fragmented, with few, if any, nationally

recognised IFA brand names. Firms with fewer than five advisers account for

84 per cent of all IFA firms and 88 per cent of IFA firms have turnover of

less than £0.5m.

Yet the opportunities available to IFAs have never been greater. The

growth of the mass affluent, the increasing complexity and range of

financial products and the increasing emphasis given by the Government on

people becoming self-reliant in terms of pensions, etc, are among factors

that have made the IFA sector vibrant.

It would also be fair to say that the competition, principally tied agents

and direct salesforces, are demoralised and are losing market share. It

would seem the only cloud in the sky for IFAs is the potential review of

polarisation.

Despite the undoubted opportunities that exist, few big IFA businesses

have emerged in the marketplace. For the determined and focused IFA

business, a flotation can help kickstart the growth to achieve national

recognition. It is undoubtedly the case that flotation raises the profile

of a business not only with potential clients but also with potential

recruits and product providers.

The giant strides taken by Inter-Alliance in the past two years have

undoubtedly been helped by the higher public profile it enjoys by virtue of

its status as a company whose shares are quoted on the London Stock

Exchange.

As with other businesses, flotation means the company concerned has a

valuable currency – its shares – when it comes to making acquisitions.

When acquiring other IFAs, listed IFAs can offer shares in itself as

consideration. As these shares are capable of appreciation in value they

offer further incentives to the IFAs who have received them.

However, it should be noted there is inevitably a downside to flotation

and the continuing status of a listed company.

The process is time-consuming and expensive. It will involve considerable

executive time which could otherwise be utilised for the benefit of the

business.

The ongoing admin burden that is part and parcel of being a listed company

is also time-consuming. The continuing obligations imposed by the London

Stock Exchange in terms of reporting and making information available are

not to be taken lightly. The board of the company will also be expected to

grapple with the ever increasing dictates of corporate governance rules and

regulations.

The business will be subject to greater scrutiny from the marketplace and

the management is answerable to the expectations of institutional

shareholders.

There is a less appealing side to the culture of share ownership that

results from share-option schemes and using shares as currency for

acquisitions. If the market price of the shares falls – and often this can

be as a result of market fads, irrespective of the performance of the

company concerned – this can affect the morale of staff who hold shares

and/or options and they can quickly become disenchanted, achieving the

opposite of what is intended.

However, do not feel daunted. The advantages that a stockmarket flotation

can offer a business can far outweigh the disadvantages and I, for one,

expect to see others follow the path beaten by companies such as

Inter-Alliance and Millfield.

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