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's choppy
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
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
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
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
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
The business will be subject to greater scrutiny from the marketplace and
the management is answerable to the expectations of institutional
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.