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Malcolm Murray: Building an independent advice legacy


IFAs and financial planners are growing increasingly confident in the demand for their services, and that confidence is well founded.

Having learned to live on a recurring income they know that, after the initial pain, this provides a more secure basis on which to build their business. Most importantly it is the only way in which they can provide a holistic service, year in and year out.

These advisers know they have little to fear and there is a limit to how many people one adviser can service. They acknowledge they will never cover the whole population and do not see either robo-advice or tied agents as a serious threat.

We are now witnessing the growth of independent firms where the owners do not necessarily see the main objective as selling out to the highest bidder. Instead they are aiming to build a larger company driven by the same ideals and beliefs that enabled them to grow in the first place.

There is nothing wrong with an ambition to build something that can one day be sold to reward the founders, but there is evidence of an increasing number who wish to build a legacy that will continue in business after the founders retire. This will mean rewarding those in the firm who share the same beliefs about service and ethics. If this sounds unworldly and out of place in a tough business environment then there are plenty of examples that will challenge that view.

The legacy business requires just as much planning and discipline as building a business that will ultimately be sold. Whether the growth is achieved organically, by acquisitions, or both it will mean expanding the number of shareholders.

Expecting staff, or those whose businesses are acquired, to accept payment in part through shares will be more acceptable if there is a mechanism for being able to sell those shares at some future date. In the past this has meant floating the company, usually on Aim. The cost of a listing on Aim can be as much as £500,000 and is out of reach of most advice firms.

Today’s economic imperatives have created a growth in the number of small but profitable companies and we are seeing the emergence of platforms that match buyers and sellers of shares in private companies. When there are sufficient numbers of shareholders and the track record of the company’s profitability and dividends warrants it, the shares can be offered via the platform to match willing sellers and buyers. The directors can introduce controls that will prevent the company being acquired by those who do not share the same culture as the founder(s).

As a company grows it may well seek a listing on Aim or the full market. In the meantime shareholders can be provided with access to a matched bargain platform.

For this to work, directors have to build the company on exactly the same basis as if it was seeking a listing. Potential investors will value the company on a price to earnings or earnings basis. They will need to be convinced as to the growth prospects as with any investment.

Advice firms are unlikely to qualify as an enterprise investment scheme and they will have to compete with firms that do. But with the confidence currently shown by IFAs, the future is bright and many firms represent an attractive investment.

Malcolm Murray is chief executive of MFM Management Consultants



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There is one comment at the moment, we would love to hear your opinion too.

  1. Yes, very good points. As I keep saying the DNA of future advisers will be different to those of the past.

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