Young says just as Macquarie recently took a 20 per cent stake in Paradigm Norton Financial Planning, the best way to bring liquidity into the distribution sector is for providers to buy smaller stakes in IFA firms rather than buying outright.
He says banks will be reluctant to lend money to big IFA groups after recent events such as Towergate Financial Services entering administration before being folded into Towergate Partnerships Limited, as well as Money Portal entering administration before its principal assets were sold on to previous management at new firm Honister Capital.
Young says: “Those sorts of issues are definitely not going to convince the average bank manager to lend an IFA money.
“For the provider, what is attractive is taking smaller chunks to help to grow an IFA firm while keeping the business-owner in place as opposed to buying outright and taking the risk of actually running them from a corporate governance point of view.
IFA Thomas and Thomas managing director Darren Lloyd Thomas says: “My concern would be that this could be the back door into new tied agencies. However, I do think that many IFAs will look to generate economies of scale, especially with the new capital adequacy requirements and the cost of attaining higher qualifications.”