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Nic Cicutti: Why all the fuss about consolidators?

Nic Cicutti

What’s all the big fuss about consolidators and churning? I only ask because the FCA appears to be raising questions about whether some of the industry’s players are hitting clients with unnecessary charges and moving them into inappropriate investments.

According to Money Marketing, the regulator is asking firms to “provide details of their business plans for the next year, as well as details of how they treat customers gained through consolidation.”

Apparently, the FCA wants consolidators to reassure it they have carried out “adequate suitability checks” before shunting any newly acquired clients onto their own panel of providers.

I confess to being surprised by all this. To understand why I am slightly amazed by this new get-tough stance, allow me to tell you a story – or two.

A few years ago my old pal Neil Liversidge, managing director of West Riding Personal Financial Solutions and Apfa stalwart, wrote a wonderful column in Money Marketing in praise of the art of salesmanship.

Neil’s letter, I noted at the time, flowed beautifully, from its clever opening – “I am a wicked salesman” – to its heartfelt ending: “…It is totally inexcusable for an adviser to fail to sell his client on a product he does need and can afford.”

My only problem with the article, which I recall praising to the skies, was in its attempt to contrast Neil’s own approach with that of so-called “thick journalists, thicker regulators and the exalted boss of Towry”, whose “hypocritical, stupid, snobbish stigma” led them to oppose “selling”.

Not because I objected to being called a “thick journalist” for one second, but because, to my mind back then, “selling” was not the way Towry made most of its money.

In fact, over the next few years, it became clearer how Towry made its money. Throughout the early and mid-Noughties the company grew through a strategy of snapping up mid-sized IFAs, initially from Bradford & Bingley’s IFA-buying spree and occasionally larger ones like Edward Jones.

Six or seven years ago, it was disclosed that Towry, headed by its then chief executive Andrew Fisher, was raking in £6m a year in renewal commissions alone from clients of the firms it had taken over.

Fisher justified this, saying: “It is perfectly acceptable for someone who buys a business that has historical agreements in place to honour that. It is not acceptable to work that way on new business, but the trail commission is part of the value of the business being bought.”

Not only that, but Mr Fisher also told Money Marketing: “I’m surprised that anyone said on your website ‘why isn’t he servicing his clients with that trail commission?’, because legally I wouldn’t be allowed to.”

As if that were not enough, in January 2010 The Times newspaper alleged that Towry was encouraging its advisers to recommend its own in-house investment schemes to clients.

A contract offered to a Towry adviser, and seen by The Times, included bonuses for attracting money into the company’s Independent Investment Management service. The contract set a target for bringing money into the IIM, with the promise of an additional 2 per cent of salary for each 10 per cent margin by which the adviser beat that target.

Yes, I know Towry is adamant it is not a consolidator. It has previously stressed that unlike firms operating through on the basis of bolted-on acquisitions, Towry is acquisitive only as part of a gradual growth strategy.

But the reality, my friends, is churning is nothing new either, whether by life companies or IFAs. To give just two examples, In November 2003, J Rothschild Assurance was fined £250,000 after the FSA its appointed representatives were churning other companies’ products into its own.

Ironically, the information about J Rothschild’s activities came from other life companies, who complained to the FSA about being churned.

Not that the then Association of British Insurers director general Stephen Haddrill quite got the message, telling a Labour party fringe meeting at the time: “If you talk about telephone services or electricity services, you argue there should be competition that should lead to people switching from time to time.”

Meanwhile, a few years ago, Philippa Gee, a highly respected financial planner wrote in Money Marketing about an IFA “who represented a large group”, for whom regular quarterly fund switching was a “golden ticket” for ongoing fees.

Philippa said: “Now don’t think I mean rebalancing by this, I mean they are fully intending to switch their clients’ entire investment sum out of funds which may be performing more than satisfactorily and then reinvest in alternative funds, just for the sake of it.”

The point I am making is this: the underlying point about many consolidators’ rapid acquisition of IFA firms is not to focus on quality organic growth, but to lay their hands on a mountain of funds under management.

We also know the FCA’s paper on platform rebates effectively bans trail commission from being paid on assets held by platform providers. Although there are some life insurance products where trail commission is payable, the end is increasingly nigh.

If so why are we surprised when the potential for churning raises its head even more than usual? The shock, surely, lies not in the act itself but in the fact that, belatedly, the FCA is considering doing something about it.

Nic Cicutti can be contacted at



Swallowed up: Consolidators under fire over client churn

The FCA has called into question the way consolidator firms approach suitability amid accusations clients are being hit with unnecessary charges and moved into inappropriate investments in the drive to gather assets. Money Marketing revealed last week that the regulator has asked consolidators to provide information on how they treat clients gained through acquisitions, and whether […]

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FCA probes advice consolidators

The FCA has written to financial advice consolidators requesting information on suitability processes when acquiring new firms, Money Marketing can reveal. The regulator is understood to have asked firms to provide details of their business plans for the next year, as well as details of how they treat customers gained through consolidation. In particular, the FCA […]

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AFH to raise £6.5m in acquisition push

IFA consolidator AFH Financial is aiming to raise up to £6.5m in new funding through a share offering. The AIM-listed firm has issued 2.7m placing share at 165p each and 1.2m subscription shares also at 165p per share. AFH says the placing price is discounted at 12.7 per cent compared to the closing share price […]


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There are 8 comments at the moment, we would love to hear your opinion too.

  1. In answer to your headline Nic.

    I believe you currently have an adviser. If his firm were to sell out to a consolidator you would soon know at first hand what all the fuss was about.

    You’d be shoehorned, have a different adviser each Tuesday and lose the rest of your hair when you see the charges. And that’s for starters!

  2. Add to the above please:

    Yes, well beyond time that the Regulator looked into this.

  3. A thought-provoking article as usual, Nic, though I’m intrigued by Andrew Fisher’s claim that upon acquiring the client base of another firm and from then on receiving its ongoing trail commission stream, TL “wouldn’t be allowed” to provide any sort of service in return. Is/was that official FSA policy? I don’t see the logic. Surely, one might reasonably think, official FSA policy would be that any firm acquiring the client bank of another and its recurring income stream MUST take up the reins and continue to provide an ongoing service in return. Anything less is surely distinctly contrary to the best interests of the clients (about which the regulator is forever wittering piously on). Then again, I don’t see the logic in a great deal of the FSA/FCA’s thinking, so it’s no surprise I can’t figure out this.

  4. The problem I have with some consolidators is that they are indirectly driving the business practices of potential sellers. By focussing on AUM or ongoing fees it means that clients may be shoe horned into solutions which are better for the adviser than for the client. Where can I get client funds where I can extract 1% commission – sorry ongoing fees.

  5. I remember when Andrew Fisher made those claims I was dealing with a client who had been ‘sold’ a £100k investment bond by Towry, taken 7% commission and when the client wanted a review 18 months later because it was appalling performance – the adviser said we charge fees now so you will have to pay an hourly rate for a review.

    In answer to the article I agree these companies need looking at as the stories from other advisers are very worrying. At some point I would like to sell up but given my business is very community based and some clients are now close friends (like many other IFAs) I need someone with the same ethos and business mind as myself.

    From what other IFAs have told me avoid the consolidators due to the churning and high charges.

  6. Trevor Harrington 18th December 2015 at 11:18 am

    Two issues with the consolidators.

    1) They buy in the client portfolios at 0.5% per annum ongoing adviser fees (trail), and promptly move them all onto 1.0% per annum ongoing adviser fees (trail). Often, initial fees (commission) is also taken again as the clients existing investments are moved into their own in-house managed systems such as their own SIPP arrangements.

    2) They fob-off any complaints within the client portfolio for two or three years. Then they move the clients, their ongoing fees, and any remaining capital adequacy assets to their company, leaving the complaints behind in the original purchased company. Then they put the original purchased company into administration or receivership, and finally they throw all the complaints onto the FSCS for the rest of us to pay for.

    Nic – and your question was what precisely?

  7. Here’s the article Nic references for anyone who wants to know precisely what I wrote.

  8. … and talking of “consolidators” – how many emails/telephone calls do we get from such & such “agency” asking if we are retiring/looking for an exit strategy offering huge amounts of monies to buy my business – I used to be polite with my responses, but not anymore, telling them that unless my lottery numbers came up, I am happy to carry on for the foreseeable future and please stop contacting me. BUT some just ignore no contact requests – I keep getting contact from “Tony Fox of Berkley Cannon” (whoever they are ??!!) even though I have been requesting they stop contacting for over 12 months !!

    Don’t call/email me – when I am ready I will call/email them !!

    My understanding is TCF rules apply a duty of care to both seller and purchaser/consolidator ?

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