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Price goes before a fall in scramble for distribution

IFAs are facing a tough dilemma as the scramble for distribution heats up and life offices start to approach firms with open cheque books.

In last week&#39s Money Marketing, it was revealed that Clerical Medical representatives, at least at the level of broker consultants, have app-roached at least one national IFA and other smaller firms, apparently advising them that multi-ties are inevitable.

At a recent polarisation conference, Charcol wealth development director Roderic Rennison told delegates that some providers “are burning rubber and knackering credit cards” as they travel round the country exploring their future relationships with IFAs.

Berry Birch & Noble marketing director Stephen Ingledew says: “Everyone accepts polarisation will go but no one knows exactly what will come out the other end. Some providers are more advanced than others with their plans.”

With multi-ties seen both as a threat and an opportunity, there are big variations in the price that companies are willing to pay for an IFA firm or network. Within the last couple of months, Misys bought DBS for £75m or about £28,000 for each of its 2,880 RIs, AMP paid

£75.7m for Towry Law – despite its £48m worth of pension

liabilities – working out at £378,000 for each of its 200 RIs, while Bristol & West paid £40m for Willis National or £333,333 for each of its 120 RIs.

Other national IFAs such as Inter-Alliance, Lighthouse and Millfield are floating on the Alternative Investment Market to raise cash for development.

But IFA Partridge Muir & Warren managing director Simon Lewis believes there is a real danger that IFAs are being overvalued as he says few are profitable. He suggests the best way to value an IFA is using a combination of profits and retail assets rather than just turnover.

Like many IFAs, PMW says it has had a number of tentative approaches from providers but has found they are generally unwilling to make real offers.

It believes providers are paranoid of missing out if they do not take action now to approach IFAs.

But Lewis believes “creative valuations” have been used for some recent IFA flotations. He even goes so far as to compare this with venture capitalists&#39 and stockmarkets&#39 doomed infatuation with dotcoms before the recent falls, as well as banks paying over the odds for estate agents in the 1980s.

Lighthouse marketing director Nick Hamson says valuing an IFA requires consideration of the income stream, including renewal commission and funds under management, actual profitability and goodwill or potential of the client base.

Last October, Lighthouse, which has 30 RIs, floated on the Aim for £20m. In March, Millfield, which has 100 RIs, floated in a bid to raise £18.5m to fund an ambitious expansion programme. Both firms are yet to make a profit, with Millfield reporting an operating loss of £360,000 in its year&#39s results in June, despite turnover rising to £11m from £6.6m the previous year.

Positive Solutions chief executive David Harrison is confident in his outlook and says his firm would hope to raise between £60m and £100m if it put itself up for sale. He puts this broad pricing range down to divergence on how IFAs are valued. He says: “We are making a profit and if we float it will be to realise the firm&#39s value rather than raise money.”

While he says Positive Solutions has been courted by most big providers, he thinks the model most likely to develop will be multiple providers taking shares in IFAs rather than firms being bought outright.

Smaller networks are also set to reap the rewards of product provider interest. Interlink, which has 220 RIs and a turnover of around £16m, believes networks will in future have a structure which includes multi-tied and IFA divisions.

As interest grows in buying distribution, life offices would do well to establish consistent ways of valuing firms. At the same time, IFAs may need to be wary of selling up as there are likely to be other models which could prove to be more appropriate in the longer term.


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White paper — Singapore International Insights

Jelf Employee Benefits assesses key trends within the international private medical insurance provision of organisations with employees in Singapore. Benefit structure, cost management and healthcare facilities are examined and key considerations are highlighted. This edition will be of particular interest to global human resource directors and benefit managers with local and expatriate populations in Singapore.


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