There are increasing hurdles to consider for advisers making the move to sell their business and trade under a new parent.
Recent figures from Nucleus show advisers are shunning the idea of selling to consolidators, thanks to increasing examples of the process going wrong.
Figures from a survey of around 200 advisers by the platform found just 4 per cent would sell up to a large consolidator, down from 13 per cent in 2017.
Of those looking to sell, being bought by another advisory firm was the preferred route for nearly half of respondents.
Concerns related to selling to a consolidator include damaging client relationships and the conditions in sale agreements that could limit the adviser’s future position in the industry.
Nucleus chief customer officer Barry Neilson says: “Some advisers also fear the years of trust and loyalty built with these clients could be eroded quickly by a sale to a large consolidator. Many are discovering that a sale to a like-minded firm is the most likely way to ensure a consistent experience for clients.”
However, handing the reins to a business such as St James’s Place, Ascot Lloyd or Openwork is a succession planning choice only looked on favourably by those for whom the process goes well.
Unlike small advice firms looking to grow through acquisitions, consolidators’ or national advice firms’ practised buy-out models might give them an upper hand.
Rennison Consulting director Roderic Rennison says advisers will typically be approached by two or three firms with different processes before trusting one and agreeing to sell. He says a significant increase in the activities of discretionary fund managers looking to acquire firms has broadened the options for advisers.
When deals do go wrong and an adviser believes the terms of a sale and purchase agreement have been breached, Rennison says it is right to expect compensation.
He says: “These are instances where firms are bought and [advisers] find out they are no longer required and maybe that’s because the consolidator has a poor integration process, or they realised too late they wouldn’t need them.
“Some consolidators look for the exit of staff in a short time, but that’s not pushing them out because they willingly agree that’s what may happen to them as part of the deal.”
Specifically in the IFA market, most consolidators are just looking to generate value
He adds: “They may share some of those extra revenues with clients but, as an adviser, if you come under the pressure to use particular products or solutions, you’re in a very uncomfortable place.”
IFA network Beaufort Group tells Money Marketing it is in discussions with multiple IFAs that had sold out to consolidators and are now looking to re-enter the industry under a smaller umbrella group.
Beaufort executive chair Simon Goldthorpe says: “Having completed their side of the deal, theyve approached us with a view to setting up in business once again. We’re working with these advisers to help them re-establish their presence in the market.”
Beaufort Group will also open three new firms to be run by financial planners previously employed at Marsh-owned Jelf Group.
Kerr says the advantage of working with a smaller national could curb governance problems some IFAs encounter on selling to major groups.
Kerr says: “It could be hindering you as the IFA from making money if governance is too tight, and none of these things get ironed out in initial discussions. There is broad talk about what things will be like, but until the deal is done, you can’t tell initially and you may not be of one mind.”
For advisers who re-enter the industry with their own firm or with a smaller network after being acquired by a consolidator, the process of rebuilding clients is costly and time-consuming.
Rennison says: “Some people also do deals and then decide they are going to depart and the client can then decide what they are going to do depending on the restrictive covenants for the adviser who has left.”
Different expectations of remuneration and how that changes as consolidators grow and continue acquiring firms is also a potential problem for advisers.
Kerr says closed-book consolidators, such as Phoenix Group, have stronger track records with products than advice mergers.
He says: “If you look at the history of institutions acquiring advisers, the current consolidations taking place where the institution is consolidating advisers may well turn out to be a triumph of hope over experience.
“When deals go wrong, it’s almost invariably that both parties are responsible and invariably it’s just down to misunderstanding because they haven’t asked the right questions.”