Providers are trying very hard to create their own advice businesses. This much we know. Yet the particular way Standard Life is going about it is intriguing. Not least, because of what we still don’t know about its 1825 project.
Bristol-based IFA Fraser Heath Financial Management became the latest target to be snapped up by 1825 last week. Five down, an indeterminate number to go.
The strategy was outlined from the outset that 1825 wanted to operate a number of geographical advice hubs. But how many is too many? We’re not sure.
There are still gaps in coverage, most notably in the east of England and Northern Ireland. Does it plan to revisit the Norwich region after it tried and failed to acquire local firm Almary Green last year? Who knows.
But my main question is this, and there is no other way to put it than bluntly: how does 1825 actually plan to make money? I have written extensively before about how providers are subsidising their loss-making advice arms, and 1825 is no exception, reporting a £5.5m loss for its first 16 months in business.
Let’s crunch some numbers on the previous four acquisitions. Two made a loss in their latest accounting periods. One saw profits half due to the acquisition by 1825. None reported profits of more than £350,000. Another acquisition means more staff costs, more fees for consultants, and more recruitment bills as a number of advisers inevitably move on to pastures new.
The obvious answer to the money puzzle is that Standard Life extracts profit through 1825 placing clients into centralised investment propositions packed with Standard Life funds. Financial planning may never be as profitable as product provision, and that’s fine.
But the 1825 management team is adamant that no one has to move, going as far as to say that they don’t actually hold statistics for the proportion of clients being put into the CIP.
Plaudits must go to the firm if it is truly agnostic about how much its advisers beef up its own coffers. Perhaps it honestly believes that the business of financial planning, with need ever increasing, is actually something that it can turn into profits. But the sustainability of any financial planning practice is hugely important. Clients can’t be left in the lurch because, as a business, their adviser just couldn’t afford to continue.
1825 needs to prove it’s not just another consolidator, that it’s not just going to buy up any old firm looking for a golden retirement parachute, and that it actually has a long-term, sustainable model for offering proper financial planning.