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The changing shape of distribution: Are new models sustainable?

The adviser market is set to become increasingly polarised following a series of market-changing deals.

But after major acquisitions by Towry and Standard Life, and the launch of a practice buyout scheme by Intrinsic, concerns are being raised over the sustainability of the emerging models.

Full circle

Last week, Standard Life became the latest provider to buy up distribution after it agreed a deal to acquire Pearson Jones from Skipton Building Society for an undisclosed sum.

Pearson Jones has assets of £1.1bn and 39 advisers and paraplanners working in northern England. Standard Life says it will grow the business into a national operation through acquisitions and the creation of an academy to train new advisers.

It will use Standard Life Investments, the group’s platform and support services through Threesixty, which the provider also owns.

Standard Life says the new business will aim to meet increased appetite for advice following the introduction of the Government’s pension freedom reforms with face-to-face, telephone and online services.

Managing director, adviser and workplace Barry O’Dwyer says the advice firm will offer a restricted proposition for investment products through the Standard Life wrap alongside a whole of market offering.

He says: “We think there will be five times as many people going into drawdown as currently, and there is not the capacity in the market for that level of demand at the moment.

“This is not about competing with IFAs – there will be plenty of client demand to go round.”

Independent regulatory consultant Richard Hobbs says it is a bold move by Standard Life given the risks involved in taking on advice businesses.

He says: “This illustrates that providers are once again becoming very concerned about their route to market.”

Personal Touch sales and marketing director David Carrington says: “This feels like the market turning full circle again. The insurance giants have tried to buy distribution before and that all ended in tears.”

Aegon chief executive Adrian Grace says: “We had this debate several years ago and we sold Positive Solutions because it didn‘t work. We will never compete with advisers or buy distribution again.”

Battle for assets

Consolidation is viewed by many as a battle to maintain and grow assets under management: for the providers, as a means of boosting profits, and for the consolidators as a route to selling the business. 

One regulatory consultant, speaking on condition of anonymity, says: “There is a fear going around the market among providers that if another provider recruits one of the major advisers giving them business, then the money will move off their platform.”

Others question whether the drive for assets is in clients’ best interests, and whether it is building sustainable models.

Carrington says: “The push for consolidation is being driven by the need to grow assets under management. It remains to be seen whether this is sustainable in the long term and whether these moves are in the clients’ best interests.

“Clients who have been serviced locally are now part of a much bigger organisation that will undoubtedly focus on cost reduction and in many cases promote their own funds as a priority.”

Hobbs says: “These are transient strategies which are all about building value in a business so it can be sold. But if those businesses are failing then adding them together just creates one big failing business.”

The majority of the larger players operate a restricted model, which experts say could cause problems for clients.

Tenet operates both independent and restricted advice models. TenetConnect and TenetSelect managing director Mike O’Brien says: “The increase in acquisition activity falls into two different camps but both tend to be directed towards restricted advice models only.

“In the first camp are providers and fund managers, where the play certainly seems to be motivated by growing and protecting funds under management. The latter is an aggregation play with a view to selling the consolidated businesses at a future date.”

Succession Group chief executive Simon Chamberlain says: “If you are an IFA firm and you sell to Towry or Bellpenny or any of the big consolidators, your clients will have to go restricted.

“Does anyone ask the clients if they are happy with that? Most of these deals are done on a basis where the money is paid over a three-year period if performance is maintained, but once you tell clients they will be receiving restricted advice that could have a massive impact.”


This week, Money Marketing revealed Intrinsic is to launch a multi-million pound practice buyout scheme which will offer loans to advisers looking to make acquisitions.

The scheme will connect appointed representatives of Intrinsic looking to sell their business with those who are looking to expand.

Both buyers and sellers must be part of the Intrinsic network to be eligible for the scheme.

Financial backing from Intrinsic’s parent company Old Mutual Wealth worth several million pounds will enable advisers looking to make an acquisition to borrow from the network at what it says are “preferential” rates.

Intrinsic says it will also carry out a number of quality checks to ensure firms looking to make acquisitions have the capacity to deliver the appropriate level of service to any new clients.

Intrinsic distribution director Andy Thompson says just one day after announcing the scheme to members, the network had 16 buyers and nine sellers registered.

He says: “We would expect those numbers to triple over the coming days and for as many as 25 deals to complete by the end of the year.

“This gives sellers the opportunity to realise the value of their business, and to walk away knowing there is absolute continuity for their clients as they will stay within the same network.”

But Chamberlain says: “This shows networks are worried their members will leave to be acquired by other firms.”

Tenet says it has operated a similar introducer model for buyers and sellers since 2009 and in many cases has provided finance to facilitate deals.

Openwork also operates a practice buyout scheme but declined to comment further.

Personal Touch, meanwhile, says members looking to leave the industry or retire can grant the network a licence to service their clients through a centrally-based advice team. The member retains ownership of the clients and can take them back if they return to the industry or wish to sell their business.

Carrington says: “This gives the member flexibility and gives the client greatest continuity. A buy out scheme is fraught with practical issues as evidenced by the restrictions Intrinsic has placed on the firms which can use it.

“If Intrinsic is brokering the deal, then the onus is on them to carry out appropriate due diligence and be absolutely certain of the quality of the businesses.”


Consolidation has ramped up a gear in recent months, with a flurry of multi-million pound deals. Towry’s acquisition of Ashcourt Rowan for £97m will create a wealth management giant, with the combined business managing £8.3bn in assets and 1,140 staff.

Consolidator Bellpenny says it has seen an uptick in firms looking to sell over the past six months.

Bellpenny chief executive Kevin Ronaldson says: “The firms we acquire have on average about £125m in assets, and at that sort of level we are finding there are a lot of people who are looking at selling up.

“There are an awful lot of advisers in their 60s who may be struggling to make a profit and decide they do not want to keep going.”

Chamberlain adds that consolidators are becoming more “choosy” in the firms they buy.

He says: “The only businesses being acquired for real value are the ones which own their clients and their funds, and manage their own compliance.”

EY senior adviser Malcolm Kerr says scale is becoming increasingly important.

He says: “One of the reasons for that is the pension freedoms, which mean clients are going to need ongoing advice between the ages of 50 and 90, and a lot of small firms may not be around for 40 years.

“There is going to be a polarisation between large organisations that will often be restricted advisers using their own investment solutions and platforms, and regional advisers with a smaller number of clients.

“The large organisations are not necessarily a threat to smaller firms, but they could have a big impact if they build strong brands in the retirement space.”

But he adds: “There is always going to be space in the market for local, boutique IFAs that have strong relationships in their community and serve a relatively small number of affluent clients.”

Apfa director general Chris Hannant agrees there will always be a significant number of advisers offering a “bespoke service” who want to work for themselves.

He says: “The consolidation trend still has a long way to go before we are down to a small number of large groups, as there are about 4,500 directly authorised firms in the market.

“Having some large players is not necessarily a bad thing. A good business is one which is profitable and provides a good quality service to its clients, and you can do that as a large or a small firm.”

Pilot Financial Planning managing director Ian Thomas says: “Am I concerned that Towry or SJP are going to put me out of business? Not really. That is a logical place for a lot of firms to end up post-RDR as the economics of the market get tougher, but what they do is very different to small financial planning firms like mine.

“Consolidation may have a positive impact by improving access to advice through economies of scale, but there is always a danger that just like in the 1980s and 90s, it will turn into a sales-driven rather than advice-led culture.”

Expert view


Standard Life’s acquisition of Pearson Jones is a surprising and bold move, because its strategy for a long time has been to derisk the business, and taking on advisers means taking on a lot of misselling risk.

Aegon, too, was busy buying up distribution a decade ago and has now been getting rid of it to derisk.

What this illustrates is that providers are once again becoming very concerned about their route to market. Execution only and online business is all very well, but providers need to think about where the rest of their business is coming from.

The bigger picture on consolidation is the RDR slowly playing itself out. The regulator is building the pressure on advisers in areas such as disclosure and advisers and product providers have to react to that.

Consolidation is clearly a reaction to regulatory pressure but I am not convinced any of the solutions are viable in the long term.

The strategy of the consolidator firms is to build value in a business so it can be sold. On the one hand it could be argued that creates value where it would not otherwise exist, but on the other hand you could say that pulling together a lot of sub-scale, failing businesses merely creates one big failing business.

If what was casing those businesses to fail was more than just the age of the principal – for instance, if it was the burden of regulation – then you have not solved that problem by bashing all the businesses together.

There are efficiency gains in consolidation, but the regulator is also intent on narrowing margins in the advice industry. And whether the efficiency gains are great enough to offset the loss in revenues remains to be seen.

Richard Hobbs is an independent regulatory consultant

Who owns who?

Openwork: 25 per cent owned by Zurich, two thirds owned by its advisers and the remainder by its employees

Sesame: Owned by Friends Life, which is being taken over by Aviva

Tenet: 23 per cent owned by Aviva, 24 per cent by Friends Life, 22 per cent by Aegon and 25 per cent by Standard Life. The remainder is owned by independent shareholders.

Personal Touch: Almost 100 per cent financially controlled by Lloyds Development Capital. The board has 51 per cent of the voting rights.

Adviser view


Justin King, managing director, MFP Wealth Management

Increased consolidation is partly being driven by the demographics of advisers, as well as market changes such as the sunset clause. The restricted model of firms like SJP seems to be profitable, and we will end up with a market divided between a small number of large distributors and boutique IFAs. But if that makes advice available to a wider audience, that is no bad thing.



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There are 3 comments at the moment, we would love to hear your opinion too.

  1. I think this is much more about margin than distribution:

    Today the annual cost for a welathy client might be 175bps, of which c40% goes to the adviser. With platforms becoming commodities and increasing use of low cost investments that could become a total of 150bps, 2/3rds of it or 100bps going to the adviser. The client pays less but the cost saving has been split.

    Secondly most advisers are, if anything turning away clients, especially if they don’t have 100+k. On the other hand the big workplace providers deal with the clients much earlier in their lives and its only when the client nears retirement that they wake up to advice. As alluded to by Barry O’Dwyer, many more of these clients will go into drawdown – but their isn’t currently the capacity to advise them.

  2. There is a large market to go for in the restricted and non advice sectors, and clearly the big players will want to increase their share and influence distribution.

    In the fully advised independent sector, one of the aims of RDR, as it was across the board, was to remove product bias, so any attempt to buy distribution in this area is against the spirit of RDR. If it means more competitive products and services to choose from, that that is a good consumer outcome.

    My concern would be that consolidator firms may be claiming to maintain independence, when there is a clear steer towards a particular distributor due to financial backing or incentive systems being in place. It comes down to the consumer being aware of what distribution channels they are buying from, and the limitations of each.

  3. Interesting comments from EY about scale. If you speak to providers and the bigger players it is all about size. Ask any client and it is all about service and the personal touch. Polar opposites I have found without exception.

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