Succession Advisory Services is designed to be RDR-compliant and will allow IFAs to outsource their investment process and focus on clients.
The group plans to work with 85 IFA firms over a two-year period to transform their businesses and transfer to using its outsourced investment solution. The firm is backed by Committed Capital, with Chamberlain and fellow founders Tim Parsons, Andrew Smith and Paul Morrish, all holding stakes in the business.
After this period, Succession will offer to buy some or all of the firm but if the firm is sold elsewhere, Succession will get 15 per cent of the sale price to take account of the value added to the business.
The plan is to float or sell Succession as soon as it builds up enough scale.
Chamberlain says the company has been able to model the business to the RDR. He says the research they have done in the past 18 months shows most current consolidation strategies are flawed.
He says: “The problem is that money goes to the wrong people. Every company has a practice principal and the advisers and what is happening is the principal gets paid while the IFA gets nothing and leaves with their clients and you end up with nothing.”
Succession plans to put IFAs through a two-year business programme before potentially buying the firm or parts of it. It has already had 256 applications from firms looking to be part of the final 85.
Chamberlain says: “The task is finding the 85. We want the progressive firms with a regional client base that want to move to that holistic environment. The five businesses that we already have hold around £750m of assets.”
He considers the move to an outsourced investment process is crucial. “We believe that the real reason a client does business with an adviser is because he trusts the individual. It is not because he is a great fund manager or has x amount of qualifications. It is because he trusts you with his money and you can breach that trust by pretending to be a fund manager. Outsource to us and that will save 40 to 50 per cent of the IFA’s time to work with the client.”
The firm has set up a new investment matrix that offers access to its chosen funds within the multi-manager, multi-asset, active/passive, ethical, discretionary model portfolios and satellite funds sectors.
The final 85 firms selected will keep their autonomy, with “powered by Succession” added to their logo. Succession will start by calculating how many assets the firm has under management, not just the funds the IFAs get trail from.
Chamberlain says: “We identify the asset and charging structure and then we identify the costs of moving that on to a platform. This creates a prospecting list for the IFAs to focus on their old clients, not their new clients. Essentially, we give them the transition tools to go to old clients and say this fund is now outdated as we can give it to you for a lower price on this platform.”
As for the type of IFAs that Succession is looking to attract, Chamberlain says it will not be a case of just acquiring 85 but using seven or eight hub firms which the other firms will ultimately be part of.
He says: “We are putting £100,000 into one business so he can go and get 15 one or two-man-bands and say, come and join my business as it is powered by Succession.”
Succession’s hope is that all the firms can move an average of £75m of existing assets on to the platform over five years on to the chosen investment matrix. This would give Succession control of £7bn of existing assets.
Chamberlain says: “We get paid an additional margin from the fund management houses as we deliver volume. The range of charges change depending on investment style, etc. It will generate high levels of recurring income a year from the matrix that does not affect the 0.5 per cent the IFA is getting.”
Chamberlain points to an example where one IFA they have examined has 1,362 funds and £18m of wrappable assets he does not get paid for.
“That is ridiculous, the money is wrappable and £9m is in collectives. All you have to do is see these clients, get them to sign a document and put the assets on a wrap at lower levels so he can apply 0.5 per cent charge on the assets and the client pays less. It allows the IFA to see new clients and will be earning 90k a year forever from that £18m. The principals leave the business and the advisers will stay for servicing existing assets. It creates shareholder value.
“The end game is to have 750 advisers who are fully trained at the end of the programme. The business on the whole, looking at current price/earnings ratios, would be worth around £500m, we believe we can buy these businesses for around £50m as all the value is in the advisers who stay behind. The day it is sold or IPO’d, share value will have been created straight away.”