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The Snowball effect

Towergate Financial is set to step up its aggressive IFA buying spree with at least three more acquisitions planned before Christmas.

The company currently owns eight IFAs after making its first acquisition in February, and revealed in July a £100m budget to acquire a total of 40 firms, with around 370 RIs by 2010.

Chairman Patrick Snowball says while his predominantly employed-RI business model is not to the taste of every IFA, it takes advantage of the current regulatory and political forces hitting the industry.

He says: “When I took over running NU Life, I sensed there was an emerging pressure to start consolidation. The pressure was coming from the dissatisfaction among the IFA world itself, the Government, the FSA, the customer and also the manufacturer.

“This was based on the increased requirement for professional advice, a clear delineation between advice and selling, and also a recognition that the market was coming to a position where the age profile was skewed in the wrong direction.”

After realising the potential for such a project, Snowball agreed with Towergate chairman Peter Cullum to set up a sister company to Towergate Partnership to create its IFA consolidation model.

Since securing £108m of funding in July this year, three months later than plan-ned following the withdrawal of an unnamed bank, Snowball says the firm is now well positioned to ride out the economic storm.

“Our plan is based on an aggressive acquisition strat- egy of profitable companies. We have already acquired eight so far and we have a pipeline before Christmas for at least another three.

“We have a different model to what a lot of people have followed. This is based on a centralised back office supporting customer-facing advisers, hence the £10m investment in the infrastructure.”

The model will have around eight of nine IFA firms, with profits in excess of £1m, acting as regional hubs, with Towergate looking to bring in three or four more firms in each region. Most advisers will work on an employed-RI basis.

Snowball explains that the structure of the business is modelled on four levels. At the bottom is an execution-only non-advised sale, followed by the profiling of the customer and establishing their wants and needs. Beyond this is the selling of the product on an advised basis, then the selling of advice to meet various needs, such as IHT.

Towergate Financial chief operating officer Stuart Rouse says the strategy of the firm is more than just buying IFAs and bolting them together.

“We have to make sure there is a process in place so they can spend more time advising and creating revenue for themselves as well as us.

“We don’t want to buy poor-quality businesses. In smaller businesses, we are looking for the quality of the advisers and the client base. For the bigger businesses, the fundamental is good management.”

New chief executive Ian Darby, who was previously chairman at John Charcol and Bradford & Bingley, notes that the Towergate Financial model mirrors aspects of what B&B was looking to create before he left in 2004.

“When I was there, it had 500 IFAs who were very much surviving and living off the savings base of B&B. My model was to move them in two directions. One was to take the best people into a high-net worth advisory model with a wrap as part of their proposition, and then move the balance down into, at that time, a multi or tied world, being very clear about what they did.

“That was exactly what was happening until the world changed. So for me this is a real opportunity to finish, with a much better IT platform, much better capital structure and having learnt all the lessons of bad M&A, what we actually started.”

Darby says his focus will be ensuring a strong IT solution, professional training for advisers and a massive lead-generation opportunity through the firm’s sister company.

The firm has so far signed contracts with IntelliFlo to provide back-office software and focus solutions for front-end support. It has also teamed up with Tata Consulting to provide administrative support.

Snowball says he will not become involved in a bidding war for certain IFAs but that it is sometimes hard to evaluate a firm’s true value.

“We cut a fine line in our acquisition discussions between yesterday’s, tomorrow’s and today’s value. Of course, some of that profit may have dipped off and if we get the balance wrong between those three values that could be a potential threat.” Darby adds: “My focus is to make sure that what we have acquired works in the way we want it to and to ensure we make the right deals.

“The tough bit is making sure that we get the best out of these businesses – integrating them in a way that is sym- pathetic to their style and getting the returns over the term as a result.”

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