Innovative ideas among smaller IFA firms are seeing regional practices building their own business models to deal with a depolarised market.
The news that former Rickman Tooze IFA advisers have grouped together to buy the assets of the firm after it went into administration comes as other small groups of advisers look for alternatives to joining a network.
Customs and Excise has reinforced the traditional network model with its business briefing on how networks pay VAT on member charges but many IFAs are moving in a different direction.
Rickman Tooze traded successfully for 16 years but, acc-ording to its management, the last 12 months have seen the business struggle to work in an environment where margins are being tightened and costs are increasing.
The 12 partners have pooled their resources to buy the assets of the firm and will split the business according to their respective investments in the new company.
This year's collapse of est-ablished firms such as Interlink network and Lifeboat Financial Group have sent a shiver down the spine of many IFAs and many are looking at other options for sharing resources rather than joining a network.
National consolidation groups such as Destini have grown rapidly although others such as Consifa have found it difficult to get enough advisers.
Destini has just clinched a deal for the Lifeboat assets which it says will add around £10m in turnover to its operation which it hopes to increase to £30m by the end of the year once other acquisitions are completed. Destini has acq-uired 18 firms in the last 20 months and says it is still targeting firms with a turnover of over £500,000.
Managing director David Collett says: “Over five years, we are aiming to grow the turnover to £150m following the acquisition of Lifeboat. We have grown to 170 RIs, with 65 AR firms and another 200 in the mortgage and general insurance arm of the business.”
There is speculation that Lifeboat's creditor Bank of Scotland shored up the deal with Destini – another of its debtors – to retain control of the pipeline business owed by the stricken firm, a deal helped along by Clerical Medical.
Seventy per cent of the group is now owned by its advisers and the remaining 30 per cent is in the hands of the original founders.
Collett says: “We allow the people who join us to remain entrepreneurs. They carry on running their own firms but bring economies of scale by joining a bigger organisation.”
As more firms join, Collett admits they will be allocated fewer shares but says they will benefit from the increasing value of the business.
Paul Cadde runs his own IFA firm, Cadde Financial, but also runs a company that offers training for advisers looking to run their firms in a new way.
He says a big number are opting to sub-contract their compliance needs to a group such as Tenet Group division M&E and then split the rest of the costs of their businesses between admin groups.
Cadde cites three huge problems for IFAs looking to continue trading on their own – lifetime risk, commission reversal and commercial risk. He believes IFA firms can limit the risk by allowing advisers to trade as self-employed individuals without attaching all the liability for clients to the principal of the firm.
He says more and more firms are opting to act as the provider of additional services for advisers such as marketing support, training and IT to give advisers more time to spend with their clients.
The group has provided training for around 450 adv-isers and runs a database of 17,000 users who get regular email updates from the group on changes in regulation. It also offers ongoing support to practices which have opted to change the structure of their businesses.
The Kilminster Group managing director Barry Stote says he has big ambitions for his business. The group has offices in Bristol, Liverpool and Cambridge and has more than doubled in size to 55 RIs within three years.
Stote says: “We operate a share option scheme whereby IFAs can earn a proportion of equity in relation to their production. This gives them a tangible part of the business but they are not involved with management of the company.”
He says that although the business has grown to a turn-over of £5m-£6m this year, it is looking to eventually reach 200 consultants generating a £200m turnover.
Although Stote realises this is a high target, he says the firm is aiming for each consultant up to £100,000 productivity each year.
Stote thinks it will take some time for depolarisation to “shake out” but is confident that there will remain a market for advisers willing to cater for high-net-worth individuals who are looking for their own highly competent adviser.
He shares the experience of other struggling to recruit the best quality advisers but says he does not see this situation improving dramatically in the next 12 months.
Stote says the group would eventually look at flotation if it raised enough capital but admits there could come a point where too many shareholders joining the scheme could dilute the value of the other shareholders' stakes.
But it has not been plain sailing for everyone. Trinity House Associates was launched a year ago with the intention of forming a co-operative group of advisers that would grow to 250 RIs within five years.
The IFA co-operative star-ted with the backing of Bank-hall, which offers networkstyle services and an equal ownership stake to member firms. Members of the 35RI group have access to Bank-hall facilities such as IFA Engine, compliance and investment services.
THA sales and marketing director Mark Silvester says: “Several individuals have joined businesses that already exist in our group. In terms of new firms, we have only added two more to this group in 12 months. Things have not gone as fast as we had anticipated.
“I will be perfectly honest and say we have limited res-ources at the moment for exp-ansion but we are looking at funding. With extra invest-ment, we would be able to grow substantially.”
Silvester says competition for this type of support for new groups is fierce. “There are a lot of small groups out there looking to do the same things as us and I think interest is spreading,” he says.
Silvester says that despite the innovation going on in the sector, there is not a lot of appetite for third-party investment in the market and he believes that the jury is still out on inv-esting in IFA groups.