Investors see value in buying IFAs

Succession’s cash injection from HSBC and Tenet’s decision to snap up retiring advice firms is a sign of current appetite to build larger intermediary firms, according to industry experts.

Last week Succession secured £25m from HSBC to buy advice firms and Tenet announced plans to use more than £20m it has stashed away to buy retiring firms.

Steve Harris, chief executive of private equity firm Committed Capital, which invested in IFA acquisitor Fairstone, said changes such as the Retail Distribution Review and pension freedoms have made life difficult for small firms.

As a result, he said investors are seeing opportunities to obtain decent returns on their cash by buying small firms and building larger intermediary businesses.

He said: “Overall, there were some 14,500 IFA firms regulated by the FCA in the UK market in 2015.

“This high degree of fragmentation, together with pressure on costs and regulatory controls, has resulted in an industry ripe for consolidation and investment.

“We saw private equity backed investment into at least 30 IFAs in 2015. Much of the investment in the industry goes to support consolidation by acquisition, often together with investment into technology and regulatory compliance.”

He added the future for the industry looked bright, with the ageing demographic and pensions reforms providing significant growth in funds managed or advised by the IFA sector.

Mike O’Brien, managing director of TenetConnect and TenetSelect, said a programme of buying up the businesses of its retiring advisers for its wholly-owned appointed representative Aspire Financial Management would be paid for by £22m put into the business by Tenet’s owners.

The launch of the buyout scheme follows hot on the heels ofTenet’s purchase of Furness Building Society’s financial advice arm for Aspire Financial Management.

Sesame Bankhall Group managing director Stephen Gazard said his company also puts its retiring members in touch with potential buyers and supports them through the deal.

He said most sales have gone to consolidators in recent years.

He said: “The challenge is whether a local firm has sufficient capital. The trend is inevitably driven by the fact the consolidators are very good at what they do. That goes a long way.

“The consolidator has done it and knows all the different ways of doing it. The big consolidators which are Aim-listed and backed by the market give advisers more comfort that they will still be about.”

Keith Richards, chief executive of the Personal Finance Society, said the main consolidators are currently manufacturers and so are well funded to acquire and increase growth at pace.

He pointed to Standard Life and Old Mutual Wealth as upping the consolidation stakes.

Steve Murray, chief executive of Standard Life’s 1825, said: “As we have stated previously, our ambition is to grow a UK-wide business through acquisitions and organic growth.

“We wouldn’t comment on potential acquisitions however, we remain very excited about the opportunities in the market”