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IFAs face tougher acquisition market as client banks dry up
by Jun Merrett on Jan 28, 2013 at 11:40
There has been a flurry of IFA acquisitions in the past few months, with some advisers leaving it to the last minute to leave financial services due to the implementation of the retail distribution review (RDR). But now the RDR deadline has passed, the acquisition market looks set to become tougher because many advisers who had no choice but to sell up have already left the market.
With the client bank acquisition model now less viable and pricing levels less certain, acquirers are gearing up for a different approach.
David Williams (pictured), managing director of Cheshire-based Jones Sheridan Financial Consulting, proved a keen acquirer of IFAs last year. He is aware the market in 2013 will be tougher.
The firm bought five client banks in 2012, typically paying three times recurring revenue, but Williams said the price and type of any acquisitions consolidators made this year was likely to change.
‘Ultimately, the consolidators can only offer a different pricing model. I see that as going from a multiple of three times recurring revenue to four-and-a-half in 2013,’ he said.
Shift from client banks to firms
Williams said that although his firm had been able to exploit a wave of retiring IFAs selling their client banks last year, this option was not as available in the RDR world.
‘It’s not been our preference [to buy whole businesses] up to this moment because there has been more opportunity in client banks, but I think it will change,’ he said.
‘We will see more advisers who want someone to buy their business but keep them on because they’re qualified and RDR-ready but perhaps not as profitable. Those people will either choose to be bought or go down the network route.’
The shift from buying client banks to acquiring firms will bring added potential perils, predicted Bellpenny, which has been the busiest consolidator in 2013, taking on £400 million of assets. Chief executive Kevin Ronaldson (pictured below) said acquirers would need to be wary of the liabilities they could be taking on.
‘Buying businesses becomes difficult because it’s hard not only to ascertain the value of what you’re buying because there may be debt, but also there is the possibility of claims from clients and there is the potential the adviser advised in areas they shouldn’t have. There is far more commercial risk,’ he said.
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