“It’s later than you think”, so the saying goes, and this couldn’t be truer than in the case of IFAs who are looking to quit the industry before the Retail Distribution Review kicks in, according to Stuart Dyer, head of intermediary acquisitions atClose Asset Management.

Speaking to WealthBriefing in an exclusive interview, Dyer warned that there is a lot of “inertia” in the industry and that a significant proportion of IFAs could be leaving it too late to implement their exit strategy, if that is the route they are choosing to take.

Close Asset Management is itself aiming to finish its acquisition programme by the end of 2011; a year of lead time before the RDR comes into force is highly desirable, Dyer said, so that firms can ensure that they are fully prepared operationally and for such processes as data clean up have taken place.

Close just last week acquired the client book of a retiring regional IFA in a deal which could garner the firm up to £50 million in assets. The IFA concerned has yet to be named in order that clients can be told of the change first, and, according to Dyer, it is this kind of concern for clients which characterizes the industry: in its negotiations with acquisition targets he said the first thing advisors want to discuss is how their clients will be treated, rather than the money.

This client-centric approach is, for Dyer, what will prevent the exodus of advisors which some gloomily predict will be one of the consequences of the RDR’s reforms. One of the more contentious of the RDR’s proposals is that IFAs will have to label themselves “restricted” if they are unable or unwilling to take a truly “whole of market” approach to products, but this, according to Dyer, is not as much of a problem as some argue.

The assumption was, Dyer said, that those IFAs not labelled as independent would be disadvantaged, but in his view this is simply not the case as it is the relationship with the advisor which is prioritized by clients. The bond between client and advisor can be “extraordinarily strong and will survive, and in these cases the RDR won’t have a material impact,” he said, adding that actually a lot of IFAs are “happy to work on a restricted basis.”

Not a big exodus

Dyer believes that there is “not going to be a huge outflow of advisors but rather a restructure of the industry” in the run up to the RDR. He predicts that some IFAs will look to partner with other firms – outsourcing their investment processes in order to focus on client relationships, for example – while others will seek mergers, but this will primarily be among firms with over five advisors. It is those with fewer than five “where we are likely to see the exit of the older principals” he said, highlighting the fact that advisors close to retirement are unlikely to want to undertake the new QCF Level 4 qualifications when they have little time left in the industry.

Close is therefore continuing to talk to a number of possible acquisition targets, with “two to three being reasonably close to fruition”, but Dyer was keen to emphasise that the firm is not rushing for deals and is instead focusing on finding quality acquisitions which represent a good fit.

Primarily, the firm is looking at IFAs which share its focus on investments and pensions, and despite its ambitious target in terms of growing its asset base, Close is happy to consider the smaller players. The lower threshold would be firms with an annual turnover of £250-300 million, with the ideal scenario being a principal who wants to exit the industry and where their colleagues lack the funds to buy out the business, Dyer said.

It remains to be seen what the implications of the RDR will be in terms of advisor attrition, and whether the tougher regulatory regime, increased cost of doing business and higher capital adequacy requirements it will usher in will spell the end for many businesses.

Industry consolidation is to be expected, said Dyer, but he is confident that predictions of an industry exodus are overdone. “Businesses might disappear, quality advisors will not,” he concludes.