Succession Advisory Services, launched in 2009, aims at nothing less than a dramatic change in how wealth advisory firms are acquired and how advice is delivered to the client.

The world of wealth management, so many of its practitioners say, will have to change dramatically in some cases to cope without the old commission payments and instead have to earn a crust through up-front fees and by delivering genuine, independent advice. Unsurprisingly, some of the biggest firms tell this publication they have nothing to fear and everything to gain from the Retail Distribution Review. Meanwhile, relatively new players who have entered the market are hoping to exploit the changing market environment. One of these firms is Succession Advisory Services, launched three years ago. Its chief executive, Simon Chamberlain, spoke to WealthBriefing about the company’s goals.

Background

I was one of the founding partners of St James’s Place in 1991 and their number one partner for a few years.  I stayed with SJP through to flotation and then joined Zurich in 1997 as its recruitment director.  In the background was a growing regulatory push towards greater consumer advice through the publication of CP 121. I became frustrated with the lack of foresight being demonstrated by the business. I believed we should have been working towards a multi-distribution strategy. 

I left Zurich in 2003 to set up Thinc. Thinc was a fee-based wealth manager with advisors in different disciplines - investments, protection and mortgages.  From clients’ perspective, they saw only the one brand but were serviced by individual advisors, all experts in their own field.  As chief executive, I was determined that no individual advisor “owned” the client and we operated very much as a professional law practice. 

By 2006, Thinc had 900 advisors and 60 offices and we sold to AXA, creating a capital event for all our shareholders. As part of the requirements of the sale, I was on gardening leave for the following eighteen months but this allowed me the thinking time to develop Succession’s proposition. I researched all the national and international consolidations or acquisitions that had taken place in financial services and looked at the most successful acquisitions. Succession is the fulfilment of all of that research.

Strategy

Succession Advisory Services was launched in 2009 and is the UK’s leading specialist consolidation and capital creation vehicle for wealth management firms.  We provide our members with bespoke business solutions, delivered by our training academy, working with IFA firms to optimise their client proposition, delivery and support services. This sets the basis of our prime relationship - working with selected firms to develop, grow and realise the capital value of their businesses. By outsourcing to Succession key services such as business consultancy, investment platform and risk - rated investment solutions, IFAs are both able to achieve a competitive advantage and deliver an improved client service.

The business plan set out acquisition of member firms once they have completed the transition process.  We have just announced the launch this year, of Succession Wealth Management (SWM) - the new national IFA wealth management advisory business with centres in eight locations in the UK controlling over £1 billion ($1.6 billion) of assets.

We announced initially that we believed we would be required to seek restricted status for the new advisory business.  However, over the past few months we have gained greater clarification and insight into RDR. 

Therefore, we will have an investment-only advisory business that will be independent, and whole of market: Succession Wealth Management.

Also, there is a more transactional business, Succession Financial Management, which will focus on protection, mortgages and other premium type products.  SFM will be the restricted arm. 

SFM, the restricted arm, will offer a panel of providers with whom we have been able to negotiate reduced prices on behalf of our clients.  

How many people work at the business? What are your targets?
Succession Advisory Services has around 50 employees, 300 advisors within 45 IFA member firms in 50 locations around the UK.

Originally, our business plan objective was to achieve a membership of 75-80 IFA businesses who each would have around £75 million of AuM, achieving a total of £7 billion of funds onto the Succession Platform.  We’ve since had to revise that figure, since on average, the IFA businesses we take on as a member have around £150 million AuM.  To date, we have around £6.5 billion AuM within the 40-plus IFA members. 

Succession Advisory Services is the fund management part of the Succession group with its own white-labelled platform. Succession gets 20 basis points from the platform.  If we achieve our objective of having £7 billion funds on the platform we will be making around £14 million income per year.  Our costs for running the platform are about £1million which leaves a clear £13 million in profit each year.  This would be valued at around £200 million.

Succession Wealth Management (formed by the acquisition of five fully-transitioned IFA members) is the advisory arm and will be charging clients a 1 per cent client fee.

Therefore, on the same £7 billion on the Succession platform, by charging clients 1 per cent for advice we achieve 30 per cent profit, resulting in £20 million of recurring income.  SWM would be valued at £500 million and the two businesses together worth £700 million.

Could you outline the main distinguishing features of Succession?

The research we conducted before we set up Succession showed that old-style consolidators such as Money Portal, Charcoal and Towergate, ended up going into administration because they first set about acquiring businesses and then tried to change them.  Our strategy is completely different.

[He outlined a number of rules]

Rule 1:  Succession doesn’t pay a penny to buy our member firms until they have gone through our 24-month transition plan.  This means, they must use the same investment solutions, back-office processes and systems and engage with clients in exactly the same manner. Not only do we not buy businesses initially, we ensure the IFA businesses, engage properly with us.  This means they pay Succession a monthly fee of £1,000 and sign over 15 per cent of their business to us.  It takes a huge amount of consultancy input to change a firm’s entire proposition from commission and transaction-led with no recurring value to one that is the complete opposition model.

Once they have signed this contract they are now motivated to fulfil the transition process and so our objectives become completely aligned.

Rule 2: The most important rule is follow a generic process. We looked at successful UK companies, such as St James’ Place and Hargreaves Lansdown.  We found that having a generic process, not hundreds of advisors following their own process, meant that the client is a client of the company and not the advisor.  This locked in value and for any potential purchaser; steady, recurring income is the key to increasing value. In all the research we had done – this was the fatal mistake other consolidators made.  As they bought IFA firms, the advisors would leave with their clients and the only thing left for the acquirer was the liability.  No capital value remains. 

Rule 3:  All IFA business that become members of Succession Advisory Services and wish to be fully acquired in order for the owners to achieve a capital event or exit, must complete our transition process.  Why? If the business as a whole is valued on recurring income it makes sense for the firms to align their thinking with ours and increase recurring income. 

Our objective is to achieve dependable recurring income which we would expect to bring a capital value of £700 million.  The majority is owned by our member firms and we believe we are unique in that every advisor knows they can make income and value so instead of exiting the business they have remained with us. 

What are the main driving forces at work on your industry?

RDR is certainly the industry’s biggest driver at the moment.  Most product providers are only now coming to the realisation that after Jan 2012, their value will be reduced drastically.  Until now, their route to market has been undisturbed.  Our experience shows consumers in the UK have paid the price for poor products with confusing pricing structures and where advisors have had to rely on new transactions in order to generate income. RDR is changing this.  Consumers can choose to deal with a fee-charging or commission-based advisor.  

What is the most difficult issue for a business model like yours?

The issue is getting IFAs to change their perception of themselves.  Many think they are doing very well and that becoming RDR-ready is not that much of a leap.  What we tend to find though, is that although the owner or principal of the business may be ready to join Succession, the advisors are not and believe they can take “their” clients with them.  Also, I don’t think many of them realise just how difficult it can be to move from an up-front, commission-based business to a fee-charging, on-going service – there will be months of little or no income while the new business plan is embedded.

Succession requires a whole suite of very fundamental changes – from the script an advisor uses with clients to making all advisors employed as opposed to self-employed.  Not many IFA firms meet our criteria or are willing to commit to this journey. They should get real.

Your approach of not buying a firm until it is already integrated must entail a great deal of work and negotiation. What sort of risks are there in this approach?

The risk is “time-wasters” – people who don’t take the steps we advise them to take.  We train advisors and owners how to use the Succession platform, the same compliance, back office processes, gap-filling training etc – all of these tasks have to be completed and understood by every person within each IFA business.  The risk is we spend so much time on helping a firm change but at the end of the day, the pace of change is determined by the IFA owner and it may not be as fast as we would like.

Are you primarily a UK business or do you see potential for work abroad?

There is certainly the potential to go abroad and we will explore the next phase of the Succession strategy in due course.

If you were not working in this business, what else would you be doing and why?

Catching the 12 o’clock train from Paris to wherever.  It is a commitment I made to my wife that at some point, we will travel the world without expectations or planning.  We will just stay in a place until we’re bored and then catch the 12 o’clock train to somewhere else.  How long the journey lasts and how many places we will visit...who knows.

Final remarks?

There is a lack of leadership in the marketplace because the majority of advisors or wealth planners in the UK come from paternal backgrounds of large organisations.  We’ve also seen too many trade bodies spring up claiming to represent our profession and the vast majority have proved ineffective.  Because we have no clear leadership or trade body, we don’t have a recognised voice making it hard to lobby either the regulator or government.  The sooner the day comes that we have one representative body, the better.