Client Affairs

The March of the Financial Advice Aggregators

Tom Burroughes Deputy Editor London 14 April 2008

The March of the Financial Advice Aggregators

An economic trend that starts in the US will often hit the UK and that is certainly happening to the world of financial advice. Welcome to the aggregators.

An economic trend that starts in the US will often hit the UK and that is certainly happening to the world of financial advice. Welcome to the aggregators. The US has already seen a trend in which companies are explicitly set up to buy or create networks of boutique asset managers and independent financial advisors, usually known by their US name as Registered Investment Advisors. Investment firm aggregators are buying up hordes of RIAs and asset managers, forging large, high-profile networks with the combined market power to negotiate low asset management fees for clients due to economies of scale. And advisors are drawn to aggregators' networks as they can outsource administration chores to a powerful parent company and still keep most, if not all, of their independence. And now this process is getting under way in the UK. A driver of this trend is a small, but growing number of IFAs who focus on high net worth and mass affluent clients, making them attractive business propositions for aggregators. These IFAs prefer to charge a fixed or negotiable fee for their work instead of taking a commission from product sales, a move driven by regulatory changes in the UK and consumer demand for more impartial advice. In the US, a prominent aggregator that is heading across the Atlantic is Focus Financial Partners, founded by Austrian-born chief executive Rudy Adolf. Focus Financial has snapped up a large number of advisory firms and is now heading eastwards. Earlier this year, it inked a deal to acquire UK-based Greystone Financial Services. The Manchester firm became the fifteenth “partner firm” in the Focus Financial stable. Mr Adolf says his company’s main focus is to develop the work of the 14 US firms but he has not ruled out further acquisitions in Britain or continental Europe. Meanwhile, Raymond James Investment Services, the UK arm of US financial firm Raymond James, operates a large network of UK-based financial advisors who operate as independent contractors but who can also draw on the Raymond James network for support. Another example of an expansion-minded business is Thinc, a UK investment advisor aggregator that is owned by French insurance giant AXA. Earlier this month, Thinc bought a UK financial planning company, FS3, based in Southampton. Thinc has also bought Watterson Wealth Management, financial advisors serving the high net worth market in the English county of Cheshire. Ian Shipway, investment director at Thinc, told WealthBriefing that his firm, which was formed in 2003, is particularly bullish about the growth prospects of fee-based UK financial advisory firms. Financial aggregators could buy a large number of firms without hitting any kind of capacity limit apart from a lack of suitable buying opportunities, Mr Shipway said. "It's very scaleable. There is, in reality, a limit because there are relatively few people in that (fee-based) space today and many of them are hugely independent in their mindset." Recent rules laid down by the UK Financial Services Authority, the official financial regulator, force any firm or person known as an independent financial advisor to offer clients the choice of paying a set fee for their work, rather than simply take a commission. Mr Shipway says these fee-based IFAs are particularly attractive businesses to acquire because they can earn regular, recurring revenues – an extremely tempting proposition in a volatile market environment as at the present. "There's phenomenal potential, the demand is huge. It also offers much higher margins than transactional business," Mr Shipway said. There are estimated to be fewer than a thousand certified financial planners and less than a thousand practicing chartered financial planners in the UK, Mr Shipway said. The Association of Independent Financial Advisors, the UK trade association for the industry, reckons there are more than 30,000 IFAs in the UK, ranging from one-man operations to larger firms. Aggregators of these businesses are still only scratching the surface of the UK market. Not all aggregators simply want to form big networks of advisors. Syndicate Asset Management, an Aim-quoted UK business with £5.7 billion ($11.2 billion) of assets, wants to grow revenues by helping its acquired firms to develop, in some cases by adopting the Syndicate brand and corporate ethos. Syndicate did not take long to get on the acquisition trail after it was founded in September 2005. Within a month of launch, it acquired the financial advisory and fund management business Ashcourt, also an Aim-listed business. Ashcourt, in turn, has subsequently acquired UK IFAs including Chartwell House and IFS. It continues to hunt for acquisitions. Like other aggregators, John Morton, group chief executive of Syndicate, believes IFAs can benefit from the advantages of a strong parent able to take on administrative, human resources and regulatory compliance work. “What we say is that we will acquire your business and free you from all of that,” he told WealthBriefing in an interview at his Hanover Square offices in Mayfair. “We buy 100 per cent of a business within the UK and also holds a 35 per cent stake of CombiMeer, a Dutch IFA based in the Netherlands. We have not bought less than that yet, although I’d never say no. We prefer to be in control of a business,” he said. Syndicate is not creating a purely “franchise” or “networking” model as it takes a more hands-on approach to the firms it acquires. In all cases, the firms will adopt the Syndicate ethos and in some cases the businesses are merged into existing Syndicate subsidiaries. The subsidiary companies retain their own boards, however. “We’re taking advantage of the consolidation of the industry to build a business that will be robust and have a strong future. We are going a bit further than a network in my view,” Mr Morton said. By joining Syndicate, an IFA gains the ability to provide its clients with a “one-stop-shop” in terms of providing both financial planning advice and investment management, he said. The business model will continue to focus on the advisory market used by affluent and high net worth investors, he said. “We want to keep away from the lower end of the market. It is where we can give people the time they need to make the right decisions and we get remunerated fairly for doing it. I’d not want to go far below the mass-affluent level.” Many financial advisors will continue to work alone and prefer to hang on to complete independence rather than have some of their freedom contained by a large network or parent firm. But as investors demand more professionalism and high-class service, it is easy to see why for a growing number of advisors, they should join the aggregators.

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