M&A Market For UK Financial Advisors Shifts; Vendors Now Outweigh Buyers - Consultants

Tom Burroughes

14 October 2013

In the wake of the UK regulatory shakeup of the independent financial advisory sector, there are more vendors of IFAs than acquirers, shifting dramatically from the balance three years ago, according to , an organisation advising people on such deals.

Back in autumn 2010, the ratio of buyers to sellers was nearly 20 to 1, the firm said; by the end of 2011, that ratio had dropped to around 3 to 2, reaching around parity at the start of this year and is now moving towards there being more sellers than buyers.

“It will come as no surprise that the RDR is the common factor – but the motivations of sellers couldn’t be more polarised. For some, it feels like the hard work has been done. Now is the time to look to the future, and to focus on long-term prospects and exit or retirement plans. For others, working life is still too much of a slog. Many vendors don’t like the direction of the industry, so they’re planning to sell up and leave,” Brian Spence, managing partner of the firm, said of his business’s research.

Spence has been a strong critic of some recent changes to the industry, fearing that regulations on IFAs will create a class of “orphan” clients no longer able to afford financial advice. The issue has become sufficiently serious that the Financial Conduct Authority, the UK regulator, has started to examine the issue.

In the run-up to the RDR and in its aftermath, a number of IFAs have sold up, with aggregator firms such as Syndicate Asset Management, Focus Financial and Succession snapping up businesses to tap what they see as a new business landscape.

Commenting on the state of the IFA market, Spence says his firm typically secures sales at a minimum of three times recurring annual revenue, with some buyers offering additional incentives, including up to 25 per cent of income in the first two years following a sale. Harrison Spence Partnership’s experience is that those practices with £50,000 to £100,000 in fund-based renewals are currently particularly attractive to acquirers, he said.

However, prices may be peaking and small practice owners should explore their options for selling, rather than risk prices taking downwards trajectory. The market is dominated by a few large acquirers and if they change direction, or the regulator makes acquisitions too difficult, the price of IFA practices will plummet, he said.

“Those considering selling in the next five years should at the very least explore their options to ensure that they secure the best price for their business,” Spence adds.