Half of largest IFAs lose third of value

More than half of the 1,000 largest IFA businesses in the UK have lost at least a third of their value in the last 12 months, research suggests.

According to a two-year study conducted by Plimsoll Analysis, 541 of the top 1,000 independent financial advice firms by turnover have seen their value drop by more than 30% over the last year.

In total, 751 companies are worth less than they were last year, while the remainder have increased their value, an achievement Plimsoll describes as "remarkable".

Plimsoll assesses businesses using criteria including sales growth, profitability, working capital, immediate liquidity and gearing.

It calculates the total value of an IFA by adding pre-tax profits to interest charges and then subtracting the firms non-trading income and directors fees from the total. Finally, it adds that figure to the firm's total assets minus cash.

"It's not surprising the value of companies has taken a pounding recently but the extent of the squeeze is striking," senior analyst David Pattison says. "Only 245 companies managed to increase their value - a record low."

According to the report, the biggest weight on company values has been declining margins, but it also identifies slackening demand as a significant factor.

The findings follow a previous Plimsoll study in February which found almost 360 of the 1,000 largest IFAs have been forced into loss-making positions as a result of the recession. A further 68 had also been left with "unmanageable" debt levels.

An earlier study concluded about 1,000 adviser jobs would be lost in 2010 as IFAs sought to re-establish profitability.

Plimsoll says principals can use the report to compare their companies with their market peers on a like-for-like basis and to identify possible acquisitions. The report costs £350 but a £50 discount is available by calling 01642 626400 and quoting reference PR/FL36.