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Hundreds of IFA firms are following a “blind alley” strategy and need to change course quickly or risk disappearing, suggests a recent study.
Analysis by Plimsoll looking at the top 1000 companies in the market suggests 254 companies in the IFA industry are following a strategy which has led them into a blind alley and they must change quickly or risk disappearing altogether.
"It is undoubtedly tough out there with demand still subdued and costs rising all the time," said report author David Pattison. "With too many companies chasing too little market, many are finding it difficult to pass on rising costs to customers."
The study identified 254 companies for whom the strategy over the next 12 months is either survival or rescue via takeover. These firms have high debts as a percentage of sales, with average profit margins of -1% and often falling sales.
"These companies need to downsize their operations, focus solely on the profitable parts of their business and work at making a profit or the end is nigh," said the report.
The analysis also found firms' profitability has plunged, with average margins now down to just 2%.
Plimsoll also uncovered some 64 companies currently struggling for growth. Despite some of these companies boasting healthy profit margins and little or no formal debt, they nevertheless need to change strategy and "wake up", said Pattison.
Unless they sacrifice some of their profits and concentrate on finding new growth, they run the risk of being left behind, he added.
A further 161 companies lie at the opposite end of the spectrum and are growing at a pace "way beyond" the rest of the market but are doing so at the expense of profitability.
"Many of these companies could be accused of "overtrading" by continuing to make losses and/or financing growth via increasing debt," said the report. "They risk running out of cash unless they return to profit soon."
Elsewhere, the Plimsoll analysis unearthed a band of 518 clear market leaders managing to achieve above average sales growth, retain healthy profit margins - at an average of 6% - whilst carrying little to no debt.
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| Comment | Warning 250 IFA firms risk 'disappearing' |
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The shape of things to come
Nothing like a positive headline again! 250 ifa's disapearing, a third are making a loss, clinging on for dear life and more. The real loss will be in lost advisers and staff jobs but most of all the good service that we have provided to their our clients. Trampled into the ground by an arrogant blind regulator who has no grasp of reality.
Posted by: david
demolition job
I cannot agree more with Ian and David i have been saying this for years, Ian's cooment about the fine being less than what they made from wrongdoing may be true but i thought that the proceeds from crime were confiscated, but as we own 85% of some institutions we would only be taking back our own money?, so you see they are in a win win situation, the previous government got us to where we are today and still have the audacity to keep blaming the conservatives,at least they know how to balance the books, as for the FSA they are gradually dismantling the industry which gets people to invest which is then reinvested in companies which create jobs, simple no IFA's no investment, less jobs less taxes, no one to pay the FSA fees etc etc, wake up before its to late
Posted by: geoff
Regulation or business strategy?
This is less about regulation and everything about poor business strategy. It is possible to run a profitable IFA firm in the current regulatory and economic environment. I suspect those that are habitually loss-making are simply chasing the wrong strategy or incapable of making the changes required to prosper in any business sector.
Posted by: Martin Bamford
regulation 'and' business strategy
Martin we all trust and hope that youre right however for some less fortuitous its taking time, yes the lights should have come on sooner, maybe through no fault of his making as he lost a partner last year. To the credit of our industry the majority of advisers despite the best efforts and lack understanding by the FSA, who l have concluded have no understanding of reality, are striving to get to where they need to be. But we deserve better than what we have
Posted by: david
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Only 250 firms disappearing ?
Why would anyone wish to continue in financial services with the top heavy burden of FSA compliance, the repeated misselling practices of banks - the cost of employing the burden of tax on advisers - when we can all become bus drivers - and earn good salaries. We have seen the destruction of farming in the UK, we have followed the destruction iof ship building the car industry and engineering - and now " the nation of shop keepers " i.e Tesco refuse to accep ttheir price fixing and the fines levied - which acts against their cusotmers in the most sinister manner. We have seen the destruction of the NHS where managers ask the employees how they can resolve the issues when being paid such high amounts of money. There is no leadership in the UK from lazy, idle and incompetent MP's. No wonder there are riots in the streets. Bankrupt banks - a government which refuses to listen - and the different classes in society who operate their own rules - i.e banks and insurance companies who operate on the basis of misselling - on the basis the finewill be less than the money made form their corrupt practices. These people are above the Law and if not liek Rupert Murcoch they can buy a policeman.
Posted by: Ian Lees