Should you buy, sell or merge? Three IFAs set out their stall

Maria Merricks talks to three advisers who have adapted their businesses in different ways.

As RDR gets ever nearer, more advisers are coming to the conclusion their business models must change to accommodate the new regulation.

For many, this will mean adapting the structure of their firm. As a result there has been an increase in the number of sales, acquisitions and mergers in the industry.

For those looking to acquire businesses, the RDR presents a great buying opportunity as a large number of advisers are predicted to retire or exit the industry – recent predictions say 20% could depart.

However, many will not want to leave despite struggling to meet all the RDR requirements. For them one option is to sell their firm to a consolidator, while still maintaining control of the business.

A merger is another potential move. It presents an opportunity to come together with like minded firms to create a ‘best of breed’ practice. This route will pool resources, cut costs and create better service propositions.

With a number of advisers still undecided about which route to take, Professional Adviser takes a look at what each strategy involves.

BUYING

Wingate Financial Planning makes one acquisition every two to three years, on average. Alistair Cunningham, financial planning director, takes us through the process.

“The investment we have made into our client service proposition and back office procedures mean we are able to manage a far higher number of clients without a similar increase in our support resources. This capacity to manage makes growth through acquisition a natural solution.

In buying a firm it is essential to us the principles of the practice come with their clients.

The ethics and culture of the business also play a big part in our decision to acquire. It is often the case we will not be the highest bidder but we can offer an assurance we will deliver a personal service to their clients. We understand that, for individuals looking to retire or exit the industry, many of their clients will have become friends and they place a great value on our commitments to offer a personal service.

As a small firm we have flexibility over the structure of an acquisition and, where possible, we will accommodate the sellers’ financial objectives. Our experience has demonstrated that if you have an open and honest partnership from the beginning of negotiations you are better placed to reach a mutually beneficial agreement and the transition is smoother.

The process of purchasing a firm is protracted and there are far more we reject than accept. One of the problems is there are some large firms paying unsustainably high valuations in our view.

I believe the next few years will see a growth in mergers between financial planning firms. The industry is going through a transition and, by the end of 2012, I believe the type and structure of services provided by firms will be more similar than ever.

This move towards a more common approach to deliver value through a clear and transparent remuneration structure will provide a marketplace for like minded firms to consider creating a ‘best of breed’ business. Assuming the egos of the various owners can be left at the door, the benefits in this type of growth are compelling and powerful.”