Grow…or consolidate?

Chartered financial planner Martin Bamford has spoken out after 2019’s Heath Report surveyed 1000 advisers about the current state of the impartial advice sector.

October 2019

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Risk Disclaimer

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

Key takeaways:

  • The advice gap: why more needs to be done to replace retiring advisers
  • A look at the available options for advisers regarding an exit strategy
  • Understand the key findings of 2019’s Heath Report

Chartered financial planner Martin Bamford has spoken out after 2019’s Health Report surveyed 1000 advisers about the current state of the impartial advice sector. One of the findings showed that financial advisers are split between a desire to grow their business or manage it for disposal. In fact, it found that 45% of firm principals will seek to exit within the next 10 years, while the remaining 55% have plans to leave after 10 years.

In light of this, Mr Bamford, managing director at Surrey-based Informed Choice, insisted that advisers who want their clients to be fairly treated post-acquisition need to consider alternatives, including a sale to an Employee Ownership Trust, or a Management Buy Out.

He said: “Very often, advisers need to grow their businesses before they can dispose of them for a desired price. There’s been a great deal of consolidation within the adviser marketplace in the past few years, which looks set to grow as the typical adviser age profile continues to trend upwards.

“Consolidators are only prepared to offer the sums they do, because they can then migrate acquired client assets onto their platforms and into their investment propositions, doubling or greater the average revenue per clients. Advisers who want their clients to be fairly treated post-acquisition need to consider alternatives, including a sale to an Employee Ownership Trust, or a Management Buy Out.”

The 50-page report, produced by the trade body Libertatum in January this year, is the third edition.  It follows on from the Heath Report Two, which looked at the availability of financial advice three years ago. At the time it identified that, due to the Retail Distribution Review, consumers had suffered the double whammy of a 4,000 drop in adviser numbers and the surviving advisers halving the number of clients they each service from 405 to 194. The Heath Report Three monitors the changes since the last report and opens up a new area of research – namely the retirement plans of advisers.

Garry Heath, director general of Libertatum, said more needs to be done to replace retiring advisers.  He added: “Last year we lost 900 from the profession. Some to retirement, some to other causes. As higher levels of retirement take hold, we will have 1,650 retirees plus maybe another 500 of pre-retirement age. Unless these advisers are replaced by new recruits, the number of consumers accessing advice could be under 1m in 10 years.”

This was echoed by AJ Somal, a certified financial planner at Birmingham-based Aurora Financial Planning, who suggested that an adviser’s desire to leave the industry by selling their business depends on their own age. He said: “I am not surprised by the findings of the survey, given the age profile of financial advisers.  I plan to leave after 20 plus years as l am 44 years old, so my focus is to grow my business.

“It means that there will be a shortfall in the number of qualified advisers within the next 10 years, due to the number of advisers exiting the profession. Recruiting and training the right people over the next few years will be even more vital, given the lack of new blood entering the profession.”

Risk Disclaimer

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

Actions to consider

  • If you are in the ‘grow’ camp, audit your business. What are its strengths, weaknesses, opportunities and threats?
  • If your focus is on retention and consolidation, look at where efficiencies can be gained. Time not spent on new business meetings can be used for value-add against your existing relationships.
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