Mickey Morrissey: Our last topic is consolidation. And never a day goes by without me seeing another headline about consolidators gobbling everybody up. Many go around the country presenting to intermediary firms about acquiring or consolidating. Their take is that a lot of firms overvalue themselves, so the hit rate of acquisitions is actually quite small, maybe 10-15%. And a lot of companies just get pushed to one side.
Alex Morris: Consolidation will increase, because there’s an age issue. The average age in the industry hasn’t changed much in recent years, it’s about 58. And there are fewer youngsters coming through. If it becomes a requirement to be chartered to be a financial adviser, there will be even fewer, because that’s five years of education, working in an office and passing the exams to get to that level. I think consolidation is going to happen more and more as people retire.
The consideration we have as advisers, and I’m now 43, is that anyone buying my business is going to want to tie me in for five years. I can’t just get to 53 or 55 years old and think, ‘OK, I’m selling the business.’ That’s because the value, or a large part of that value, is me. Consolidation is something I need to be thinking about sooner rather than later.
Dave Field: Actually, if you provide a consistent service for your clients, then the demand for the adviser to stay on should be reduced. Clients buy into the advice process and the service they get, not the individual. The adviser is important, but the more consistency you have, the more attractive your business is to a potential buyer. They know they can put someone in your place and the majority of clients will stay.
Nick Britton: We train thousands of advisers a year, across firms of all sizes. Quite often, we do meet advisers that are “lifestyle businesses”. And you know, they’re not looking particularly to grow their client base, but they love their jobs. They’re very happy with their clients, their clients are very happy with them. And I don’t see why that’s a problem. Clearly succession will become an issue eventually, but it would be a shame if regulation or other pressures meant that these old school firms were driven out.
Tony Wassell: This is something that started with stakeholder pensions, where we moved away from commission to what is now a fee-based business. We’re now focused on wealth — £500,000 plus — and many of those consolidating will be dealing with a shrinking pool of smaller clients. In the future, the industry will be more techdriven, and smaller clients won’t be using financial advisers at all. So, I think we have to consolidate into a more high-net-worth, highly qualified industry. And that’s where we should be as a profession.
Mickey Morrissey: Before we conclude, I’d like to discuss the vertically integrated model. The most obvious recent example in our industry is Old Mutual’s acquisition of a number of advice firms. Do you think the integrated model is going to grow, or will there just be a few outliers?
Tony Wassell: I’ve come across vertically integrated businesses, but I’m not necessarily sure it will grow as a model. As an adviser it does become more restrictive by definition, because you feel obliged to look after your parent company. It should be important to you that your clients see you as completely independent.
Alex Morris: When the banks started giving advice, it was seen as a real threat to our market. Someone being able to walk into HSBC on the high street and get proper independent financial advice — that looked like a direct challenge to us. But when the FCA started looking behind the scenes, the banks were clearly pushing their own services and products. So, customers are left thinking, ‘Is this really independent?’
Dave Field: For me, it’s about how you manage the conflict of interest. Because, rightly or wrongly, there’s an investment company at the top trying to make a profit. They’ve got an adviser, a platform and an investment manager, and they want to make a profit out of all three. That’s not a criticism. But can the adviser truly remain independent in those circumstances?
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