Culture
Being acquired by consolidators usually leads to a greater cultural change.
Mr Dyer says: “This may not suit older advisers, who may decide to move on to a smaller firm.
"This in itself may cause issues for the principal of the seller - usually deferred consideration is linked to ongoing income streams and if advisers and clients defect, the seller may not get the entire purchase price.”
He adds that the reverse may be true if the sale is to a smaller buyer; cultures may be more aligned and transferring advisers may feel more at home.
Mr Gallacher says: “A sale to another IFA firm continuing to advise in a similar manner to the existing IFA might appeal more from a cultural angle for the selling IFA and might be less distributive for the client, that is, less chance that they don’t stick with the purchasing firm.
This view is echoed by several others in the industry.
But Mr Gallacher highlights that a key advantage of selling to consolidators is that “their entire business model is based on purchasing IFA firms so they should have deep pockets, an well-honed strategy and should be well versed with retaining ‘new’ clients”.
Mr Dyer believes that sellers should not automatically deviate to a consolidator or an individual firm and should assess the specifics of the situation.
“We would emphasise that consolidators have learned a lot over the years and have developed acquisition and integration strategies that are appropriate for all sizes of target.”
“It is very much a case that a seller should look at a range of options and understand the broader implications of each option before pulling the trigger,” he adds.
Mr Gallacher also highlights the issue of “shoehorning” that can arise from consolidators.
“In my experience consolidators tend to be tied or vertically integrated organisations running a common investment proposition approach. This can lead to the risk of your clients being ‘shoehorned’ into a new proposition.”
Mr Gallacher says: “Perhaps the biggest risk to the selling IFA in this scenario is thatthe client objects to the new proposition and this is an issue as IFA business sales naturally tend to be based on the client moving over to, and staying with, the new firm / proposition.”
“We’ve certainly picked up a few clients where their original firm had sold out to a consolidator but the client preferred the traditional IFA approach,” adds Mr Gallacher.
saloni.sardana@ft.com
