The shortage of qualified financial planners, the contracting professional indemnity (PI) market and the cost of regulation are forcing IFAs to sell their business in the UK, according to the strategy and acquisitions director at Quilter Private Client Advisers (PCA).
Dominic Rose spoke to International Adviser shortly before the financial planning arm of Quilter completed a triple swoop of IFA firms, adding £211m ($267m, €237m) in assets under advice to the UK business.
“I think there are three principle issues facing the financial planning sector,” said Rose. “All three are causing people to sell their business.
“The first one is a shortage of qualified financial advisers and paraplanners. If we look at the sector as a whole, the numbers are quite startling in terms of the reduction in advisers in our sector.
“You have demand increasing, yet you have the limited supply of qualified advisers decreasing. It creates a massive issue in terms of the availability of advice for individuals.”
IA has written several articles on the decreasing talent pool and how firms like Quilter can help fix it.
Decreasing PI insurance market
Another factor is the PI insurance market, which has been causing real problems for firms.
A recent study by the Personal Finance Society found financial advisers in the UK are at risk of not being able to advise their clients due to the rise cover costs.
Rose added: “The PI market is contracting. Firms are finding it really difficult to get PI insurance.
“If they are getting it, their premiums are going up significantly. I have been made aware of numbers of firms that have been renewing recently and they are seeing premiums increasing up to five times.
“It is absolutely extraordinary. It is just adding to the cost of running the business.”
He added that the industry needs to encourage more insurers to provide PI cover, by encouraging them to pay close attention to the governance of well-run adviser firms.
“Smaller firms should not be penalised by the inappropriate behaviour of other firms,” Rose added.
The last issue is regulation. It has been a thorn in a lot of advisers’ sides over the last few years, mainly through the cost of keeping up with it.
Recently, research from IFA firm Succession Wealth found that advisers and wealth managers are increasingly looking to exit the industry, with half (51%) of UK-based advisers saying regulation was a “very important” trigger.
Rose said: “Regulation is putting further layers of cost into businesses and is one of the main causes for people to exit the business, actually.
“The number of larger firms is reducing but the size of the firms is increasing.
“Larger firms are getting bigger as they are acquiring. You are seeing consolidation at the top end. If we look at the smaller firms, we will continue to see significant numbers of sales of those businesses as individuals approach retirement age.
“It is essentially the same across the industry, those individuals will want to recognise the value of their business they have built up for many years and they will sell.
“Some people are being prompted to sell earlier than they had thought of because of the difficulties around PI and increasing regulation. It is prompting them to say that ‘this is not worth it anymore’.”
The big worry for IFAs should be that as more look to sell, it could severely reduce their price on the market because there are plenty of options for M&A-heavy businesses.
Opportunities for selling
Quilter is one of several firms looking to buy out advisers looking to exit the market.
Others include IFA businesses AFH, Tenet Group and Fairstone Group, which has a downstream buyout programme to take in firms for a two-year transition period before completing the acquisition.
Rose said: “They have two options, individuals that are looking to reduce the regulatory burden but want to carry on running their own business will tend to join a network.
“Other individuals who perhaps want to sell out in entirety, will look to sell to Quilter PCA.
“That will be a combination of retiring advisers, who want to handover their clients on a face-to-face basis or some who want to work with us in an employee capacity.”