The pace of change in the IFA business has quickened to such an extent in the past few years that it has left many advisors thinking about their future and that of the businesses they’ve worked so hard to build up.
RDR and the end of Trail Commission by 2016 has meant that the opportunities that once existed for smaller firms have vanished, leaving a difficult and uncertain future ahead. Many advisors who are in the last phase of their careers are looking to retire, whilst some younger IFAs who are also in a precarious position are giving thought to leaving the profession.
This, of course, is the sector and the clients’ loss, losing so much expertise in a short space of time is a blow for financial services in the UK.
There are significant opportunities for IFAs looking to leave the sector however, the businesses that they have built up over the course of their careers are potentially very valuable to larger firms who will likely soon come to dominate the market.
With that in mind, how best do you maximise the value of your business and get the best price for it?
Get your house in order before you sell
Many smaller firms that grew up over the last 20-30 years began life before the major regulations of the 1980s were introduced and so developed in a rather ad-hoc way. In some cases this enabled brilliance to flourish, unfettered by excessive managerial oversight, but in other cases it also meant that chaos reigned.
Some clients can visit several different advisors in a firm and get several contradictory pieces of advice or be billed at different rates for the same work. This inconsistency can make a potential buyer suspicious as they might be inheriting all manner of antiquated practices and legacy problems.
There are lots of affordable back office systems now on the market that are easy to install and operate such as Intelligent Office, IRESS or Plum etc. These systems will help to ensure that everyone in the firm is operating in a uniform and structured way and it will add to the salability of your business. If used properly they allow much greater levels of data to be gathered and analysed leading to better client segmentation. The better the data the more valuable the business is to a purchaser.
If you can’t show it, you can’t sell it.
I cannot over emphasise how important good data is.
If you are looking to sell your business you need to be able to present a seller pack, a portfolio of information that helps the buyer to actually see the value in what they are purchasing. The buyer will want to know the firm’s history, how and why it has grown or developed in the way that it has and they will also want to know all about you and your experience.
People buy from people they trust and a larger firm will instinctively shy away from purchasing a business where the liabilities outweigh the assets.
Some kind of client differentiation also needs to be demonstrated to buyers. If you aren’t already differentiating, you need to put these practices in place before you consider selling.
There are several ways to arrange clients; by revenue generated, asset size or even location, but a classification system (gold, silver, bronze for example), will show your potential buyer how much value there really is in the company.
Of course, any firm serious about buying yours will have their accountants find this out during a process of due diligence anyway, but if you can show the buyer first, the initiative is with you and this invariably puts you in charge of the asking price.
In the post RDR world where reliance on trail is no longer an option, service is king. You need to have an excellent service proposition for your clients which you can charge for. Potential buyers can then see where the future revenue will come from should they buy that business.
No doubt your business offers excellent service, but unless you are clearly articulating that fact, the buyer will not know and will miss an important aspect of the value of your firm.
Providing investment advice and having the facility to properly research investment portfolios can add significant value for clients which can enhance revenue streams and add to the value of the business. This can be expensive for small firms to implement which is why many outsource to discretionary fund managers (DFM’s).
Outsourcing business to DFM’s however, can make firms ‘less attractive’ to purchasers as the relationship with the client can end up being split with the DFM. This can also affect the size of revenue that the IFA receives going forward.
If you are looking to sell your business, the points listed above are worth considering if you want to maximise your value. If you are hoping to stay in the sector you will still need to address these issues in order to compete in an increasingly difficult marketplace.
Getting an IFA business compliant is quite a task, a small firm or a lone advisor will have an uphill struggle managing ever changing regulation, IT investment, paraplanning and creating an administrative framework that will ensure a strong service proposition to clients.
It might be tempting to outsource a lot of tasks to support companies such as 360, Tenet and Simply Biz so you can spend more time engaging directly with clients (which, at the end of the day is all any of us really want, but approximately 75 percent of an IFA’s time is taken up with other non client facing tasks).
However, given the time and financial pressures on so many in the profession, simply neglecting compliance or other administrative tasks is a constant temptation, but here lies the road to ruin. In doing so you will kill the value of your company, either when you come to sell, or when a compliance professional leaves or when an investment fails and the FCA pay you a visit.
If you want to stay in the business and have the best of both worlds, you may want to consider working under a larger firm that can give you the benefits of their systems, whilst leaving you to do what you do best - offer great service.
Bradbury Hamilton can offer this kind of support and we’re keen to hear from you if you think you could benefit from working with us.
If you’ve decided to sell your business and leave the profession, we’re also interested in inheriting the value and client base you’ve built up over many years of dedicated hard work.
If you’d like to chat about either possibilities, you can contact me here.