David Hesketh, group M&A manager at Perspective Financial Group Ltd
Speculating on how the new RDR environment will look for the financial advice profession has become something of an industry fixation over the last couple of years. We have seen all kinds of organisations and firms detail their anticipation of what might be coming over the horizon, with everything from ‘doomsday scenarios’ to ‘no change’ predicted as potential outcomes.
Much of the fixation around the future of financial advice has centred on the number of advisers and firms who will meet the RDR rules, continue to trade and either opt for independent or restricted status. Regardless of the ‘Mystic Megs’ around the industry no-one will truly know the numbers until we are much closer to the end of this year.
Interestingly, if we are to put any confidence in myriad surveys undertaken over the past few years, then it appears we have moved away from the ‘there’ll only be a handful of advisers left’ scenario to ‘far more advisers than initially anticipated will continue to trade’ theory.
Indeed, one recent survey from CoreData Research of 1,200 financial advisers revealed just 9% ‘plan to leave the industry within the next five years – a drop from 14% who suggested they would leave last year. One has to question why we might have thought otherwise given that, unless you were thinking about retirement or a total exit strategy within this timescale anyway, the chances are you would always be seeking a way to continue trading.
One misconception about the way Perspective has grown its business – predominantly up until now through acquisition – is that those firms we have brought into the Group have owners who cannot wait to take their leave from the business. The accusation seems to be that we are somehow ‘preying’ on owners who are willing to take a cheap offer in order to secure their exit.
We have to point out that this is nonsense. For a start we have a two-year earn-out period from all owners which means, at the very minimum, these people want to stick around for 24 months to ‘earn’ their deferred consideration. The second point to make is that half of our acquired firms have gone through this process and the vast majority of those management teams are still in place driving the business forward. They want to stay on board and we want them to stay. For many, a final exit strategy is some way away.
If we extrapolate this across the board then I suspect many advisory practices were always going to work towards a post-RDR future but they perhaps needed to move to a structure which allowed them to continue trading. For some, this may mean joining a national group like Perspective, for others it was taking considerable support off the shelf from a bigger organisation. The point is that for many firms there was never any suggestion they would somehow high-tail it out of the sector.
This of course is positive news for the sector as a whole and, rather importantly, existing clients and those who will want to seek financial advice in the future. There is unlikely to be large parts of the country which are financial advice firm wastelands because of RDR.
Interestingly, the second part of the CoreData Research makes for intriguing reading. When asked if they would continue to provide ‘independent’ financial advice an overwhelming majority (73.8%) said yes, with 14% saying they would be restricted and 1.4% tied. 7.7% were unsure of what type of service they will offer and it’s unclear what the remaining 3.1% thought – perhaps they couldn’t even bear to answer the question. I wonder how this will all come out in the wash?
There is still much debate about the regulatory requirements to remain ‘independent.’ It may be well into 2013 and beyond that advisers are informed by the FSA that unwittingly they are no longer able to be independent or many advisers may detach from the emotional connection to ‘independence’ and realise that being restricted may actually be beneficial to them and their clients. We certainly won’t be making any hasty decisions and are more interested in Chartered status.
We have talked much about the importance of the client service proposition over and above any, potentially misguided, loyalty to ‘independence’ – particularly when it means very different things to the regulator, firms and the client. I suspect this realisation will begin to hit home as RDR-preparation shifts up a gear and it will certainly be interesting to see how the final independent/restricted/tied numbers stack up during 2013.