With 2025 just around the corner, many advisers will be reviewing their business strategy – including their succession plans. In her latest blog for IFA Magazine, Katie Brinsden (pictured), Managing Director at the national, directly- authorised IFA, Truly Independent, shares her thinking with us about how consolidation of advice businesses is set for change. She also offers sound practical tips for any advice business planning their business succession strategy right now.
The founder of the Honda Motor Company, Soichiro Honda, famously predicted the automotive industry would face ever-greater consolidation over time. “In the future,” he said, “there will be just half a dozen car companies – and Morgan.”
He was not entirely wrong. Countless smaller names have since been acquired by bigger counterparts. Even his proposed exception to the rule, Morgan – arguably the most eccentric of old-school British specialists – finally surrendered its independence a few years ago.
I witnessed some of the frenzy during my career in the motor trade. I worked for a multinational marque that brought numerous brands under its wing, and I worked for a celebrated British company that was among those snapped up.
Consolidation in the spotlight in financial advice
It may be tempting to conclude from recent reports that the UK’s financial advice industry is engaged in a similarly all-encompassing flurry of mergers and acquisitions. In truth, the levels of activity are rather less far-reaching and frantic – yet they are sufficient to have stirred the interest of the regulator.
The Financial Conduct Authority (FCA) announced recently that it intends to review consolidation among adviser businesses. It will do so with Consumer Duty and “good outcomes” in mind[1]. Should we be worried?
The answer to this question depends on numerous factors. Perhaps foremost among them are how we view consolidation in the first instance and – reflecting the FCA’s intervention – how we choose to go about furthering it.
Positives and negatives
There can be little doubt that the FCA intends to make consolidation more challenging. Due diligence and broader regulatory obligations are already known to be high on its agenda.
Does it inevitably follow, though, that this represents an attempt to stem the flow of acquisitions, which numbered more than 130 in 2023 alone[2]? This seems unlikely, not least given that it is eminently possible for the sale of one adviser business to another to benefit all stakeholders – including, crucially, the seller’s clients.
I like to believe the FCA fully recognises consolidation’s capacity to deliver “good outcomes”. In tandem, it is obviously only too aware that the consequences can be negative if a deal is pushed through with a paucity of prudence, transparency and attention to detail.
A likely corollary of the latter approach is that advisers’ hopes of a bright new dawn prove false. An acquisition is like a jigsaw puzzle, in so far as all the pieces must slide neatly into place if disappointment is to be avoided. Success cannot be taken for granted.
Even more damagingly, clients can be badly let down if the transfer from one firm to another is less than seamless. Some can even be left in limbo.
These are clearly not “good outcomes”. If sharper regulatory oversight can help avoid such impacts – and in so doing expose, deter and re-educate those willing to risk them – we should welcome this review, notwithstanding the extra bureaucratic burden it is likely to impose.
A question of planning
While the FCA’s steely gaze should help improve many consolidation efforts, there are useful steps those involved can take long before the regulator becomes involved. Maybe the most significant is to engage in proper planning.
Advisers are experts in planning, of course. Our industry’s fundamental purpose is to guide clients in building secure financial futures. Yet many advisers do not give enough thought to some of the most important decisions in their own lives.
Business sales frequently offer evidence of this failing. Too many descend into ill-considered messes that end up to the detriment of all concerned. A lack of foresight and collaboration can be calamitous, with wide-ranging and long-lasting repercussions.
At Truly Independent we employ a framework known as PREPARE – Plan, Reckon, Evaluate, Present, Agree, Retreat, Exit – to facilitate the transfer of an adviser firm. It is particularly geared towards effective succession.
We pair a retiring adviser with a suitably qualified successor in a two-stage acquisition procedure. An underpinning objective is to encourage synergies and continuity and consistency of service. In our experience, such an approach works well for advisers and clients alike.
Hopefully, there are many established processes that deserve to pass muster once the FCA’s review gets under way in earnest. There may be others that struggle. One way or another, the reshaping of our industry is set to persist – and we all have a responsibility to ensure it is for the better.
Katie Brinsden is Managing Director of Truly Independent.
[1] See, for example, Financial Conduct Authority: “FCA’s expectations for financial advisers and investment intermediaries”, October 7 2024 (https://www.fca.org.uk/publication/correspondence/portfolio-letter-advisers-intermediaries-2024.pdf).
[2] See, for example, NextWealth: “The great consolidation wheels keeps on turning”, March 21 2024 (https://www.nextwealth.co.uk/the-great-consolidation-wheel-keeps-on-turning/).
