AFH Wealth Management has commissioned a first-of-its kind white paper which explores the world of Independent Financial Adviser acquisitions. The landmark paper features the results of an independently run survey, which sought the views of IFA owners, management teams and senior advisers across the UK. AFH Wealth Management CEO, Alan Hudson, dives into some of its findings, which offer a data-driven snapshot of an industry at a crossroads.
A sector in transition
The rise of consolidation in the industry has been a notable trend for many years, and our independent white paper survey reveals that nearly one third (30%) of IFAs are currently planning or exploring options to sell their business – a significant number in any industry. But what’s driving this trend?
42% told us the main reason for selling their firm is regulatory and compliance challenges. In fact, two-thirds (66%) believe that recent regulatory changes will prompt more advisers to sell within the next five years. Regulatory uncertainty is clearly on the minds of IFAs, with other factors they believe will impact on the decision to sell including:
- Stricter suitability requirements (21%)
- Rising professional indemnity insurance costs (20%)
- Uncertainty over future regulations (16%)
Away from regulatory challenges, 40% of IFAs believe that rising operational costs are also driving consolidation.
It’s clear to see that there are acute challenges facing those in the industry today, and with increased regulatory and cost pressures impacting many, it’s wholly understandable that firms are looking to relieve this pressure by looking to sell their firm.
Consolidation: a positive evolution
As a firm that’s been acquiring IFAs for more than 20 years, it was pleasing to see that the industry’s outlook on consolidation is largely optimistic. A resounding 81% of IFAs view consolidation as a positive or necessary evolution, and 83% believe external investment is beneficial to the sector.
Only 16% think selling will negatively impact clients – a strong indicator that advisers see potential for improved client outcomes through strategic acquisitions.
Critical gaps remain
However, our white paper also highlights a significant gap in succession readiness. Nearly half (48%) of IFAs have no formal succession plan in place, and 96% express concerns about selling their company, particularly when it comes to:
• Staff retention and wellbeing (40%)
• Smooth client transition (34%)
• Finding the right buyer (31%)
As an acquiring firm, we do everything we can to understand the firms that are looking to sell to us – we know each IFA is an individual. An acquisition can be a stressful time for owners and their staff, so it’s important to us that we treat everyone involved with due care and respect, and we make the process as smooth as we possibly can.
When it comes to the aspects of a sale that IFAs feel least prepared for, the top answer (48%) was determining an accurate valuation of their firm. Again, this is understandable – how do you value a life of hard work!? Ultimately, acquirers are looking at the overall value of what they’re purchasing, which is inevitably influenced by the size and demographics of clients served, their cultural alignment and what has already been built between clients and advisers. The key is honesty and transparency. We want to avoid smoke and mirrors; the value has to be right for both parties.
The importance of cultural fit
Although consolidation is widely seen as positive, IFAs have several concerns over selling their own business. This underscores the need for acquiring firms to offer robust support and reassurance throughout the transition process.
Cultural alignment emerges as a key theme, with 98% of respondents stating that cultural fit is very, or somewhat, important in acquisition decisions. We’ve always believed that any acquisition should be a partnership, not a takeover, and that’s why we emphasise listening and not selling during the acquisition process.
Communication and continuity
When it comes to the most important factor in a successful sale, 40% of survey respondents said good communication between the acquiring and acquired firm is paramount. This came as no surprise – after years of acquiring firms, we’ve seen first-hand the value of open and honest communication.
Over half (51%) of IFAs also want reassurance around the acquiring firm’s stability and future vision, and it’s up to us as the acquirer to ensure IFAs looking to sell to us feel their clients are safe in our hands.
When they do decide to sell, the preferred deal structure for many IFAs (45%) is to sell, transition clients and remain as an adviser within the acquiring company – reflecting a desire for continuity and long-term client care. After years of dutifully serving their clients, advisers need to feel confident they’ll be looked after.
Technology and a growth mindset
Looking ahead, 90% of IFAs believe technology will significantly impact their role over the next decade (something I wholeheartedly agree with). Many maintain a growth mindset too, with 28% citing client base expansion as their primary growth objective.
That is where the true value of a firm like AFH really shines through. Not only do we have an experienced Compliance team to support with any regulatory obligations, we have IT, Digital and Marketing teams which can help firms take the next step in their career journey.
Increasingly, many advisers are not only seeing consolidation as a means to prepare for a well-earned retirement after a career of hard work and dedication; it’s also a way for IFAs to grow their business with the support of a larger firm.
AFH’s leadership in acquisitions
With more than 20 years’ experience acquiring IFA firms, AFH Wealth Management is uniquely positioned to lead this conversation.
But it’s not just our experience acquiring firms. I founded AFH 35 years ago, and in that time, we’ve been proud to offer the human-centric values, trust and proven track record needed to successfully support IFAs looking to consolidation as a strategy for future growth, as well as an exit pathway.
Acquiring a business is about more than just the numbers; it’s also about trust, continuity and delivering the care and service that clients and advisers deserve. If you’re starting to think about what’s next for your firm, and are interested in exploring consolidation further, AFH Wealth Management is ready to have that conversation – please feel free to reach out.
You can read the full white paper ‘Acquisitions in the IFA sector: Examining a consolidating industry’ by clicking here. https://www.afhwm.co.uk/acquisitions/white-paper
About Alan Hudson
Chartered Financial Planner Alan Hudson founded AFH Wealth Management 35 years ago. Alan is responsible for the day-to-day running of the advice firm, with a particular focus on strategy. He has considerable financial planning and investment management experience, and under his leadership the company has grown to over 700 staff and advisers, managing c.£9bn of clients’ assets.
The business has grown both organically and through acquisition, and remains highly acquisitive. AFH made its first acquisition in 2004 with many more firms joining the business since.
