Choosing the right exit strategy is probably the biggest decision an IFA will ever have to make. In this, the second of a series of features, IFA Magazine looks at what some leading firms are offering advisors who want to retire. Neil Martin talks to Dominic Rose, Acquisition Director at Bellpenny.
When it comes to IFAs enquiring about selling their businesses, Reading-based firm Bellpenny has seen a “massive upturn” in interest.
Dominic Rose, who as Acquisitions Director at Bellpenny is charged with the task of building the firm by taking on individuals and firms, said: “It’s certainly the busiest we have ever been, from an acquisitions perspective. The amount of enquiries and the number of people we’re speaking to has increased significantly over the first quarter of this year. And actually, I see nothing that is telling me that it’s going to decrease over the rest of this year.”
Rose puts this down to Bellpenny having built a track record in acquiring and integrating businesses without losing clients, at a time when many IFAs have got through RDR and have got their businesses set-up on a sound footing. He also thinks that people are more confident about Bellpenny as a business and see that they have an ability to look after clients who come from other IFAs.
When asked what sort of IFA is attractive to Bellpenny, he said it’s all about the clients: “IFA business acquisitions is all about the clients and the client’s fit with the Bellpenny proposition. So that’s the key focus for us whenever we look at a firm, what do the clients look like in terms of where they invest, what are their average portfolio sizes, what fees are they paying, and how does that all fit with us.
“Similarly, what level of service are they receiving currently and can we demonstrate that the client is going to get a better, or higher level of service, with us than the preceding firm, or at least a no worse service. Because clearly what you don’t want to do is buy a business and bring clients in, if that business has been seeing clients on a monthly basis for example and we see clients twice a year. So it’s all about making that fit in the service proposition, and the investment proposition.”
The fee structure is also important: “It is more attractive to us, as buyer of IFA businesses, where the client’s recurring fee charging structure is 0.5%, or less. Businesses that are charging more than 1% wouldn’t be appropriate for us, because we’d end up reducing the fees the client pays, so you’re going to have an immediate drop-off in revenue.
Identifying Firms and Individuals
Rose explained how Bellpenny go about identifying the firms and individuals they can work with: “We do a fair bit of desktop research, and word of mouth based on what we think a firm is going to be a good fit with us, and we may well and go and approach them, but more often than not actually, we’re getting approached now.
“So we will have people get in touch with us directly, saying that they are considering their options and that they want to retire for example and they are looking for a safe home for their clients, so let’s have a chat. So we get quite a few direct contacts and quite a few retiring individuals go to brokers and then the brokers will approach us. We are also doing some limited direct contacting of IFA business that we think would be appropriate for us.”
So what does Bellpenny prefer, an IFA who heads into the sunset, or one that prefers to hang around: “We accommodate both, so if someone wants to leave and wants to go and lie on a beach early, what we ask is that they effect face-to-face handovers of all of their clients to Bellpenny financial planners.
“It sounds like a beauty parade, but we’ll put an array of financial planners in front of the adviser, you can then match up the right personality with their clients. What we don’t do is just draw a circle around a group of clients and say they’re going to this adviser. We try and match up personalities of advisers with the personality of the clients.”
But: “They can come and join us, but only on an employed basis, we don’t have any self-employed financial planners, so if people want to come and join us, they must come on an employed basis
“And they’ve got to follow the Bellpenny way of doing things, so they have to be what we call a Bellpenny person.”
As for the business model, Rose explained: “We are cash buyers. It’s not share for share exchange or anything like that, it’s not a jam later proposition, it’s very much we like to give certainty over the payments that a business owner can receive. Typically we pay over a period, whether that’s two to three years, although we’ve done some over longer periods. But, they’re all cash considerations paid in instalments, typically contingent on recurring revenue being received.”
When asked why someone would come to Bellpenny, Rose said: “Firstly, one is a safe home for the clients that are going to be looked after. There’s no point selling a business to someone that is going to mess your clients around, or try and shaft your clients into an expensive proposition.
“Secondly, is certainty over payment for your business, because we are cash buyers with strong financial backers. We give people a certainty over the value of the business they’ve built up over a number of years, but with the confidence that their clients are going to be looked after.”
Has RDR Helped?
As for whether RDR has actually helped IFAs look more attractive as a business proposition, Rose is certain: “I think that’s exactly right, it’s moving us all into a more professional set-up. That’s not to say we were not professional before, but I don’t think we were professional enough, and that’s what I think RDR has done quite well. Now firms consider their proposition, define themselves better and get their management information in order.”
Given that firms have got their house in order and see their value, the obvious question is, is this the end of the small firm? Rose thinks not: “Everyone predicted that after RDR, that was it, there would be no small firms left, and that’s certainly not the case.
“Certainly you’ll see more firms like Bellpenny consolidating in the sector, but I certainly don’t think it’s the death of the small firm. There is always going to be a space for smaller IFA businesses. You’ve got advisers looking after clients in their area and clients are always going to want their local adviser, and that’s going to breed businesses. The total number of small businesses will decline, but nothing to the extent of that was originally foreseen.”
As for the future of individuals retiring and firms selling out, the next big trend according to Rose is the entrance of the life companies into the arena: “The one trend in the industry at the moment is the entrance of the life companies coming in to the market now, which is maybe helping people’s perception that it is a competitive acquisition space and that people looking to sell can secure good multiples for their business.
To that extent, new entrants into the wealth management space are driving up purchase price multiples.”
Bellpenney IFA Retirement Offer – At a Glance
all about the client’s fit with the Bellpenny proposition
focus on client – where they invest, portfolio sizes, fees and level of service
prefer clients with existing fee structure of 0.5%, or less
can accommodate IFAs who want to head for beach, or commit to longer handover
cash buyers – paid in instalments over agreed period.