There are countless reasons why an IFA may look to sell their business and the process of actually doing so can be a nervy prospect – particularly for those who aren’t properly prepared. In this conversation with IFA Magazine’s Brandon Russell, Ascot Lloyd’s Gordon Kerr shares excellent practical tips for advisers to ensure the process isn’t de-railed by lack of preparation and why acquirers like Ascot Lloyd can deliver such benefits.
The prospect of selling your advice business can be very daunting. Questions such as ‘Who do I sell to?’ ‘What happens to my clients?’ ‘What about the staff? ‘How do I know I am getting a fair value?’ will be high on advisers’ agendas as they take the first preparatory steps towards exiting from their business.
In this exclusive interview with IFA Magazine, Gordon Kerr, Mergers & Acquisitions Director at Ascot Lloyd, one of the largest independently owned wealth management firms in the UK, highlights how his team can help smooth the journey for a seller and how putting the client at the heart of the acquisition ensures the best outcomes for all involved.
Ascot Lloyd have made over 80 acquisitions to date, and with the businesses they are acquiring also doing the same, the company has grown exponentially in recent years.
Gordon and his team put an emphasis on producing high-quality client outcomes from their acquisitions and do so by leaning on the vast infrastructure that has been built around them.
Traditionally, smaller IFA businesses do a great job of building strong, long-lasting relationships with their clients. However, they often get to the point of full capacity where offering any more is simply not feasible and scalability is compromised.
In this scenario, Gordon Kerr believes that private equity-backed acquirers, such as Ascot Lloyd, can offer the necessary infrastructure, support and resources to ensure advisers and their clients are as well-equipped as possible to achieve the right outcomes.
Speaking to IFA Magazine’s Brandon Russell, Kerr said: “I strongly believe that we can help advisers to drive better client outcomes. Being part of Ascot Lloyd, or any other large acquirer, means we can provide advisers with access to broader infrastructure and specialists across the business that they wouldn’t be able to support as a smaller business. These can range from just simply taking away a number of administrative burdens that sellers have, because they’re also the owner/manager of the business, thus allowing them to focus more on advising their clients. We have specialist in house teams like finance that deal with things like income and payroll; our HR team can deal with anyone’s absenteeism or if someone needs to be replaced or recruited. We’ve got facilities teams that can deal with managing the office and dealing with leases and renewal of leases, etc. We have the specialists to be able to take a lot of those additional burdens and additional hats that sellers wear and allow them to really focus on the client relationship.
“I think the key difference is that our proposition allows advisers to offer more to their clients than they previously were likely able to do as a standalone firm. We have an in-house investment team whose role is to research our central investment proposition and ensure that we have the best tools available to our advisers, to suit the broadest range of investment needs for their clients. There’s a specialist process and committee that operate and manage that with support from advisers across our business to make sure that we’re getting the right options there for the majority of client needs. But equally, the adviser is independent so they’ve got access to whole of market solutions. That means they can go away from that central investment proposition if that’s the right thing to do for that client. It is about providing tools to simplify things for advisers and ensure that the best outcomes can be delivered for clients.
“Equally as important is the ever-evolving regulatory landscape. It’s extremely challenging for smaller advice firms to keep on top of – Consumer Duty has certainly proved that. There’s more that IFAs have to keep on top of and that takes time for them to be able to understand, assess and then implement any sort of changes. Our in-house compliance team play a vital role in understanding the regulatory environment and how we need to adapt our processes to be able to keep on top of and comply with the ever-evolving standards. The adviser has to then implement that, but they don’t have to go and understand it and drive that change. We’ve got specialists who can support and can build that out. Also, we can provide access to broader, external support to be able to ensure that we’re implementing best practices rather than just a ‘hope that this fits’ structure.”
There will always be concerns and apprehension around selling a business that advisers have spent years and often decades building. Even getting the process started can be a daunting task for many. However, Gordon Kerr’s team at Ascot Lloyd aims to curtail those fears. How? Simply by providing an open and transparent process where both parties are encouraged to ask the right questions can ensure that all involved are satisfied with the outcomes produced.
Be prepared
Whilst talking to IFA Magazine, Gordon highlighted some of the key things that sellers need to consider when looking to sell their business.
Gordon Kerr comments: “What is going through sellers’ heads right now are the Consumer Duty findings and what’s going on in the press around that. Although that’s still being worked through by us and by others, I think it’s going to be really important for sellers to have an understanding of who they have received fees from, and what services those clients received in return for that. I’d suggest potential sellers get on top of that and have that information to hand, because every acquirer is going to be asking about it. It’s set to be the new reality for any acquisition activity from here on.
The more you can get on top of that and have those answers, the less painful the process has to be. It’s not trying to gloss over what the answer is. It’s just having that information to hand so that they can have the conversation around it rather than having to go away and spend weeks or months trying to comb through emails, etc., to understand what’s been given to clients. That’s going to be a really important one going forward.
“Defined benefits transfers (DBTs) are a well-known area of interest for acquirers. For sellers, it’s just about understanding your book and being able to provide data, and advice files around that. Any acquirer is expecting to look into those files to understand the advice has been given. Just having that information ready and to hand is really important. But equally, if you have significant exposure to DBTs, then consider commissioning an external review to be able to sign off on that before engaging in a sale process. That’s because if a seller has that to hand, then any buyer can refer to that and hopefully give it a clean bill of health. They’ll probably still want to do their own work but if that comfort is there for you as a seller, it’s going to be supportive of the buyer’s opinion.
“Also, and this is quite basic, adopting a back office, but also using it for various functions and moving away from paper towards electronic. A lot of businesses will already have done that but your acquirer and new partner is going to be an electronic-based business. Therefore, making sure that you have that information to hand will just make the due diligence exercise easier and less painful if you’ve got that all stored electronically, and people can get easy access to it. We’ve been through businesses that have had no back office so getting on top of that is obviously essential.
“A further basic point is don’t sign up to long term contracts if you don’t have to, especially if they’ve got expensive termination clauses. An acquirer is likely to have their own suppliers. They’re going to probably want to move away from yours even in a transitional period so don’t sign up for anything you don’t have to because you’ll probably end up having to pay for it.
“A really important point that sometimes gets overlooked is that due diligence is two ways. I think it’s important that you understand what you’re signing up to. You should ask questions of your acquirer, understand how the businesses compare, where is the change expected to be and what’s that going to look like? What does the integration journey look like? Is it all going to happen on day one? Is it over a short period, a longer period? How is that going to be implemented? And how can we therefore best manage to work together to minimise that disruption to the staff and any clients. Try to understand what that looks like and then equally understand what the investment proposition looks like and how your clients land into the new acquirer.
“We look to minimise client disruption as part of our acquisition journey as much as possible, but particularly during that embedding period. From a sellers’ perspective, make sure you understand what the expectations are around that. Are you supposed to be lifting all the clients and moving them into a particular investment proposition within three months after the deal? Because that’s going to be disruptive. Make sure you understand what the journey for the clients is going to look like.
“The last point is just around communication, to staff and to clients as it really is key. Help your staff, when you’re considering a transaction, so that they understand why you’re selling and how you’ve selected a partner. You’re going to have access to, and the benefit of, lots of long conversations and an understanding of that acquirer’s business that your staff aren’t going to have and that your clients aren’t going to have. Make sure that you help them understand why you’ve done what you’ve done, how you’ve chosen the partner that you’ve chosen, and give them the opportunity to ask questions of you. It is very important to bring them on the journey with you. Your staff are going to be the key to landing softly into an acquirer’s business and your clients are probably going to be key to receiving the value that you’ve been offered for the business. Helping both of them on that journey is a really important point.”
There is often a fear amongst sellers that acquirers will absorb their client base into their model with no consideration on how they are treated or what will happen to them next. A fear that those clients that advisers have spent years building relationships with will simply become numbers on a spreadsheet overnight shoehorned into a ready-made investment proposition.
However, Ascot Lloyd’s approach of allowing IFAs to retain their independent badge rather than move to restricted model means that adviser’s clients can have the best of both worlds. A well-researched proposition is easily accessible for those clients that it works for but in other scenarios the rest of the market can still be utilised to its full potential.
Gordon highlighted why his team think that helping your clients understand the reasons for the acquisition is vital but also how the retaining of the independent badge culls any potential worries.
Gordon said: “What’s important for us is that we are independent, and that’s a core philosophy in our business. There’s no shoehorning of clients into a particular solution. I think that can often be a fear when you’re talking about private equity-backed acquirers. Our advisers have access to the whole market and our central investment proposition is simply there to meet the majority of client needs and support our advisers. It is certainly not the be all and end all. We want to maintain that independent philosophy and give advisers that flexibility because we know what’s important to them and their clients.
“For us, it’s all about the client and the client’s journey. We find that the client tends to be less concerned with their adviser becoming part of another business, but instead are more concerned with what the adviser’s view is of the acquirer and where they going to fit in as opposed to whether there is a particular name above the annual report. Helping your clients understand why you’ve chosen a particular acquirer is really key.
“That is why we believe retaining that independent badge is so vital. There are always going to be questions from clients about the acquirer and potentially some reservations as well. However, keeping that independent badge gives you comfort that your clients will continue to be offered the best market solutions and gives the client that comfort that they’re not about to be shoehorned into a particular proposition.
“We think that’s an important selling point for our advisers. It is a key point whenever we talk to potential vendors, that they want to be able to maintain that independent brand because it just gives them that comfort that their clients know the advice they’re given can consider the best solutions from across the market, whether it be an in-house solution or not. It’s just a really important tool to be able to bring your client along on the same journey with you and ultimately it helps smooth that embedding period.”
Click here to learn more about Ascot Lloyd
About Gordon Kerr
Gordon leads the end-to-end acquisition activity in Ascot Lloyd since joining 4 years ago from the professional services group, Deloitte. He has led 30 transactions for Ascot Lloyd (including current pipeline) ranging in size from retiring single adviser client bank purchases to scale IFAs with 25 employees across multiple locations.
Prior to Ascot Lloyd, Gordon was at Deloitte for 13 years. He started in the Edinburgh financial services audit team, before moving to London to join the corporate finance division where he was a Director in the transaction services team. Gordon studied Economics and Maths at the University of St Andrews.
