Over the course of one month, nearly half of advice firms were approached by a consolidator interested in buying their business.
According to the Lang Cat’s state of the nation report, published last week (January 19), larger advice firms are looking to grow the most aggressively.
Owners of these larger firms believe the growth will be achieved through acquisitions.
But of the firms who have been approached to sell their business, only 12 per cent expect to sell to a consolidator in the next five years.
However, the Lang Cat’s view is that this figure may be higher in reality.
The report said that there are many factors contributing to this but noted that the main reasons are:
- Increased regulatory fees and requirements arising from consumer duty;
- Strong revenues in 2021;
- The average age of an adviser; and
- Significant sale prices on offer.
In particular, it noted that the significant bump in revenues seen by firms last year and the fact that 75 per cent of revenues came from ongoing fees, could result in “some rather large carrots being dangled to sell up the business”.
In addition to this, the average age of an adviser and the growing number of phased approaches to consolidation, which can give owners more control over the firm’s handover, means that it is a good landscape for consolidation, according to the Lang Cat.
The report also noted that despite the strong revenues seen in 2022 advisers are less optimistic about the year ahead.
A third of IFAs expect their business turnover to drop this year as a result of higher expenses, volatile markets and lower fees.
Others in the industry have also forecast that consolidation will ramp up in 2023.
Speaking to FTAdviser in December, Steve Kenny, chief distribution officer for Square Mile said he sees demographics (age), regulation, and cost as being the three main factors that will drive this trend.
At the time, Kenny said: "Consider the demographics of the adviser market. Depending on which survey you look at, the average age of proprietors ranges 56 and the 60s.
"What you have is a community where, invariably, the business is their pension, so for adviser owners to extract value, there has to be a capital event that enables them to draw value from their business and allows them to retire."
jane.matthews@ft.com
