The current and future seller landscape post RDR

Stephen Hagues of Retired IFA talks about the financial business sector post RDR

As the numbers of sole traders registering to be sold drops off and acquisitions tend to be led by larger businesses the average sales price of a business sold through Retiring IFA has almost doubled compared to last year.

After the tough regulatory changes of RDR came into force, Retiring IFA saw a huge influx in sole traders coming to market to be acquired, as tougher demands on advisers made it difficult for some to survive. As a result of these pressures, such as the requirement to be Level 4 qualified, smaller adviser practices are much fewer and farther between.

A year following RDR in December last year, Retiring IFA saw a seismic shift in the type of business coming to market. Then and now acquisitions seem to be led by larger scale businesses, usually with heavy backing in terms of funding,  buying to ramp up funds under management or achieving a diverse presence across the UK. The goodwill built up by a local adviser is of great value to a particular buyer. The smaller acquirers are getting swallowed up, as there are fewer opportunities for them to acquire businesses with a drop off in sole traders registering to be sold.

Retiring IFA has been broking sales in the financial services space since 2009 and has first-hand experience with dealing with buyers and sellers and their demands. By collating our sales data, we can provide details of the seller landscape in financial services and this forms the basis of a Whitepaper, which can be downloaded in full here.

The average sale price of an adviser firm for a year up to August 2013 was £386,425, while a year later, it almost doubled to £693,425. While 90 sole traders registered their interest with Retiring IFA between January and August 2013, which compares to 34 UK sole traders between January and August 2014.

This drop off in sole traders perhaps reflects the consolidation that happened post RDR, leaving smaller businesses fewer and farther between, and how acquisitions now tend to be led by larger businesses.  These firms have the financial clout to acquire larger businesses in turn. 14 businesses were valued at £500,000- £750,000 and 7 businesses at £1-£5m in the year to August, while in the comparative period from 2012 to 2013, only 8 businesses were valued at £500,000- £750,000 and 3 businesses valued at £1m-£5m. 

Larger businesses are now leading acquisitions, with the knowledge that there is a big enough pond to fish in to acquire firms that recognise the benefits of becoming part of a larger operation with more resources. We expect this to continue as regulatory pressures increase and larger businesses know that for some firms this will be too much for them to handle.

A group of sole traders that are expected to do well in this difficult business environment are those that have high net-worth clients who can help them make a profit. They have far fewer clients, but those they do have are extremely profitable. When capital adequacy rules toughen, with the expectation of this happening in the next 12 to 18 months, these sole traders should be fine, but those not operating to this level of high net worth clients are probably going to struggle with their profit margins. However, it will depend on each individual business as to how they adapt to be profitable in a post-RDR world. Whether that is through being acquired or acquiring, or business development, a tough assessment will need to be made.

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