How to sell your business profitably post-RDR

How to sell your business profitably post-RDR
Those firms that were ready on 1 January have seen plenty of opportunity to grow – or to go on the best
possible footing.
By Steve Hagues founder of Retiring IFA | Published FT Adviser Apr 15, 2013 |
The Retail Distribution Review, the Budget and the change to the twin-peaks regulatory authority have all forced
advisers’ hands in terms of everything from business models to changes in tax policy and charging structures. But
although the business blogs and the online commentary show how very tough it has been for many firms, especially
now HM Revenue & Customs has got involved in the rebate debate, there are just as many media reports of firms
who have got it right and are growing by acquisition.
At the beginning of April, Towry announced it was in talks with more than 8o smaller advisory firms with a view to
making strategic purchases. Attivo Group is in talks with more than 10 firms to help it grow by acquisition in 2013.
Sandringham Financial Partners, the new venture from the so-called ‘founding father of networks’, Ken Davy, said it
was now ready to bring several new partners on board, while Hampshire-based firm Chadney Bulgin bought Cawley
Financial Services for an undisclosed sum.
Then there is the organic growth through hiring more staff to take the business forward: Fiscal Engineers in
Nottingham; London-based Serenity Financial Planning is on the acquisition trail; the What Group is hunting for 100
new partners. Judging by the flurry of activity on twitter and other social media, many advisers have also brought
apprentices on board to train them up to become paraplanners and then advisers. Others have forged partnerships
with like-minded firms.
So far, therefore, 2013 and all the changes we have seen in just a few short weeks, have not heralded the death of
the IFA industry, but the change. And change is the operative word. While some firms talk of deals in the pipeline as
a sign of their financial health and determination to continue post-RDR, the other side of this coin is that many firms
are looking for a sale.
Speaking with some small business owners who do not have the might or the distribution reach of the larger firms,
the prospect of not only facing these changes but succeeding in what portends to be another tough economic year is
The time, investment and effort getting RDR-ready will not have been wasted if an adviser wishes to sell his client
book and move on
Yet it is not doom and gloom. These advisers have already gotten their businesses RDR ready. They trained
themselves and their staff to be level 4 qualified, implemented adviser charging models and groomed themselves to
meet the regulator’s deadline. This time, this investment, this effort will not have been wasted if an adviser wishes
to sell his client book and move on. All potential buyers are looking not for a quick client injection or easy
distribution, but for good quality businesses.
So what can you do to ensure your business is well-groomed for the most profitable sale?
1) Analyse and segment your clients
Spending time getting ready for the RDR will have meant analysing the client bank and working out which customers
are the most money-generative and which ones have been worth spending time on. Who is a good and loyal
customer? Who has brought more business to you? Who has only conducted one transaction? Which clients are
simply no more than a name and some contact details?
Many advisers have been meticulous in valuing the worth of each client to the business and working out how each
segment will be served in a cost-effective and careful way in the future. Putting the client book through a rigorous
RDR-cleaning process and breaking it down into various segments is a good selling point: nobody wants to inherit an
untidy legacy client bank, filled with names that have no up to date contact information or people that will not bring
any value to the sales process.
2) Sort out your administration
Getting RDR ready also means ensuring that your processes are up to date and your book-keeping and accounts have
been scrutinised for any cost savings and tax planning put in place for the new adviser-charging world. Excess
expenditure will have been trimmed and any loose ends – income not claimed, credit owed to you, legacy business –
will have been tied up or at least recognised and earmarked for resolution. Having a clean, up to date data file is key
when a potential buyer comes to the door: nobody wants to be sifting through piles of disorganised paperwork.
3) Ensure you are RDR qualified
If you have got yourself level 4 qualified, or your client-facing staff have done so, then a buyer who is ready to take
advantage of this RDR world will be more interested than if they have to take on any untrained staff. Do not
consider the time you spent getting yourself level four ready to be wasted. Remember, a lot of the value of the firm
is embedded in you, in your talents, your business acumen and your relationship with the client.
If you and your employees have made yourselves ready for RDR, a potential buyer will be confident that your firm is
a good purchase in this brave new regulatory world and will not present a potential liability.
4) Showing your value post-commission
Many advisers have expressed concerns that, without the recurring income generated by commission, it has become
harder for them to evaluate their firm. Previously, recurring income has been used as a key selling point when it
comes to estimating a firm’s turnover and profits. Many advisers believe the end of commission-based
remuneration means an end to recordable, regular income that appears in a quantifiable form on the balance sheet.
It certainly does mean the end to a standard form of charging and there are myriad options for advisory firms.
Moreover, there are so many ways a firm can generate income that translates into profit. Remember the old adage:
‘Turnover is vanity, profit is sanity’. However, the shift to adviser charging models does not mean that your firm
suddenly becomes unattractive or your projected cash flow will dry up. Keeping carefully audited books and
pinpointing everything from retainer to one-off fees will be a huge plus when it comes to showing proof of revenue.
A potential buyer will know the inherent value of a client book, assets under management/assets under
administration, introducer fees and client retention rates, and these will be taken into consideration when a
valuation is done.
Winning strategy
To summarise, there are challenges, obviously, and there will be more firms, sadly, that cannot survive in this postRDR world.
We have already been told of a 13 per cent drop in adviser numbers, but whether this ends up on a trajectory that
takes us nearer the 30 per cent loss of advisers predicted in 2010 by Ernst & Young is another question.
For those who are determined, they can succeed. They can build a successful business, they can groom themselves
for growth or for a sale and they can win, whatever path they choose.
And, perhaps ironically, the very things that the RDR forced upon the industry – clean charging, streamlined
businesses, higher qualifications – are proving to be good measures of a healthy business which, in turn, will be more
attractive to potential buyers.
At last someone who is positive about the changes made to our industry.
We as a business have been implementing changes in preparation to RDR for over 2 years now, with a direct emphasis on
stopping the 0.5% commission, moving clients onto a fxed fee basis, with the fee dependant upon the level of service required,
moving us away from being paid on a client's worth, to what service we provide, and what service the client requires.
The response from clients has been fantastic, with a larger proportion of clients than expected initiating direct payments to us rather
than fees being taken from products, which has actually increased overall income and helped with cash flow issues rasied in the
past by being paid quarterly from some providers.
A reduction in "live clients" and an increase in income levels, a managed diarised system showing which clients require which level
of servcie and when with a defined income stream that is quantifiable to a prospect buyer. Who needs commission?