Is your IFA business a
myth or reality?

Story

Is your IFA business a figment of your imagination? Many IFAs think they have a clear understanding of their business until the moment they come to sell. Then suddenly they realise it’s all in their mind.

If your IFA business is up for sale, be sure it will receive more scrutiny from potential buyers than at any time in its history and with a far more critical eye than you ever have. It pays to prepare by asking and answering those tricky questions yourself.

You may think it’s obvious – of course you have a business with employees that you’ve built over a period of years, and you now want to retire or perhaps work less while still being involved. But is it really a ‘business’?

Many companies delude themselves that their set up is attractive to larger acquisitive companies. They might be right, but understanding how a buyer sees your business is more important at this stage than the view you may have of it.

For example, if you have a number of advisers who each have their own clients, who owns those clients? Does the individual IFA own those clients? Or does the business own them? Ask yourself: “If this adviser left me, could they take those clients with them?” If the answer is yes, then you are running a co-operative, not a business. It helps when you understand the factors considered when valuing your IFA business.

Self-generated clients, rather than those generated through leads provided to the advisers through the business’s marketing efforts, may be seen as clients of the adviser – it depends on the way you wrote your contracts in the beginning. But if those self-generated clients would leave the business with the IFA that deals with them, this impacts the value your business represents to an acquirer.

Many IFA acquirers wouldn’t consider buying a co-operative because the value they can realise from the business is automatically called into question, if when staff choose to leave the number of clients could fall as a result. It could limit the amount of interest you’ll see in your business. However, there are ways to address this.

For example, it’s possible to create a buy-out plan that will enable you to own all of those clients directly with the help of the right acquirer and have the advisers become employees of a bigger firm. Or, if your acquirer has a self-employed adviser model that enables all IFAs in the co-operative to come under one umbrella, you could get much needed investment into your business, and then subsequently benefit from leads generated by the acquirer with a revenue share. In an ideal world, your advisers would choose which model they followed and have the option to switch at a later date if it suited them.

Today IFAs increasingly need to be part of a larger company that has things like investment management services and compliance in house and offers advisers the choice between being employed or self-employed.

Consolidation could be the key to moving your business forward, but unless you’re clear about what you are trying to sell, you could end up selling yourself and your employees short, or worse still, wasting loads of time on negotiations that end up nowhere.

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