Advice firm acquirers looking beyond client book
Companies looking to make acquisitions of financial advice firms are seeking those which have specialisations or a positive business culture rather than just a large client book.
Virtual Business Partners (VBP) said firms were trying to make acquisitions in order to improve their scalability and capability.
However, Money Management had previously reported the number of sellers were low relative to buyer demand.
In the past, acquisitions had been for companies with a large and growing client book and associated funds under advice with a focus on embedding the clients into the new practice and the related investment platform.
VBP chief executive, David Carney, said this was no longer the case since the Royal Commission and firms were instead looking at how an acquisition could benefit the existing firm.
“Firms are looking to acquire other firms that can expand their own capabilities – for example, those that have a certain advice specialisation or a particular client demographic.
“They are also focusing on scalability. In the past couple of years, the average cost of providing advice has increased by around 30%. So firms wanting to remain viable in the current market are looking to acquisitions to ensure they can provide scalable advice that is affordable for clients.”
Relationships between the firm’s staff and its business culture were also critical as a bad relationship between directors could lead to value distraction.
“The culture of a firm is a huge aspect that many buyers tend to forget about. However, it’s still important, even if it’s likely that the people within the acquired firm are unlikely to stay on.
“We always say that the clients match the planner, or the planner attracts the client so you've got to get along with each other. If you don't, it means their clients are probably going to be mismatch between the two merging firms.”
AUTHOR
Laura Dew
Recommended for you
A financial advice firm has been penalised $11 million in the Federal Court for providing ‘cookie cutter advice’ to its clients and breaching conflicted remuneration rules.
Insignia Financial has experienced total quarterly net outflows of $1.8 billion as a result of client rebalancing, while its multi-asset flows halved from the prior quarter.
Prime Financial is looking to shed its “sleeping giant” reputation with larger M&A transactions going forward, having agreed to acquire research firm Lincoln Indicators.
An affiliate of Pinnacle Investment Management has expanded its reach with a London office as the fund manager seeks to grow its overseas distribution into the UK and Europe.
