Consulting Firms Call for Action to Ease Consolidation Pressure
A handful of consultancies have called on regulators and lenders to act to make it easier for them to remain independent amid growing consolidation.
Some 49 advisers, the majority of whom (71.4%) were business owners, cited issues such as capital adequacy, lack of loan options and “disproportionate” fees for small businesses as some of the obstacles that make it difficult to maintain independence.
A large majority (84%) of these advisors have been approached by buyers in the past year, with most citing three or more approaches during that time.
But despite continued interest, these advisers and their firms are determined to remain independent.
A survey of their thoughts, conducted by investment consultancy Albemarle Street Partners, resulted in a five-point manifesto titled “Coalition of the Independent”.
- Cost of borrowing measures to help consultancies meet capital adequacy requirements to help small businesses grow through acquisitions;
- More education and awareness of counseling as a profession to reduce concerns about staff retention and recruitment;
- An Independent Academy to encourage consulting as a second career to fill the profession’s ‘recruitment gap’;
- A closer look at the cost of compliance to ensure that small businesses pay “a proportionate sum” for regulation; and
- A “light regulation” approach for companies that cause the least harm to the financial services industry.
Most advisers surveyed (59.1 percent) said the biggest drawback of a consolidated advisory business is a “low focus on clients’ best interests.”
They also cited disadvantages such as “less individualized financial advice” (28.5%) and “a loss of diversity of approaches in the sector” (12.2%).
George Goward, managing director of George Square Financial Management, said one way to curb large companies’ appetite for acquisitions would be to make it easier for small companies to grow through acquisitions.
He said the Financial Conduct Authority “makes it so difficult for mid-sized companies” to be able to hire another company because of capital adequacy rules.
“Why can’t we find a way to borrow money to get these [IFAs] in us, in small businesses, rather than having to be mopped up by people like St James’s Place? “said Goward.
He also suggested that the FCA could consider making it “easier to borrow”.
Ray Tuffield, managing partner of Courtney Havers LLP, explained the borrowing issue by how lenders perceive ongoing fees. He said that although these are not guaranteed income streams, they are “safe incomes”.
He explained: “This needs to be looked at more carefully so that we don’t breach FCA capital adequacy rules due to high interest rate loans because if you take out a loan you could be in infraction.”
Regarding the regulatory fees faced by advisory firms, Simon Dickerson, director of Medical & Financial, said that if he could encourage advisors to come together to achieve an achievable goal, it would be a reduction in the Financial’s tax. Service Compensation Scheme (FSCS).
“This could be achieved with a change in the operating environment for advisers, including ‘simplified regulation and reporting’ as well as a redefinition of what ‘small business’ is,” Dickerson explained.