Knowing when to divest sections of your business

With the financial services industry witnessing a rising number of firms selling off their financial advice arms, it begs the question of what shift the industry is observing and how firms know it’s the right time to sell. The One Four Nine Group explains the demographic changes in the sector as well as the benefits and risks that come along with businesses selling off their advice arms.

“Many accountants don’t know much about the wider financial services industry, so if they make a decision to sell, they likely wouldn’t know where to start,” says Gabrielle Beaumont, managing director of One Four Nine Group. One Four Nine is an independent financial advice and fund management firm, supporting accountancy firms and other professional services firms that either own or have a joint venture with financial advice firms, in selling their financial advice arms.

 The firm acquires the financial advice arms of these businesses and brings them together with other acquired standalone financial advice firms “under one umbrella,” creating a nationwide footprint. Its leadership team has amassed experience in the financial advisory sector encompassing investment management, tax and accountancy, and business development – several senior staff members, including Beaumont, are chartered accountants themselves. This experience is what it claims gives them a “unique insight” into the needs of accountancy firms who find themselves with a financial planning business that they no longer wish to maintain.

Demographic changes in the financial advice sector

Matthew Bugden, chief executive officer, explains: “We saw an attractive opportunity in this corner of the market – one which we felt was not being serviced with the level of empathy and attention it deserves.” An increasing number of financial advice businesses are being sold by their owners as they look to focus on their retirement and addressing succession planning concerns. Bugden notes that there are thousands of independent financial adviser firms (IFAs), however there is an industry-wide ageing demographic as the average financial adviser is in their late 50s to early 60s. “Something has to happen in the sector to ensure the general public continue to receive sufficient provision of financial advice as these individuals begin to retire, whilst also safeguarding the next generation of advisers as they develop in their careers,” he continues.

Additionally, other challenges involved with running a financial advice business are due to the fact the majority of advisers One Four Nine speak to are small teams who struggle with the “increasing and complex” regulatory burdens of the market, as well as general day-to-day administrative activities and associated overheads that come with running the business generally. Beaumont asserts: “It just doesn’t make sense to take all that on when your primary skill set is providing financial advice and working with valuable and long-standing clients. We empower advisers to hand that over to us so they can focus on what they do best – looking after the needs of their clients.”

Beaumont’s claim are backed by the statistics obtained by the Financial Conduct Authority (FCA), which uncovered that out of 5,137 financial adviser firms in the UK, 2,429 of them only had one advisor and 2,152 had between two to five advisors; overall, only 48 firms had above 50 advisors. Where financial advice firms are owned by accountancy businesses, Beaumont highlights: “The pressure to understand the regulated advice environment as an accountant is exacerbated further as accountants are generally not living and breathing financial advice.”

How does One Four Nine aid these firms in the sales process? The group aims to build a nationwide business which allows its advisers to exploit the economies of scale and robust infrastructure which they may have struggled to access as a smaller entity, even when part of an accountancy business. “We have the resources to ensure a seamless experience for clients, providing any and all existing products and services they already receive – as well as opening up a suite of other services the adviser may not have had the bandwidth to provide prior to being acquired by us,” says Beaumont.

She reveals that in accountancy-owned financial planning firms, up to 80% of clients are referred to them by the accountancy side of the business – which means there is a “perceived risk” that comes with selling. If their financial planning arm is sold to a buyer who doesn’t understand the “unique dynamic” that exists between an accountancy firm and its financial advice arm, there is a risk clients might be upset and may leave both the accountancy firm and the financial advice arm. 

“Accountancy firms should look for a buyer who has a deep understanding of the way accounting and financial planning services complement each other. We would seek to continue and enhance the relationship with the acquired firm and the accountancy firm post-sale. We would also focus on maintaining the high professional standards the accountancy firm operates under within the acquired business, which is critical for retaining clients for both businesses,” she confirms.

Knowing when to sell

Bugden and Beaumont reveal that the need to sell their financial advice business is something that “slowly dawns” on accountants over a period of time, triggered by three things in particular. First is the introduction of the senior managers and certification regime (SMCR) which puts extra pressure on accountants to have a “very detailed” understanding of what’s going on in their financial planning business, and they are personally accountable if they have been approved by the regulator to hold senior management functions in that business. “The accountants are the owners of these financial planning businesses and, as the custodians, they are having to understand complex FCA requirements,” Beaumont declares.

Secondly, accountants often decide to sell off their advice arms once they realise they want to simplify and focus on their core business activities instead. Bugden elaborates: “First and foremost, they’re accountants. They’ve created or somehow acquired financial planning businesses potentially a long time ago, but they eventually realise that it’s perhaps not where their expertise lies.” Thirdly, is often the realisation that their financial advice clients can be “better served elsewhere”, particularly by an experienced financial advice group who can offer a “wider range” of products and services with the necessary infrastructure and staffing in place to make it less of an issue when one of the adviser team decides to retire.

Refocusing the business

In Bugden’s words, selling a financial advice arm can be a “reinvigorating event” for an accountancy firm that is looking to take the next step in its evolution as a business. “It’s a partial liquidity event for the accountant, which can liberate cash and, if they choose, grow their own business,” he says. “There is also the benefit of having extra staff time and resources freed up to develop relationships with new accounting clients as they are not distracted by maintaining the financial planning side of things.”

With that being said, however, there are inevitable issues that can arise from selling. “One concern is that the accountants’ best clients are often looked after by their own financial planning business. We’ve had accountants worry that, once their financial planning is under different ownership, it’s going to disturb the tax or audit relationship,” Beaumont divulges. “There can also be a sense of unease amongst the advisers, certainly in the early stages of the acquisition process, because they were not necessarily the key decision makers in the sale of the business. We need to be mindful and sympathetic to this.” 

Beaumont and Bugden both emphasise the importance of handling the financial adviser teams “carefully and sensitively” so that they feel “part of the journey” with the group as their new home. Additionally, Beaumont shares that the former owners (the accountants) want to be informed of what’s going on in that business because there’s typically an earnout of three to four years. “We can offer assurances to the accountants that will keep them abreast of what’s going on in the day-to-day within the business they have sold,” she declares. 

“There is a danger in acquiring too quickly and not taking the time to integrate business practices, systems, processes, advice guidelines and pricing – it’s very easy to keep acquiring and not properly integrate,” Bugden adds. Integrating to create one brand, one set of values, and one offering to clients is “quite difficult but not impossible”, he explains. Done right, proper, considered integration can create a “stronger firm with a stronger balance sheet and a broader range of skills, enabling clients to get the right levels of financial advice and outcomes they need,” Bugden notes.

Asking the right questions

“The accountancy and regulated financial services worlds are very complex. Gradually, individual accountants and owners of FS firms become more out of touch with the fundamental requirements of the market,” Bugden states. For those who are facing the predicament of whether to sell, One Four Nine suggests that firms research the market and meet a range of buyers as “there’s a lot of big names out there.” Beaumont remarks: “It sounds glib, but there needs to be a strong cultural fit with people you sell your business to. As a minimum, you should be able to trust them to uphold the same professional standards that your clients are accustomed to,” she declares.

So what does 2022 have in store for One Four Nine Group? Bugden reveals that the group is steadily growing both organically and also by acquisition with more firms to join the group over the coming months; “We are in discussions with several other firms interested in selling their financial advice arms to us and we are also continuing the integration process for teams we have already acquired,” he says. Bugden concludes: “We have ambitious targets for growth and with 15% of advisers intending to sell in the next five years, there has never been a more exciting opportunity to create a first-class financial advice business.”

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