MEDIA RELEASE: Financial advice practices seeking growth through acquisition are searching for greater scalability and capability as the average cost to deliver financial advice continues to rise, according to Virtual Business Partners (VBP).
In the past, M&A activities focussed on buying a client book, and the associated funds under advice (FUA), with a focus on acquisition and embedding the clients into the new practice and the related investment platform.
But commenting on current M&A trends within the financial advice space, VBP chief executive David Carney said what advice practices are looking for has significantly changed in the last two or three years.
“In the current environment, 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,” Carney said.
“They are also focusing on scalability. In the past couple of years, the average cost of providing advice has increased by around 30 per cent. 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.”
For advisers seeking to sell their practice, Mr Carney says the number one thing that turns off a potential buyer is a bad relationship between directors – something that is also a leading indicator for value destruction.
“In M&A, if there are relationship issues between the owners, it’s best not to go ahead with the acquisition, as the business will only deteriorate in value until the directors deal with whatever issues they may have with each other,” he said.
“Another area to consider is that vendors should be clear on the sale strategy, and clear on the reasons for selling or getting a capital partner.
“You want them (the firm selling) to have good access to information, because it means they have well-organised and manageable business.”
In addition, Carney says that the human relationships are the most overlooked element in assessing a merger or acquisition.
“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,” Carney said.
“We always say that the clients match the planner, or the planner attracts the client, so you know 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. So you want to know where there is a match between the two firms in terms of business goals, culture and what is defined as good client service.”