Marriages of inconvenience?
It’s interesting to see the development of M&G Wealth, the takeover of the Prudential sales force, the acquisition of Ascentric, the recent purchase of Sandringham and the statement that Sandringham will be acquiring other financial advisers. On paper the strategy looks sensible. But the history of institutions acquiring IFAs is pretty mixed to say the least. Why is this?I think one of the problems is that some institutions do their own due diligence. This is always a mistake. The provider decides to buy ‘distribution”. It took ages to come to this decision and many more months to find an attractive firm. Finally they find one. “Thank God. We can buy them and the price is right!”
Meetings take place and the deal is done; subject to due diligence. The Distribution Director puts a team together; none of whom have ever done this work before. All they know is that their employer wants to buy this business; after all they have been trying to do a deal for almost a year and people are asking questions. So, they are conflicted. The last thing they want to do is tell their boss that they have concerns and they tend to play down any potential problems
By the way, it looks to me that Quilter’s £35 million provision for DB to DC advice given by Lighthouse suggests that the due diligence on that transaction was imperfect. But even if due diligence is solid there are other challenges that arise when an institution acquires an IFA. Not least the culture clash.
Generally, the CEO of an advice business is an experienced manager but seldom experienced in working for an institution. The latter involves meetings, meetings and more meetings. This can be frustrating and time consuming. What’s more, when the transaction completes the CEO will realise that the risk appetite of the new owner is very different to a typical advice business. Health and Safety, Data Protection, Diversity, HR generally, Business Plan Resilience, IT Security, etc. And, last but by no means least, Financial Conduct!
To be clear, I’m not suggesting that institutions should not be acquiring financial advice businesses. In fact, from a consumer perspective it might be a source of comfort that an institution rather than an owner managed business was looking after their investments. But, as one CEO of an acquired business explained to me: “I have millions in the bank but it’s a marriage of inconvenience”.