Tide of change in Scotland’s Independent Financial Advisors market

04/07/2024

Increasing regulatory demands will continue to fuel consolidation in Scotland’s independent financial advice (IFA) sector, an expert believes.

Ian Mitchell, a Partner in the Corporate Law team at Lindsays, advised on the recent deal which saw Bishopbriggs-based Synergy Financial Planning acquired by AAB Wealth.

It is the latest in a series of deals across the sector which has seen smaller firms become part of larger groups, with Lindsays lawyers involved in several such transactions over the last couple of years.

And, with increasing compliance requirements coming into play, Mr Mitchell expects that the consolidation activity will continue.

The Glasgow-based lawyer said: “Throughout the IFA sector we are seeing quite a bit of consolidation, driven in part by compliance changes being introduced by the Financial Conduct Authority including the customer-centric approach requirements of the Consumer Duty rules.

“As the largest operators review their portfolios and adopt new practices there is likely to be further changes to best practice within the industry when it comes to the standards for servicing of clients.”

He added: “Advisors with whom we work have no issue reaching new standards in the advice they give.

“But the practical impact of further rules is that the administrative burden they bring makes it harder for smaller firms to manage, particularly from a time perspective.

“For many, particularly those with strong client portfolios, there is then an attraction to consider change, often through mergers with larger rivals where greater compliance demands can be more easily absorbed.”

Synergy Financial Planning – established in 2011 and led by vastly experienced financial planner David Neely – works with 200 families across central Scotland.

Its team recently became part of AAB, taking the value of assets under advice (AUA) to in excess of £800m and their team to 37 in number, operating across Scotland, England and Northern Ireland.

David Neely said: “We were pleased to find a partner in AAB Wealth that reflects our own ethos to help clients get the most out of life.

“Thanks to the helpful, pragmatic and clear advice we received from Lindsays on the sale process, we have been able to conclude our deal with AAB Wealth which will allow our clients to benefit from the support of AAB, whilst we continue operating locally in our Bishopbriggs office. We are really looking forward to the future.”

An older age profile among some IFAs is also a factor in sector-wide change.

Mr Mitchell said: “With years of experience and a solid client base, there are potentially greater benefits to smaller IFAs in reaching a deal to have their practices continue rather than wind them down, particularly if you couple changing compliance with the tricky issue of succession planning.

“In many ways the consolidation in the sector is natural and mutually beneficial, with owners looking at the next steps in their lives and ambitious operators seeking to increase their market share and achieve economies of scale.”

In many cases, Lindsays lawyers say, private equity investors see an opportunity to acquire IFAs as part of their growth strategy, creating a situation where a host of smaller IFA businesses are consolidated under the umbrella of a single group.

Larger companies add consolidated enterprises to their business and can build upon the strong portfolios and relationships created by experienced advisers.

For owners or shareholders weighing up whether to market their business or respond to an approach, Mr Mitchell advises that the starting point in the journey should be to ensure that your own house is in order.

That can be in terms of general administration, compliance records and having up-to-date financial information.

“Understanding what an acquirer will want to look at and being able to respond to their diligence enquiries in an organised and confidence inspiring manner and knowing what they will want to include in the deal terms are all key elements to securing a good deal,” Mr Mitchell added.

Lindsays’ corporate lawyers advise clients from the firm’s offices in Edinburgh, Glasgow, Dundee, Perth and Crieff.

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