Demographic timebomb for IFA industry as 60% fail to plan a business exit strategy

14 March 2007

Press Release

James Hay Wrap research shows IFAs have not planned to realise the value of their businesses.

• Average age of IFAs estimated at 54⁽¹⁾
• Increasing the sale attractiveness of their business is now essential

IFAs are failing to take steps for business succession planning, according to research issued today by James Hay Wrap. Given the average age of IFAs is estimated at around 54 years ⁽¹⁾, this presents a potential "time bomb", with fewer IFAs available to offer high quality financial advice. Importantly, this suggests fewer potential exit routes for existing IFAs looking to realise the value of their businesses.

James Hay surveyed a representative sample of owners of IFA businesses as to what their business succession plans were⁽²⁾. 51 per cent stated they had no plans, while 40 per cent had plans, and nine per cent did not know.

Of those that had succession plans, 17.5 per cent opted for an internal management buy out, and 17.5 per cent for an external trade sale. 12.5 per cent intended to pass the business on to a member of their family, while 10 per cent would sell their business through a national or network arrangement. 7.5 per cent intended to sell their book to a provider.

Over a quarter (28 per cent) of those with exit plans had failed to take any steps to increase the value of their business. A further 26 per cent had failed to consider what they were going to do with their client files and records when they exited their business - despite strict obligations imposed on this by the Financial Services Authority (FSA).

Stefano del Federico, UK Sales Director, Abbey Wealth Management, said: "The single biggest issue for IFAs over the next decade will be succession planning. Demographic pressures suggest that a large number of IFAs will retire, and there are insufficient young IFAs coming through to take their place.

"It is therefore essential that IFAs consider succession planning and increasing the value and attractiveness of their businesses. Too few IFAs have made plans, and of those that have, still many have failed to address valuation or what they'll do with client files."

"IFAs looking at exit strategies should seriously examine the role that Wrap services can play in enhancing exit values. The remote client filing and robust systems offered by Wrap can increase the value of a business at sale, as well as fulfilling the onerous regulatory requirements for managing clients details."

Together, the James Hay SIPP and Wrap businesses have over £11 billion under administration.

- Ends -

For media use only and not to be relied on by consumers to make financial decisions.

¹This is based on industry sources. The FSA's "Financial risk outlook 2007" estimated the average IFA age as 46. The FSA states "...we do accept that the industry may be failing to recruit and retain new talent. Recruitment in advisory firms commonly targets existing practitioners in rival organisations instead of attracting new talent to the sector, which could eventually lead to shortages of advisers."

Other sources that contributed to this view include:

a) "Filling the savings gap: How creating a career path may provide a solution", Development and Learning in Organizations, ISSN 1477-7282, Dec 2003, Pg 9-11 (estimates the average age as 53)

b) Our own contacts with industry sources that put the average ages at 54, 55, 56, and 58 years

² Survey of 150 business owners of IFA firms, undertaken by Charterhouse Research, February 2007