'Reaping Rewards' helps IFAs understand and optimise the value of their business

Jun 29, 2009

  • A practical guide for IFAs to understand the value of their business in a 'buyers market'
  • Exclusive analysis from Ernst & Young into M&A activity in advisory sector

29th June 2009: Due to unprecedented changes taking place across the industry, the IFA sector is predicted to contract by 25% by 2013*, and owner-managed IFA firms are in danger of loosing out as the stampede to exit takes its toll on the valuations accorded to businesses.  To help IFAs implement strategies that will protect the value of their asset, and be in the best position to survive the current market, J.P. Morgan Asset Management, in association with Ernst and Young, has produced a new report, ‘Reaping Rewards: assessing, optimising and releasing the value of a financial advisory business’.  The report draws on exclusive research into recent M&A activity in the IFA sector and offers IFAs a chance to maximise the value of their business in order to best prepare should the time come to sell. 

Pressure on valuations and exodus ahead
IFAs are currently facing unprecedented challenges and pressures, with the composition of the UK IFA sector set to transform dramatically if proposals regarding capital adequacy, professional standards and qualifications and methods of remuneration go ahead.  In the long term, the contraction of the sector may increase the value of those advisory firms that remain.  In the shorter term however, IFAs looking to sell or merge their business in the next three years or so, may find valuations under extreme pressure as a growing number of business owners rush to exit. 

Whilst adverse market conditions have stalled activity in the second half of 2008 and the beginning of 2009, historic transactions suggest a robust market for M&A in the IFA sector.  The last few years have, in fact, been characterised by a significant increase in the volume of M&A activity, with 2007 and 2008 seeing 18 and 29 reported transactions executed respectively.  With 10,000 IFA firms in the UK, opportunities for acquirers are extensive so owners looking to maximise value must be mindful of the competition they face.

Optimising Value
The report details the nuts and bolts of the tangible and intangible, qualitative and quantitative valuation metrics that are often considered by acquirers.  It also offers research-led practical solutions to help IFAs realise the core value enhancers that acquirers are actively seeking, such as; repeatable income, clear expertise, and a loyal, well-serviced client base. It also highlights factors which can erode a firm’s value, or throw a transaction off-course once a sale has been agreed.  Advice on the various exit options available, the logistics of finding a buyer, negotiation techniques, and managing and timing an exit are also discussed at length.

Jasper Berens, Head of UK Retail, at J.P. Morgan Asset Management commented:  “Faced with increased regulatory pressures, together with the challenges of the economic climate, many IFAs are telling us that they are reviewing their future business strategy.  Planning an exit or simply trying to make a business work smarter is not something that can happen overnight and should be a fundamental activity throughout the period of ownership of an advisory business.  Whilst the next three to five years are going to be extremely challenging for IFAs, those who focus their energies on developing a well-managed business with a clear proposition and stable revenue streams are potentially realising a highly valuable asset for themselves, built on key attributes that match those desired by a buyer.  Whilst now may not be the best time to sell a business unless you have to, it is certainly as good a time as any to start modifying a business to improve its value.”

“IFAs looking to exit the advisory sector need to be aware, however, that they will be selling in a buyer’s market, and competition for acquirers is only set to intensify, thereby exerting extreme pressure on valuations.  The timely launch of our ‘Reaping Rewards’ report outlines the primary features that have enabled IFA firms to achieve a premium valuation for their businesses and offers practical guidance as to how advisors can implement measures to optimise that asset value.” 

Berens concludes: “The attributes that make a business more attractive to acquirers are also those that make it more able to withstand the current tough commercial, economic and regulatory headwinds.  And so, whether an IFA is looking to sell or survive in the next few years, we believe the attributes outlined in the ‘Reaping Rewards’ report will be key to a successful outcome. Never have people needed advice more than they need it now. Equally, never have the headwinds of regulation and the dramatic falls witnessed in markets combined so powerfully to make advisers want to understand the value of their businesses and what they are actually working for and towards. ” 

The report is the latest in a series of insight pieces from J.P. Morgan Asset Management that aim to assess the forces shaping the UK financial advisory sector and how intermediaries can respond to them.  Recent titles in the series include:

  • Outsmart the Recession: Tips to recession-proof an advisory business
  • Wealth Management Report:  Meeting the expectations of UK high net worth clients 
  • TCF for Advisers: Ten considerations in treating customers fairly
  • Changing Fortunes: Setting the foundations for financial well-being in the UK
  • Surviving the Storm: Opportunities for investment advisory firms in a changing market

To request copies, intermediaries can call the J.P. Morgan Asset Management brokerline on 0800 727 770 or download the reports by visiting www.jpmorganassetmanagement.co.uk/valuation

- Ends -

*Source: Ernst and Young ‘In Shifting Sands’ research – Feb ‘09

For further information please contact:
J.P. Morgan Asset Management
Ben Larter
Tel: 020 7742 2112
Email: benjamin.g.larter@jpmorgan.com 

Lansons Communications    
Inez de Koning / Caroline Macleod-Smith / Lizzi Malley     
Telephone: 44 (0)20 7294 3623 / 44 (0)20 7566 9702 / 44 (0)20 7566 9717    
Email: inezd@lansons.com / carolinems@lansons.com / lizzim@lansons.com

Notes to Editors
J.P. Morgan Asset Management is part of J.P. Morgan Chase & Co. and is a global asset management leader providing world-class investment solutions to clients. With US$1.1 trillion in assets under management (the Asset Management client funds of J.P. Morgan Chase & Co. as at March 31st 2009) and offices in 40 locations around the world, J.P. Morgan Asset Management offers global coverage with a strong local market presence, and leadership positions in most asset classes.

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