Consolidation could lead to salvation

I am not saying that a lot of my articles start because of something that happened on Twitter but let's just say there is clearly a pattern developing.

I tweeted last week the question: “Why don’t IFA consolidators tweak their business models a bit to include mortgage brokerages?” .

There were two things that I observed from asking this.

One was that those that responded all rolled out the answer of “recurring income" as though I wasn’t aware of how IFA consolidators work.

Secondly, beyond that, no-one could actually answer the question.

For those that don’t know, consolidation within the IFA world has seen a lot of increased activity over recent years.

Larger businesses who are backed with private equity money have been acquiring smaller firms in droves.

The rationale, aside from acquiring the funds that the IFAs have under their management, is the obvious economies of scale, the ability to drive cost efficiencies and overall helping to gain scale in a notoriously 'small scale' sector.

Whether you like the concept is neither here nor there - it is one they have chosen to go down and good luck to both sides of the equation.

Back to why it could be a good idea for them to broaden their model.

There are a number of reasons why I think there is method in my madness:

• No pension legacy issues
• We hold a dominant market position
• We are cheaper than IFAs
• We are good marketeers
• We create and hold vast, untapped client banks

There isn’t time or space to debate all these and other trigger points but it is the last one that I think is the potential key to getting two fast diverging business sectors back to converging once again.

I would conservatively estimate that across TMG we have about 10,000 clients.

I also suggest that we probably find at least 200 new ones every month.

Two things we can extrapolate from this. Firstly, we have no way of offering additional financial planning services to those clients.

That is a shame when you consider the time and effort we have taken to bring them into the brand and then have to just sit and wait for them to move house again.

Secondly, there won’t be too many financial planning businesses that are growing their client banks at over 20% per annum.

I appreciate that, in some respects, this will be down to capacity but it still doesn’t hide the fact that mortgage broking opens doors and it opens them quickly.

So, how would this help consolidators? A couple of ways immediately spring to mind aside from the usual ones of business integration.

You can never have too many clients. You can pretend you have or at least hope you have but the reality is, client banks offer diminishing returns through various forms of natural wastage.

It is new clients that drives any business forward, otherwise, why do even the biggest companies out there actively promote and invest in new client acquisition?

But the other point and the one which I think offers the greater potential is the succession planning aspect of financial services which I still feel has a long way to go.

There are some great new ambitious and well-qualified advisers coming through and, while they have all the certificates, they don’t necessarily have the bums on seats with which to put them in to practice.

What better way to recruit and fund an IFA academy than by having a “feeder club" like they do in football?

This will all still lead to the hallowed ground of funds under management and the associated recurring income.

It is just being done a slightly different way.

Hey, guess what Mr Consolidator - with your existing financial planning client bank that may or may not have access to a whole of market funding solution for all their debt needs - what better way than a referral across to a sister company which you have an active interest in ? Oh, nothing to see here really, just MORE REVENUE.

This has been bothering us for a while now and we have tried to come up with a solution internally.

But we need something that isolates the cost, risk and governance.

We are working on something but it is currently cost prohibitive but until someone picks the phone up to us to discuss the opportunity then we will just roll our sleeves up and try and work out a solution ourselves.

And the other thing that bothered me about that original tweet?

No-one is thinking big enough for my liking.

What our sector needs right now are some real pioneers. A couple of Elon Musk’s around the place and it would do wonders for the industry.

Someone congratulated us recently for being brave and it got me thinking.

Bravery isn’t just about standing up to danger.

Bravery can also be about those people who are trying to get in front of the danger so that they don’t have to face it in the first place.