New buyers in the financial advice market seem to pop-up weekly – from large giants receiving private equity backing to small firms eyeing up local businesses in its region.
But there are some consolidators which have been quietly going about their business for many years.
Loyal North is an independent financial advice (IFA) acquirer with a “unique strategy”.
It has bought seven firms since its inception in 2017 – when it acquired its first business. The group now has £1.4bn ($1.69bn, €1.65bn) of assets under management and is not looking to stop growing.
International Adviser spoke with the firm’s integration director Debbie Dry and board adviser Wes Nixon to discuss the firm’s position in the IFA market.
‘Not for everybody’
Dry, who was formerly at Succession Wealth, said: “We have a unique strategy. We’re not making a big song and dance because we are not the right partner for everybody. We have chosen to keep a low profile.
“We’re quite different to other people out there in the market. What we are offering is a buy and grow model that we believe is unique. We are nimble and can offer flexibility in terms of structuring an acquisition.
“We still work in this very ‘cottage-esque’ industry, where financial advice firms are very distinctive from one another. They use different operating systems and offer different client proposition.
“They are very local and they offer to their local environment. Some of those aspects that make them successful are taken away when they join forces with and are integrated into a large consolidator.
“Consolidators are a great home for a number of businesses. But you are losing yourself to a national brand. At Loyal North, what we strongly believe is that actually everything about you that makes you successful, we want to retain, including the people and the brand.”
Nixon, who is a practicing chartered financial planner and was also previously on the board of Succession, added: “We really advocate firms retaining a decent stake in their own business. It becomes a genuine partnership then.
“Owners part sell to us, but importantly they stay and grow and are in control of their growth strategy. There’s nobody else actually doing this now with this model. A lot of the large consolidators are buying and integrating, and firms lose something while you’re hoping to do something with that model. We are about respecting what we buy.
“Firms, staff and their client can risk becoming commoditised when integrated into a large firm, unfortunately. What sets Loyal North apart from the rest – is that we certainly do not interfere with their operations and client propositions.
“They retain all of that local oversight and autonomy as directly regulated businesses and we want to encourage and support this. Most of the other models require integration into a single national framework or the acquired firm becoming an appointed representative. We trust the practice principals to run their firms and provide as much support as they ask for.”
Media silence
Loyal North has been in the industry for several years – but did not sing its acquisitions from the rooftops compared to companies like AFH, IWP and Fairstone.
So, why does Loyal North keep a low profile?
Dry said: “Our plan was quite difficult in the early days, because people thought it was too good to be true. We now have proof of concept as seven firms have gone through this and there are people now asking to speak to us and say ‘is this real?”
Nixon added: “We’re not commercially aggressive. We want to find the right people to buy. There are so many players in the space now, there’s some firms that will almost buy anything. Many of the other consolidators are fund by private equity, be it by debt, equity or convertible debt. This can sometimes bring certain commercial pressures with it. We are fortunate enough to be privately funded. As a business, we are not working to any set timeline and so can concentrate on supporting organic growth.
“We make it clear that we are not for everybody. We have a specific model that’s aimed at a specific type of IFA business and seller. We have been deliberately under the radar, but we are interested in raising the profile a little bit now that we’ve become established and can prove our model works.”
Demand for strategy
The company calls itself “unique” in the advice consolidator space.
But this doesn’t mean that it is the right thing for every business to join Loyal North compared to traditional consolidators.
Dry added: “There’s demand for both. Certainly, the traditional consolidators do have a market out there. They are probably right for some firms that are not as well organised or not as business-led and could be benefit from a bit more corporate structure.
“I think our model opens up a new market as well because traditionally having dealt with sellers for the last 20 years, they tend to be at the end of their careers and they’re looking for an exit option. What we are opening up at Loyal North is a whole new option where you could capitalise in your 40s or 50s and carry on.
“Effectively, advisers can take some risk and some money off the table. It could be life changing – and help pay off a mortgage. Then, the advisers can carry on and have another capital event because they are going to carry on with a strong partner.”
Acquisition plans
With seven deals completed, Loyal North is active in the market, but it is not trying to hit targets.
Dry said: “We’ll consider many firms, but we are looking for a good cultural fit. We are also looking for a strong business with good infrastructure, a well-functioning board that can make local management decisions and that will continue that post-acquisition. The location isn’t important, but the type of business is important.
“We do two types of acquisitions. Our core strategy is the buy and hold. Then also we will provide the funding for them to buy local client banks. The local client banks are not buy and hold, they don’t have the infrastructure to carry on post-acquisition. They would be absorbed and looked after by the larger firms that we’ve acquired.
“We effectively fund them to do it and then they get the upside of increasing the profitability by way of acquisition. It is a win-win all round. We’re always talking to a number of firms, there’s always a pipeline. But we’re not rushing. I would much rather spend a lot more time upfront getting to know these firms finding the right cultural fit. And if that takes a year in the making, so be it.”
Price
The most common differentiator of the last few years has been price.
Sellers have been able to demand the highest values with the rising number of acquirers.
But Nixon says that “very few go and sell to the highest bidder”. Valuations have increased as more PE funding has entered the market, but it is unusual that price is the only driver.
“Most actually are now we’re looking at the balance of what’s the right place for their firm and what’s right for their clients,” he added. “It’s not just about the price, it’s about the quality of the acquisition offering.”
Dry said: “There are a lot of consolidators out there and their headline numbers will appear very high. They are usually dependent on a number of conditions, which may mean moving assets to platforms, moving assets to certain investment solutions or increasing client fees.
“There could be a whole range of strings that are attached to those high initial offer numbers and the reality is what a seller actually gets compared to what the headline number was is often very different.
“We are more open. We do what it is says on the tin. We give sellers a multiple of their profit.”
International ambitions
Another Loyal North differentiator is the growth strategy.
Instead of only increasing in size through acquisitions, Loyal North is also looking to bolster its ranks via organic growth.
The firm has also separately developed its own digital hybrid advice solution, JustFA, that is being made available for use by other financial planning firms.
They have also started working on a proposition for high net worth clients, aiming to offer services usually provided by multi-family offices and private banks, with access to club deals, financing and cross-border investments.
The duo added that this “naturally will lead to Loyal North’s international expansion”.
