Gary Venner CEO of IFA Acquisitions, sat down with Glyn Mummery, Liquidator and Partner at FRP Advisory who are considered to be one of the top 10 liquidator firms in the UK and regularly acts on behalf of liquidations in the Financial Services sector. Glyn had some questions for Gary about the process of a smooth liquidation from his experience as a broker:

How often is an exit strategy smooth?

“We spoke earlier about a vanilla sale and in that set of circumstances I see that as a sale that happens where, there has always been a very clear strategy. The exit is smooth and there’s no issues. How often does that happen?”

Here’s what Gary had to say: “More times than you would believe to be honest, which is good news. I think it’s true to say that most Financial Advisors do work in quite a vanilla way. Again, use that 80:20 rule. I’d say 80% of the deals do come to us absolutely perfect for the seller.

Advice for insolvent liquidation

Glyn then went on to ask “There are situations as we both know where there is a business failure and unfortunately, the practice is indeed insolvent. In that set of circumstances, from your experience, where do you find those business owners first go to try and find some advice about what to do?”

With Gary discussing, “In my experience it’s probably likely that they’re already talking with their accountants. The accountants will be fully aware of certain things that’s happening in the business. Accountants would be a natural first party there but also potentially their compliance partners too would equally be aware. If there was an issue over advice that was likely to be causing a complaint that may lead to redress and particularly on the terms of their professional indemnity insurance then you know compliance is going to be involved in there. Of course, from that business they want to make sure that they are responding to a complaint in the correct way that meets the FCA requirements. Compliance is going to be an early flag to say ‘look I think this could cause a problem to the business’, and so then in conjunction with accountants it can be evaluated whether that business can afford whatever this interruption is going to be as a cost to their business. 

“Again I would think about a legal team here. Getting specialist lawyers that understand Financial Services and understanding the terms of contract as well. We would see all those three parties and often we do get introductions when this happens because it’s looking for people that have had these experiences before and can help, do they know how other businesses have come through this? Is the business likely to be able to be sold either as a whole or in parts? We have equal involvement there too”.

Liquidation

Common themes that cause IFA Acquisition failures

Glyn then went on to probe further by asking “Because you’re very much focused on your particular sector and I’m sure you’ve seen many different circumstances of failure, are there any particular common themes that have caused that failure?”

Gary answered, “Well I think I would say Glyn getting into higher risk areas of investments. For many Advisors, they always set out to do the right thing for clients, so it’s about making sure clients are aware of the different investment vehicles that might suit. But, some do backfire and if we looked at UCIS – Unregulated Collective Investment Schemes, they felt that they were good ways particularly for high net worth clients to invest in emerging markets. Investing in a teak plantation for instance, it’s going to be many years before income comes through. FCA will consider whether this was good advice or bad and then if it was deemed this was outside and professional indemnity don’t want to cover the future this is a problem because these are annual policies. It can cause a problem to what was a very sound business. I remember a business that was valued around four million pounds but they’d invested clients to around the tune of four million and if those claims came out it could wipe out the value of that business. It just explains I think how it can be the downfall of a business even trying to do the right thing. 

I say the biggest hot potato at the moment is defined benefit pension transfers. We have to remember here the government encouraged the transferring of pensions under pension freedoms. For many, particularly as interest rates dropped to an all-time low and went down to 0.1%, that affected annuities in the same way. A transfer value was often linked to annuities, the transfer values were typically 20x to 40x what the pension was. For many, they considered their own life expectancy and considering whether this was a better thing to transfer out their pension. Of course leaving it in place, whilst it’s a great opportunity to have that pension and it falls to a half pension typically for a spouse, but a pension does die with the individual or as I say go down to 50%. Sometimes there’s an area of “wait why don’t we transfer it out so we can keep all of it to pass to the spouse? or pass to the future generation?”. So, we understand why there was so much activity in that market, but it clearly is not right for everybody to have their defined benefit pension transfer often index linked transferred in this way. Volatility of markets and Advisor fees can erode that. So now we’re finding that there’s firms set up to encourage complaints etc. These types of things do actually affect the business transferability and whether somebody’s prepared to buy it and the value of that business as well”.

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To read more about liquidating your IFA business, check out our previous post.

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