Some 500 years on, this profound quote has relevance to the complexity of running a financial advice business. In its simplest form, the quote suggests that simplicity, rather than being a lack of expertise or superiority, is, in fact, the pinnacle of refined sophistication.
This simplicity can be of value when delivering a client service proposition, or when preparing to maximise the value of a financial advice business. In this article we explain why. But first, let’s look at the background.
Today’s landscape
The UK advice market is witnessing significant shifts, driven by a surge in consolidation activities. In a recent survey of small financial advice firms, 71% of respondents reported their willingness to sell in the next five years1.
Art of the deal
Given the backdrop, it might be worth planning ahead if you’re looking to sell your business. So, let’s look at some of the steps you could take to get sale-ready:
- Understand the process of selling a financial advice business. The earlier a business owner can understand the different routes to sale, the tax position, the process of commercial negotiation, and the crucial due diligence process, the better.
- Prepare well ahead of time. Typically, plan two years ahead as a minimum, to provide enough time to consider what the core objective is and how to achieve it. This will also allow time to make changes to the business, if required, to maximise the valuation.
- Understand the market context and value enhancers/detractors. Valuation multiples vary depending on several factors. Identify those that will enhance the valuation like a clear client proposition and robust processes. Also those that will detract from it, such as reliance on a small number of client relationships, or an ageing client bank demographic with no wealth transfer strategy in place.
- Take a walk in an acquirer’s shoes. Reverse the outlook to consider what you would want to see if you were buying a business. Use this exercise to identify areas for improvement, or to showcase selling points.
Portrait of the artist
An acquirer of a business looks for several key criteria when assessing the value of a financial advice business, including the following:
- High consistent recurring income
- Stakeholders of the business aligned, with no key-person dependency
- Profitable and scalable delivery of service
- A strong, client-outcome-led culture
- A wealth transfer strategy
- Risk management built into every process – including a strong adoption of a centralised investment proposition (CIP)
A fine art
Your CIP is one key area where simplicity and sophistication can unite, bringing together reduced risk, greater efficiency, and a compelling investment proposition for clients. Outsourcing investment is a core strategic decision in building a CIP. That said, not all investment solutions offer the same level of efficiency and risk reduction, as you can see in the below chart.
Chart 1: Investment solution efficiency and risk
Source: abrdn, 1st August 2024
With this in mind, multi-asset funds are experiencing a revival in popularity amongst advisers. This follows the introduction of the Consumer Duty, which obliges advisers to review existing CIPs.
The right materials
Advisers must ensure that client solutions are aligned to needs, objectives, and target markets, while ultimately delivering value. Furthermore, multi-asset funds are being used more frequently for portfolios outside tax wrappers2, where the reduction in the Capital Gains Tax (CGT) annual exempt amount has made the situation more challenging for advisers. Multi-asset funds can provide more flexibility for advisers managing a client’s tax position.
Attention to detail
Multi-asset funds can deliver simplicity as well as sophistication for advisers and their clients in a number of ways:
- Widely available across UK platforms
- Multi-asset funds can receive rebates on underlying funds, further lowering portfolio costs
- Minimal time out of the market when fund switching due to the ability to pre-fund within the portfolio
- Easier to manage CGT for clients due to continuous risk profile rebalancing within the fund structure
- Typically rebalanced daily back to risk tolerance
- Can invest in a broad range of assets including investment trusts and less-liquid/non-daily dealing funds/ETFs
- Reduced impact of stranded assets i.e. gated direct property fund does not necessarily prevent rebalancing
- No portfolio drift between platforms as the portfolio is managed centrally
- Portfolio execution risk is managed centrally within the fund by the manager
- Funds can be re-registered platform-to-platform, allowing potentially easier consolidation of client banks
CIP-licity - the ultimate sophistication
If you’re thinking of selling your business, the use of multi-asset funds within your CIP has the potential to positively impact the valuation. Multi-asset funds contribute to business value by streamlining advice operations, reducing costs and reducing advice portfolio execution risk. They also free up valuable time for you to spend with clients.
abrdn MyFolio multi-asset Funds
We understand that the primary duty of any adviser is to act in the best interests of every client by recommending a suitable investment solution. The MyFolio fund range has been designed to align with your financial planning processes. We aim to support you in selecting the solution that’s designed to deliver the right long-term outcome for your client.
For more information on abrdn’s MyFolio fund range, click here, or contact your usual abrdn investments business development manager.
- Source: LEK, November 2022
- Source: Platforum, June 2024