Market opportunities and regulatory pressures will drive up size of adviser firms
Adviser firms will start to grow in size as they seek to capture market potential and deal with regulatory pressures, says Jack McVitie, CEO, LEBC Group
Jack McVitie, chief executive of LEBC Group, believes the market is on the cusp of seeing growth the size of adviser firms as they respond to the opportunities laid out in front of them and seek to deal with increasing regulatory costs and pressures. He also believes those same pressures will lead to greater co-operation between firms in the market.
McVitie says: “With the volume of opportunities in the market and just keeping pace with the sheer amount of change that is around in terms of regulation and legislation, adviser firms looking to the future know they need to get bigger.”
McVitie believes the RDR has been good for the market, forcing firms to analyse their business make-up and strategies. “It has made us all look at ourselves and where we want to be and what we want to do as businesses. I definitely believe that firms will now start to grow in size.
“It all comes back to the fundamentals of the market. Since the pension freedoms there has been an ever-increasing demand for advice, which in turn is helping to drive a natural growth in the market. Firms that want to pursue that opportunity, to expand the availability of advice to people, will need more resource. They will need to invest in technology, in their advisers and staff and they will naturally get bigger.
It is also about dealing with the challenges, he says. “Coping with the increased volume of advice and the complexity of that advice, requires constant assessment and reassessment of the advice given, constant review of processes and procedures and working with compliance partners. The sheer cost of being in the market, with FCA fees and FSCS levies, and getting bills that have increased significantly and unexpectedly, will see firms grow. It could also see people exit the market as well as create a barrier to entry,” he adds.
Room for smaller firms
McVitie stresses that he is not ruling out a need for smaller firms in the market. “I think there will always be room for high quality, smaller adviser practices, those that recognise the potential opportunity but decide that’s not what they are about, they’re about something quite different which is targeting niche client areas.
“There is a margin of saving to be had in familiarity. Where certain firms can identify niches and are familiar with the issues that type of client has to deal with, they can build the solution around that. I can see there being a demand for them.
“But at the same time, I’m talking to smaller companies and they are expressing their concerns that they feel the world is getting bigger around about them and there’s pressure is on them to grow and it is maybe time now to become part of a bigger organisation,” he adds.
“It’s an interesting conundrum. LEBC has grown organically and you can only look to do that at a certain rate.
“On the other side you’ve got consolidators looking to grow through a buy-and-build strategy. Consolidators are already changing the shape of the market and I don’t see that stopping. I have some concerns around vertical integration, but I think it’s with us now and here to stay. I think it will be interesting to see long term how that plays out.
“Further down the line, somebody will establish a proper financial advice brand and that will change things for the rest of the market.”
Growth in specialist firms as industry co-operates
McVitie believes that with the growing demand for advice, in large part driven by the greater complexity in areas like pensions and retirement income, firms will find it increasingly difficult to stay up-to-date in every area of advice. As such, there will be growing cooperation between adviser firms, who will farm out certain aspects of advice to specialists in the market.
“I think it is not going to be possible deal with clients across the board, unless you have scale. My view is that, as a result of the pressures on the market, people will cede parts of the value chain to one another rather than trying to grab it all. Firms will build on their strengths and will focus their capital and resources on getting better at their specialisms and working with other firms with strengths elsewhere. I think that will be good for the individual businesses and good for the market.”
Next week: We talk to Jack McVitie about LEBC, its growth strategy and how it is increasing margin
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