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Succession chief Chamberlain targets £100m turnover for 2018 capital event

Succession chief Chamberlain is targeting £100m turnover and £30% profit for the first of its capital events, in 2018, he tells Rob Kingsbury

Succession Group chief executive Simon Chamberlain is aiming for the group to have its first capital event in 2018, once it has built to 50 acquired firms and £100m in turnover via the Succession platform.

Succession Group started in 2009 as a consultancy helping financial advice firms to transition their businesses to RDR. Since then it has become a major consolidator in the market, recruiting firms into Succession Advisory Services (SAS), where firms receive consultancy help to transition to Succession Group, the national IFA business. It is only when each firm has achieved a matrix of conditions that the firm is acquired by Succession Group and the business owners receive cash, equity and an annuity providing recurring income from previous business.

That transition process includes the firm converting to the Succession charging structure; utilising Succession’s back-office system and ensuring its data is compatible; it must undertake cashflow forecasting with every client; and all advisers must have been through set training programmes.

Chamberlain says that pre RDR transition could take up to two years to complete “but these days often it just a matter of converting firms to our fee base and our platform and that’s taking about six months”.

Growth plans

Succession has 82 member firms with over £10.5bn in assets. To date it has acquired 17 of those 82; it will have acquired over 20 by the end of the year and by 2018 that number is expected to have grown to 50.

Chamberlain says the growth model is to recruit one firm a month into Succession Advisory Services (SAS), and also to acquire one member firm a month.

He says: “If that trajectory stays the same, by 2018, when we have publicly said we are going to capitalise the business, we would expect to have £7bn of assets on our own platform – with 1% average annual charge generating £70m in fees – and we would also have 35bps from the platform itself, generating another £30m plus. Our combined profit will be about 30% – which is recurring profit because there is no transaction needed for it to be repeated. That kind of EBITDA across the world has multiples of 20 or more, so we expect a capitalisation event would be far north of £500m if we achieve £100m turnover.”

The deal that Succession members have bought into, he says, is this: “When we buy your firm you get 50% cash, 50% shares in Succession Group, a 50% annuity which pays you half of all the recurring income your firm used to bring in, which we pay for the lifetime of the client. And we take over all the costs and liability of the business, so you can go back to seeing your top clients rather than running the business.”

Platform is game changer

For Succession to run its own platform has been a game changer, Chamberlain says, as it both keeps control of the assets and the clients with the adviser firms and generates revenue for the Group. Succession has five risk-rated model portfolios on the platform run by some 12 fund managers that have agreed preferential pricing for managing the model portfolios and for providing preferential service standards to Succession clients.

Succession charges 1% for ongoing advice (with a sliding scale by volume of assets); 3% initial on new business; 21bps to 75bps for funds; and 35bps all-in for the platform, the model portfolios and the investment committee’s work and rebalancing.

Around 80% of assets currently flow into those portfolios “through client choice”, Chamberlain says. The remaining 20% is invested in other funds using the platform’s open architecture structure, which currently offers 250 fund managers and some 15,000 different fund options.

Discretionary permissions

The Group has applied for discretionary fund management authorisation, which will complete what Chamberlain calls the “holy trinity of value in the marketplace’, i.e. provision of advice, platform and fund management.

“Clients rarely care who the fund manager of the Portfolio 3 is. What they care about is that they get the 5% for school fees and it’s rebalanced. Clients of Succession are so educated to our life planning model that we will be able to launch our own funds over the next 12 months and complete the vertical integration of the business,” Chamberlain says.

However, the group is unlikely to manage the money itself. “What we will do is mandate it to fund management firms – the difference is we will be the nominee and the custodian, and they will manage the assets on our behalf.”

As the firm increases the number of member companies and acquires more firms, there will be subsequent capital events, Chamberlain says. “It should continue with another 5-6 capital events over the next 20-30 years as the company gets bigger and bolder.”

Ultimately, the company will create its own capital, he adds. “We buy companies for set multiples of their recurring income – that works out on average at about 4x recurring income. If we then have PE multiples of 10-12, it just becomes a factoring exercise and the company will continue to grow in that fashion.”

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