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Where other consolidators get it wrong – Chamberlain

Succession Group chief executive Simon Chamberlain says unless a consolidator has a sustainable structure, its acquisitions can all go “horribly wrong”

Succession Group chief executive Simon Chamberlain believes the acquisition model used by many of the consolidation companies in the market is fraught with problems and ultimately is not in the best interests of the acquiring company, the adviser firm or the clients.

“Other consolidators buy the firms and consolidate them afterwards, which is when it all goes horribly wrong, for everyone concerned,” he says.

Chamberlain refers to Succession Group as a ‘back-to-front’ consolidator. By this he means that rather than buy a company and then get them to work to the model of the consolidator, which is a typical arrangement in the market, each prospective member firm is given a matrix of conditions that it has to complete and adhere to before Succession will consider acquiring the firm into the group.

“That’s the fundamental difference why we are successful compared to most consolidators,” Chamberlain says. “All the things you would expect to happen after a company is acquired we require firms to do first. To change the culture of a business needs conviction and drive from the top and you won’t get that after you’ve given people their money.”

Pre-acquisition an adviser firm will join Succession Advisory Services (SAS), where it will work under its own brand, and the SAS consultancy team will help it achieve the criteria of the matrix. When the firm is ready to be acquired it will become part of Succession Group Ltd (SGL), joining Succession’s national IFA brand.

Chamberlain believes clients are going to be unhappy with the typical acquisition model because, he says, it’s not what they signed up for. “Consolidators of any size in this industry are restricted models. That forces clients of IFAs that have been bought to lose their whole-of-market position. The firm has sold the value of the client but the client wasn’t a part of the decision.

“I can’t see any client being happy with that – in fact I think it’s contemptuous of the client and it’s why consolidators will lose people because eventually the clients will get irritated and leave.

“We offer independent, whole of market investment advice and we have our own platform. Doing things our way we have a 99% retention rate.”

Succession is restricted on protection products “but that is because in general protection is a price-based scenario,” says Chamberlain.

Succession has 82 member firms, with over £10.5bn in assets, and is looking to have acquired over 20 firms by the end of the year. By 2018 the group is looking to have increased that to 50 firms, at which point it will have its first capital event.

A major differentiator for Succession in the market, says Chamberlain, is that it owns and runs the Succession platform. Hence, the custody and the nominee, and as such the control and ownership of the client and their assets, remains with the advisers within the group, not with a third party platform.

Profit in advisers’ back books

Another element of the Succession business model, Chamberlain stresses, is that when firms become members, their back books are mined, looking at where costs can be saved for the clients and where existing assets can be turned to profit for the adviser firms.

“Before we buy firms into Succession Group we know exactly how much money they have under management and exactly how much of that money in the clients’ best interests should move onto our platform. We achieve that by carrying out reduction-in-yield type calculations on old-style policies compared to the cost of using our platform or any other platform. In legacy products they could be paying 2.5% to 4% a year whereas on the platform it’s always below 2%. That’s a win for the client and the adviser.”

On acquisition, owners of the member firms receive 50% cash and 50% equity in Succession. “We also give them a 50% annuity – so all the recurring income their previous firms used to bring in, we pay 50% back to them for the lifetime of the client. It means that if a firm isn’t making a 50% profit they should be with us anyway. We take over all the costs and liability of the business. It means advisers can go back to doing what they want to do which, usually, is seeing their top clients rather than running the business,” Chamberlain says.

Succession uses Iress’s Xplan back-office system, but tailored to its particular needs, within which there is a cashflow modelling tool. As part of the matrix, every client gets an individual assessment and cashflow forecast, which inevitably shows that there is a requirement for a set return,” Chamberlain says. “So if a client came in with £1m spread over a range of policies, what we would do is establish what they need that money for. For example, if they mainly needed it for retirement but also had an annual requirement of £50,000 for school fees, what they are really saying is that they have a requirement for 5% per annum return on their existing assets not a whole range of different products. We would then put them into a model portfolio that is rebalanced every three months to keep the return at 5%. Our model is not about trying to beat the market it’s about delivering back to the client set returns linked to their individual plan. We do that assessment for every single client, which is how we remain independent.”

Independent distribution model

As well as offering whole-of-market investment advice, Succession is structured to be an independent distribution model. “We don’t need anyone else to deliver what we need to deliver – and that makes us truly independent,” Chamberlain says.

“In the last 2.5 years we have shifted £2.5bn from the back book onto the platform and made £2m profit. The platform is specific in its focus. It’s not designed to deliver to 2,000 different adviser firms, it’s designed to deliver to our 80 member firms and what they need to give their clients. If one of our members comes to us and says I want to use this fund for a client, we can put it in the platform.

“That tailoring to our member firms’ needs makes it a very different proposition in the market and a very client centric one.

“Structuring our business in that way has made a huge difference. It’s made our platform hugely profitable. This year we’ll be generating £2m or more from the platform, and the advisory businesses are running as high as 24% as profit. That’s because all of our income is paid to us by clients for the service we deliver.

In addition, Succession has applied for discretionary fund manager (DFM) permissions, the end game being for Succession to achieve “the holy trinity of value in the marketplace”, Chamberlain says.

1. Advisory Fee – via the national IFA company

2. Administration fee – via the platform

3. Fund management fee – via the DFM.

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 for the platform, the model portfolios and the investment committee’s work and rebalancing. “That’s an important distinction for us, all the platform and investment work is included within that 35bps,” Chamberlain adds.

What Succession isn’t, Chamberlain says, is a quick exit strategy for adviser business owners. “Succession is a proposition designed for people who want to stay in the industry,” he says. “We’re not trying to exit people we’re trying to create capital for everyone at a certain point in time.”

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