Buying a Finance Business

The uncertain future of the state pension is just one example of how the Government is expecting individuals to bear more responsibility for their own financial security in the future.

This points to the increasing importance in the role of financial advisors – and particularly independent financial advisors (IFAs) – as guides through the minefield that is the investment market.

According to the Association of Independent Financial Advisors (AIFA), IFAs “help people achieve their financial goals in the most efficient and suitable way”.

It emphasises that this could apply to companies just as much as families and individuals.

Independence

IFAs differ from other financial advisors in that they are free to choose products from the entire market, charging their customers either by fees or through a commission-based system.

There are types of advisors employed by banks or other institutions to sell certain products, while others are ‘tied’ to particular products or groups of products.

However, IFAs account for 80% of all investment, pension and protection business transacted in the UK and are increasingly seen as 'financial gurus' by institutions and the general public alike.

IFAs do not just advise on pensions, long-term investments and mortgages – they can also get involved with specific issues such as school fees, divorce, holiday homes or tax.

When it comes to business clients, they could be consulting on pension plans, director packages, 'key man' insurance or commercial mortgages.

Job satisfaction

AIFA boasts that “the job satisfaction is enormous” – and it is easy to see why. IFAs can make an enormous amount of difference to the wellbeing of clients, and not just in a monetary sense.

Giving people greater faith in their future security can result in the feeling that you have changed your clients’ lives for the better. The process can also result in a close professional relationship that can last for decades.

IFAs have a great deal of responsibility and the job requires a high level of intellect and drive. There are a large range of financial products available, and you need to understand the features, benefits, technical details and usage rules of almost all of them. Clearly, problem solving and analytical skills are paramount – not to mention the ability to plan long-term.

Furthermore, you need to be able to convey these complex details in simple, easy-to-understand, terms.

Assessing people’s needs in the event of death or serious illness requires sensitivity; but to make your firm a success you need to have commercial prowess, networking skills and the ability to form trusting relationships.

Qualifications and accreditations

Unlike some careers – such as estate agencies – you cannot simply set yourself up as an IFA tomorrow. The sector is carefully monitored by the Financial Services Authority (FSA), and as a minimum you must have completed a Certificate in Financial Planning, often described as the 'benchmark' for financial advisors.

The FSA will require at least three years’ experience at an accredited firm or network before it will give its blessing to sole traders or other new entrants to the market.

Many careers start off with support work at IFA companies, with others working at product providers (such as banks or insurance companies) or mortgage intermediaries – both offering the chance to learn ‘the trade’, or at least a specific part of it.

AIFA adds: “The independence and job satisfaction you can get by running your own business can be immeasurable and those with an entrepreneurial flare should be able to quickly build an independent advisory firm of quality with commensurate financial return.”

To maintain that accreditation, an advisor needs to keep up to speed with the market – which is likely to include additional, advanced qualifications from among the 38 currently available.

A true profession

Many in the industry believe that the IFA industry will become more like true professions, such as law or accountancy, as the demands on advisors’ expertise increases and they take on more responsibility for people’s lives.

Qualifying and working as an IFA might sound like hard work, but the rewards are considerable. Basic salaries for experienced advisors are often over £50,000 per annum, which, with commission, can bring total earnings well into six figures. Similarly, an IFA firm currently for sale on BusinessesForSale.com for £1.6m boasts of making an adjusted £400,000 on a turnover of £1m.

Many independent IFAs or IFA firms opt to become 'appointed representatives' of a network, allowing them to reduce their cost base by sharing marketing and support functions, while directing queries to firms that might have geographic or sector-based specialisms.

Whether you are already established as an IFA, or whether you are thinking of training as one, the option of buying an existing business is something that should be considered at some stage in this increasingly competitive market.

With any 'people-based' business, much of the company’s value resides in the contacts between its employees and their clients. Assuming that this transition is managed correctly, this worth can easily be retained.

With people living longer than ever, and expectations for retirement increasing with every generation, the market for financial advice seems set to grow exponentially – evidenced by the explosion in financial products.

Buying a business in this sector could certainly offer the opportunity to ‘leapfrog’ into the market.