The IFA industry wastes £30m profit every year and 1140 companies would make more money under new ownership, according to Plimsoll Publishing.
The business analysts report found money is “simply thrown away” due to failure controlling losses and ineffective business management.
It also notes 7% of companies are making a loss and 26% made less than 3% return on investment.
Project senior analyst David Pattison says the results indicate why the IFA industry is currently alive with takeover talk and future ownership speculation.
“It’s certainly no surprise that trade buyers and private financiers are taking a close look at the industry – some of these independent financial advisers businesses have huge potential that is not being realised at the moment,” he says.
“We’ve heard a lot about private equity firms recently, and this is one industry where they could reap rich rewards.”
The Plimsoll report highlighted how simple changes could transform the performance and overall company value.
Its recommends cutting out unprofitable sales, saying a 10% drop in sales could actually improve profitability; while keeping control of trade debtors to free up cash, evaluating unnecessary stock levels and reducing borrowing.
Plimsoll also says obtaining productivity to a point where sales per staff member are at least £70,000, is a key measure often unchecked.
The IFA industry analysis applies the same tests to each business as corporate investors, Plimsoll says, identifying a ‘profit plan’ and outlining strengths and weaknesses.
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Two global vehicles
'Further plug advice gap'
Must appoint separate CEOs and boards
Advisers do come out well
Will report to Mark Till