Tough markets are taking their toll on adviser firms with 151 in danger of extinction unless they make significant changes, according to a report by industry analysts Plimsoll Publishing.
The study of the UK’s largest 1368 IFA firms found zero growth, sliding profits and escalating debts have pushed a third to the brink of failure.
Numbers for firms in the ‘danger’ zone are stark with profit margins falling to only 1% of sales, and the majority of companies making a loss. Most firms in this area are taking on debt at an alarming rate simply to cover costs, the report found.
Plimsoll rated each of IFA firms into one of five financial ratings based on their overall financial performance. Ratings are as follows:
Strong 868 The best performing in the market
Good 129 Improving overall financial Mediocre 113 In transition, a make or break year
Caution 107 A weakening financial position
Danger 151 Need to change in order to survive
IFAs will also be dismayed by the report’s findings which reveal consolidation is essential as supply is outstripping demand.
David Pattison, senior analyst on the project, comments: “I think these figures just prove the point that we have all been aware of that a period of consolidation is long overdue. Bit by bit the weaker players will be removed from the market.”
The report suggests up to 205 companies might need to shed jobs and for some businesses as many as 30% of the payroll may have to go if the company is to survive.
“These companies (those rated danger) must put immediate plans in place to start to trade their way out of their problems. Cutting costs, jobs and even turning unprofitable work away- stringent measures must be put in place before it’s too late. Currently the owners are sitting on an ‘unsellable’ asset and are woefully exposed to acquirers who are ready to snap them up for next to nothing,” Pattison says.
However, companies rated as ‘strong’ and ‘good’ offer some room for optimism. Benefiting from stronger business models and tighter financial management these companies are ideally placed to benefit from the fall-out in the market.
The new Plimsoll Analysis exposes all the names, details and financial performance of the UK’s leading IFA firms. It also includes a future snapshot on each company demonstrating how each might survive this period of consolidation and names those companies that are set to gain the most and those that need to retreat or sell up.
Copies of the analysis can be obtained for £350, by calling Clair Sherwood on 01642 626400 or emailing [email protected]IFAonline
Three funds to watch