A regulatory crackdown on inducements has raised questions about the viability of the most common way in which IFA practices are bought and sold, according to consultants Harrison Spence Partnership.
Under many historical merger and acquisitions (M&A) deals, one IFA business or consolidator buying another advisory firm paid a multiple of fund-based renewal.
Part or all of the payout is often conditional on the IFA moving its assets onto the consolidator's platform, or into their investment proposition.
However, Harrison Spence Partnership said this perceived incentive to transfer assets, particularly into the acquirer's own investment proposition, is something the FCA views as an inducement which encourages churning.
Strategic partnership models will have the same dilemma, it added, as such partnerships are normally based upon funds being transferred into the acquirer/strategic partner's investment proposition over a period of time, with a formula for sale based upon this strategy.
Consequently, those businesses with strategic partnership models will have to be restructured to reflect this, it said.
Managing director of Harrison Spence Partnership, Brian Spence, said: "The likelihood is that acquirers and strategic partners will have to pay a percentage of total funds under management rather than a multiple of funds into their investment proposition.
"In other words, agree a formula which includes all investments, not just their own.
"This will inevitably slow down the M&A market and, in the wake of the RDR [Retail Distribution Review], is yet another hurdle that the IFA industry has to overcome."
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