• To describe how M&A deals have changed since RDR
  • To communicate why RDR has had an impact on firm sales
  • To explain how buyers and sellers have changed since RDR


In 2012, the Financial Services Authority implemented the Retail Distribution Review, a radical overhaul of the rules governing financial advice in the UK.

And while the regulations were aimed at increasing transparency, improving the quality of advice and levelling charging structures, they would also catalyse fundamental shifts in the M&A market over the coming decade.

Not only did RDR lead to an explosion in deals in the financial planning sector, it profoundly altered the reasons business owners sought to offload their companies, and triggered fundamental changes in the shape and value of the transactions involved and the face of the potential buyer.

These signal movements in the M&A market were not part of the FSA’s RDR planning but they have had wide-ranging ramifications for sellers, buyers and clients over the past decade and put a new face on an established industry.

The drive to increase the minimum qualification level was very much the strongest catalyst at the start of the mass consolidation of the IFA and financial planning market.

It’s widely accepted that the RRD was the catalyst behind a boom of consolidation in the financial planning sector.

Over the past decade the estimated transfer of assets has reached £55bn, culminating in a number of large scale acquirers selling on to providers.

But the ramifications went far beyond mere numbers, changing the motivations for selling, the typical structures of deals and approaches to valuation.

It also led to a seismic shift in the makeup of the buyer market.


The RDR in a nutshell

The FSA introduced the RDR in 2012 to improve standards in the distribution of financial services products.

It made several significant changes to the way investment products were distributed, and how client service was delivered.

Most notably, the RDR raised the minimum level of adviser qualifications, changed the way charges and services were disclosed and, notably, banned the use of commission payments from certain product types to financial advisers.

The FSA cannot have known at the time precisely what incidental effects this would have on M&A in the sector but the shifts would be significant and, in some cases, dramatic.


Motivation to sell

The drive to increase the minimum qualification level was very much the strongest catalyst at the start of the mass consolidation of the IFA and financial planning market.

Put simply, many single-adviser firms with owner-operators heading towards retirement did not want, or perhaps were not able, to reach the required level of qualification to meet RDR requirements.

Within a decade, the major catalyst for selling has shifted from inertia to necessity.

The proof? A year after RDR’s implementation, the FSA released data showing that 20 per cent of advisers said ‘enough is enough’, choosing to retire early, either through selling their business or simply winding up the business and shutting shop.

RDR really made a clean sweep of businesses, and what was left behind were companies with well-developed operational structures able to withstand and ride the wave of future, fundamental regulatory changes such as MIfid II and, most recently, the consumer duty.

And while many grumble about increased regulation, according to Gunner & Co’s annual M&A survey, fewer than 5 per cent of advisers state this as the key driver to sell.

In the same survey, the motivation to sell for 61 per cent of respondents was retirement and – with the estimated average age of advisers at 57 – that comes as no surprise.

Within a decade, the major catalyst for selling has shifted from inertia to necessity.


Buyer market diversification

In the 10 years since RDR was effected, the buyer market has evolved considerably.

In the initial period when adviser and company numbers dropped dramatically, there were a handful of national firms well-placed to pick up those opportunities.

Companies such as Succession, AFH, Bellpenny and Ascot Lloyd were prevalent in the market at that time, with a proposition heavily weighted towards full consolidation and integration.

Those priorities were prized at a time when continuity in the relationship between the client and the adviser was bound to be lost.

At the time many parties were often looking for little to no adviser handover to allow the buyer to start forging their relationship with the client as quickly as possible.

Those early deals really woke up the market to the opportunity to acquire, and come 2013-14 we started to see regional businesses wanting to get involved.

At this time deals still very much focused on consolidation and integration, but the buyer profile was expanding.

Smaller businesses, typically closer in culture to the seller, were popping up, keen to get a slice of the pie. This was also the time that almost all buyers were focused on achieving their return on investment through increasing client fees.

Since the client proposition was changing it was considered timely for buyers to bring in a new fee structure. It was very common in those days, as a broker, to hear buyers have their wish list centre around ‘firms charging 0.5 per cent, to increase fees’.

In the decade since RDR, the buyer market has swung towards profitability.

While consolidation and integration remain a key outcome of many business sales, particularly where the vendor is retiring, continuity (or improvement) of client service, charging and outcomes has become a core component of all deals.


A new kind of buyer

And a new breed of buyer has emerged over the past four years as a result of increased interest from numerous private equity houses in the financial planning industry M&A story.

Attracted to an industry that, post-RDR, is built on low-risk, recurring income streams, a fragmented owner-operator market structure and operating in a bull market, it is only a surprise that private equity did not become more involved earlier.

To maximise these opportunities, private equity houses have backed fledgling buyers with a new strategy, often termed ‘buy and build’.

The strategy involves acquiring one or more ‘hub’ businesses to use as springboards for future acquisitions.

So while the latter stage of the strategy brings us back to consolidation, the entry point has given a significant number of financial planning firms the chance to sell their business without significant cultural and operational changes.

And many of these deals are leaving those business principals with ‘skin in the game’ – equity either in their existing operation or the group as a whole, to ensure they are rewarded for the next growth chapter of their firm.

This in turn has led to the size of deals being done in the market to swell – we have seen the average deal values on Gunner & Co’s projects increase threefold since 2017.

It is good news for the financial planning sector, which via 10 years of frenzied M&A activity has emerged with a maturity and balance that could not have been foreseen.

As the complexity and size of the deals increased, so too has the shift towards buying the whole share capital of a business, rather than simply the underlying assets of the client book.

While the second stage of this strategy aligns to more conventional deal approaches, the buyers are smaller regional firms, giving retirees the chance to sell to more culturally sympathetic buyers, but taking away the risks of financial backing and acquisition capability.

This expansion of the buyer market has naturally led to more competition for quality firms for sale, but more importantly has opened up a myriad of options for business sellers, allowing them to plan their succession and put their plans into play at a time that best suits them.



All of these changes in the M&A marketplace have had a profound impact on both how businesses are valued and how much a buyer is prepared to pay.

Looking back a decade, purchases were generally fairly simple – client asset purchases were frequently preferred over share sales, in part due to the buyers being less open to taking on historic advice liabilities and in part due to the relatively small size of the deal.

Early on, there were also tax benefits to this approach. This led to practically all owner-operator sales being valued on recurring income.

That approach remained very much the norm for six or seven years, and became widely adopted across the buying community and understood among the seller market.

With the advent of ‘buy and build’ strategies from around 2018, in which the buyer is backing a firm to grow in the future, the valuation approach aligns with the wider M&A community, where profit is the underlying metric of value.

Specifically in this industry, buyers tend to be presenting offers based on multiples of an assumed Ebitda (earnings before interest, taxation, depreciation and amortisation), where the revenue and costs of the business have been adjusted to allow for any synergies and/or additional costs the new owner may incur.

For example, business owners rarely pay themselves market-aligned salaries, but will likely take pension contributions outside of an employed norm.

By using Ebitda as the underlying valuation approach, the buyer and seller can build out a future plan for growth and return on investment, and align future vendor rewards to that growth.

We have seen profit become a more and more popular approach, and it has accounted consistently for 30 per cent of the deals Gunner & Co has delivered over the past three years.

While the methods of valuation have evolved, so too have the multiples being applied. Directly after RDR, with the market almost flooded with seller opportunities and a much smaller and less diversified buyer community, business valuations were topping out at three times recurring income.

Today, for a clean business with a retiring owner, values could be 50 per cent higher than that, and more in some very specific buyer cases.

Business valuations have risen as the market evolved after RDR

10 years on from the implementation of RDR, the M&A landscape has altered radically. For one thing, it has burgeoned. But, more importantly, the financial planning firms being bought rank higher in quality, sophistication and – crucially – value.

That is good news for sellers, who are reaching the exit doors for better reasons and largely getting a better deal on their businesses.

It is good news for buyers, who have been increasingly trammelled into simplifying the way they integrate acquisitions and are tidier organisations for it, and it is good news for clients, who are likely to find themselves on similar terms to other customers post-sale.

Most of all, it is good news for the financial planning sector, which via 10 years of frenzied M&A activity has emerged with a maturity and balance that could not have been foreseen. Not even by the authors of the RDR.

This article was written for FT Adviser by Louise Jeffreys, managing director of IFA M&A broker Gunner & Co.and was originally published on FT Adviser.

If you are looking to sell your business, find out more about the selling process and how Gunner & Co. can help you. Book a meeting with our MD Louise here

Louise Jeffreys is managing director of Gunner & Co, an IFA broker with values based on strong relationships built on trust, credibility and value.

Gunner & Co. specialise in IFA sales, IFA business sales, retiring IFAs and IFA client bank sales.