The challenges facing consolidators have been widely discussed in the recent past.
It's been argued the 'old school' model of buying up books of clients is flawed, and that seeking to simply take over existing relationships is unlikely to deliver genuinely positive outcomes for either party.
As the conflict between squeezing out profitability and delivering good client service continues, those consolidators who want to stay in the game will need to adapt.
They need to show they are willing to collaborate and to offer advisers an element of freedom.
If they don’t, there’s a danger consolidators will find themselves being pushed out of the market.
Estate agency consolidation in the 1980s serves as a good example of how some adviser consolidator models could end up without change.
At that time, large firms would consolidate smaller groups and force their own branding and way of operating on the consolidated agents. Much as we see now, the local agents would end up feeling sidelined.
For estate agency consolidators, the issue was that the success of individual businesses was based on personal, local relationships. The same is true now with advisers.
The key issue in the adviser consolidator world has been advisers not feeling included.
If people aren’t getting anything out of a deal and feeling steamrollered out of the way, they may not stick around and perhaps will look to ply their trade elsewhere.
Unless the buyer, adviser and client interests are all aligned, there’s always a danger that things will become unstuck.
This can lead to a number of problems, as what’s good for the remaining advisers and clients will not necessarily suit the acquirer’s interests.
From a client's perspective, if the adviser you’ve been dealing with for years is bought by a firm and suddenly you’re dealing with someone else in a far away office, you’re probably not going to like it.
Understandably, what most people want is an adviser they know personally, and who understands their financial situation.
Yet new players have been coming to the market who look to take stakes in other business and leave a meaningful amount of equity for the existing owner.
Arguably, this presents a more human alternative for advisers who want to grow and nurture a business, while working to make sure all interests are aligned.
This type of model should hopefully encourage a willingness to stay around, as owners continue to have a hand in the immediate future of the business.
It also protects a business’s existing culture and relationships with clients.
By seeking to maintain the adviser relationships, there should be less disruption in the way clients are dealt with, which in turn leads to better retention.
Of course, keeping owners with more substantial skin in the game may take longer than some consolidator models have wanted to take in the past.
But this slower approach provides longevity and the prospect of much higher values for businesses over time.
I believe this is the future of the sector.
Let's imagine a consolidator was to buy a business tomorrow and left the owners with 25 per cent of the equity.
They then worked together over the next five years to make that business worth substantially more.
In this scenario, the clients are happy they’ve maintained the adviser relationship, the adviser benefits from the additional payments and the consolidator is happy with the uplift in value.
Consolidators need to embrace working with advisers who know their clients and what’s important to them, as this will in turn drive a better future in the business.
Yes, it’s a slower build. But the upshot is happier clients and hopefully stronger businesses as a result.