Risk advisers focused on becoming more specialised
More risk advisers are "drilling down" further into their speciality by purchasing life insurance advice businesses rather than looking to diversify by purchasing financial planning businesses, says Forte Asset Solutions managing director Steve Prendeville.
Speaking to ifa's sister publication, Risk Adviser, Mr Prendeville said that in the current financial services market there are very few specialist risk advisers looking at diversifying through such purchases; rather, they are “drilling down and becoming more specialised”.
“What I am seeing is that more are specialising and are keeping to their core,” Mr Prendeville said.
“Often, the reason they don’t want to buy into financial planning businesses is because they have a skills gap or they have pre-existing referral arrangements or joint ventures with advice firms that would put them in conflict with new business generation,” he said.
However, there is also significant demand from financial planners interested in buying risk books, Mr Prendeville added.
"The reason for that is because of the predictability of revenue – it is normally indexed for growth. It doesn’t go up or down with market or economic conditions, and it is also more highly valued than financial advice recurring revenue," he said.
But despite the demand both from risk advisers and financial planners, risk businesses are “scarce” in the market, although Mr Prendeville pointed out that developments within the industry could see that change.
“I think that risk businesses that have been dependent on upfront commissions or have a high turnover of policies within the three-year timeframe ... they are likely to have cash flow issues,” he said.
The incoming requirement for advisers to meet higher professional and education standards may also see many older risk specialists question their future in the industry, Mr Prendeville said.
“Combine the two and you might start to see more risk businesses come to market," he said.
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