RDR – it’s crunch time

RDR – it’s crunch time

David Hesketh

The countdown to RDR is well and truly underway, warns David Hesketh, group M&A manager at Perspective Financial Group Ltd

We are now just a little over six months away from the introduction of the new RDR landscape and if your firm is anything like ours then you will have already dotted the i’s and crossed the t’s in terms of ensuring your readiness. The RDR is a done deal and anyone working within this sector who thinks otherwise is in trouble.

There are still however some voices within the industry calling for further delay. One wonders what we have all been doing and talking about for the last umpteen years if, but six months away from implementation, there are still such calls. I understand there are many moralistic and professional objections however there is a distinct difference between disagreeing with some of the outcomes of the RDR and simply doing nothing to protect your business and its value.

For firms who have yet to decide on their future (or otherwise) within the RDR environment we are truly at the crunch stage. This is not so much the last chance saloon for decision-making but more like the last dance for those firms who have chosen to sit out proceedings perhaps hoping for some last minute regulatory u-turn or reprieve. This, I’m afraid for them, is not coming and therefore firms need to ensure they utilise the time remaining before they have decisions forced upon them.

Those owners who recognise RDR is happening and it is not for them must move fast if they are going to get anywhere near the true value of their business. Those wishing to retire, or move to pastures new, or indeed who want to see their firm continue post-RDR, are looking at limited opportunities when it comes to securing their wishes.

In this business timing really is everything. I would suggest that firm owners who have done little up until now have left it far too late. For instance, to give you some idea of the timescales we have worked to with our office acquisitions, at a push the whole acquisition process can be completed in three months for some purchases. However, with almost all our Group offices the time from initial meeting to completion has generally been in the six-month ball park and therefore you will not need an Olympic-esque clock to work out this leaves firms precious little time even if they are to initiate initial conversations today.

Not only is there a simple timing issue for advisory firms to be aware of but the acquiring business will also have much less time in order to ensure the acquisition is RDR-ready and working to the necessary systems by the 31st December this year. Having a business which has not engaged with the RDR and has not begun to implement all the required processes is clearly going to impact on the acquisition value placed upon that firm – it is likely that value will be eroded entirely if no work has been undertaken to secure recurring income levels post-RDR as this is the asset most acquirers will be purchasing. At this late stage a business which is relatively close to RDR-readiness is going to maintain its potential value far more effectively.

For instance, we have been in negotiation with over 300 IFA practices since we began acquiring IFA practices in 2008. We typically average seven new enquiries per month but we have had 27 new enquiries in the last six weeks which reflects the RDR deadline is driving an increase in merger and acquisition activity. This is likely to result in a decrease in value as we move towards the end of the year.

All in all we are in a situation which could be best summed up as ‘reality bites’. The six month countdown clock is ticking and the time for pontificating is well and truly behind us. In this situation to expect the unexpected would be quite wrong; the RDR will happen, and owners should stop wondering (and in some cases hoping) for last minute changes. Firms should grasp the seriousness of the situation and engage with those who can make their ambitions happen even in such a short space of time.