Tom Ham: what happens when you are the product

Image: Adobe StockImage: Adobe Stock
Image: Adobe Stock
Tom Ham, group CEO at Calton, on a client’s dilemma should their financial adviser move on.

You may have read lately about consolidation in the vet profession. A decade or so ago about 90 per cent of vet practices were owned by the vets themselves – they were local, accountable, accessible and, above all, small.

Spool forward to 2024 and now around 60 per cent of vet practices are owned by one of six massive private-equity (PE) backed businesses. The impact hasn’t been beneficial, generally, prices have gone up as the PE overlords look to make a turn on their investment. Diseconomies of scale are such a concern that the Competition and Markets Authority has announced a review of the sector.

This trend isn’t limited to vets. Financial advisers are going the same way. In the last couple of years alone, hundreds of advice firms have been sold to big consolidators.

If you’re the client of an advice firm that’s selling out, you need to know the driver behind it is usually that the principal of that firm is ready to retire and looking to realise some value from their business. That value is overwhelmingly based on the fees you pay.

You haven’t consented to your fees going elsewhere. So how can you be sold on?

In short, the system depends on inertia – consolidators bet that you will prefer a new home with them, rather than taking action to find a new adviser by yourself, and in the main they are right.

The plot thickens. Many consolidators will expect you will also agree to move your assets onto an investment platform and into portfolios run by them. You may also be asked to pay a higher ongoing advice charge. The profits from this go towards paying out your exiting adviser – in effect you are subsidising their exit.

So what are your choices if you learn that your existing adviser is planning to sell up to a consolidator?

The first thing to do is remember that you are in control. It is your money and you have the right to take it elsewhere if you wish. It is common to feel powerless in this situation, but you definitely are not.

Broadly speaking you have three choices...

1Move to the new firm

If you decide that this is what you want to do, it requires little work. If the new firm wants to change your investments or charge you more, then they need to inform you, showing the impact. If you are not happy, you may be able to stay with what you have – bear in mind your existing adviser may pressure you as their payout will depend at least in part on getting as many clients as possible moved into the new ‘house’ proposition.

2 Find a new adviser You have the right to find a new adviser and transfer the servicing of your investments to them. The main thing is to ensure you are comfortable with the firm, that they are independent, don’t intend to sell out any time soon, and you understand how their service compares to what you are used to.

3 Be your own boss You can, of course, do away with the services of an adviser completely and manage your own money. This will normally involve moving your assets to a provider who deals direct, and means you are responsible for all decisions on investment, risk, tax, and more.

The key is to really understand what your existing adviser has given you, in terms of ongoing service, investment portfolio, and financial products, and then to compare that to what you’re going to be getting. So, for example, you may be used to a twice-yearly visit, perhaps the new firm is telephone-based. Are you happy with that? If the level of service is less, is the price less too? Do the new portfolios have a similar track record to what you’re used to, and are they priced similarly? Most importantly: do you understand fully what’s happening?

This isn’t theoretical: the CEO of True Potential, one of the biggest consolidators, recently said publicly: “When our clients call in, what they’re looking for is guidance, for help using technology... It’s very rare that they need to step into the advice side of things. Of course they do at times, and we have advisers to do so.”

True Potential undeniably offers its customers an ongoing service, and charges an ongoing fee for it, along with the cost of its own investment platform and its own investment portfolios. But it’s a very different service to most financial advice firms – and a great example of how things can change radically as the result of an adviser firm selling up.

It is worth saying that my firm, Calton, also takes in advisers who are ready to be part of something larger. However, we are a financial planning business that offers face-to-face service – and most clients who come to us end up paying less than under their old arrangement.

The one thing we never forget and that you must never forget – you are not a product to be bought and sold. You come first and you always have choices.