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Weekly Comment IconThe recent deal between South African investment manager RECM Holdings and independent advisory business Wells Faber raises several questions – not least the succession challenge facing many independent financial planning businesses. With the average age of South African financial advisors in the late 50s, their need to solve the succession problem is becoming more urgent.

Compounding the age factor is the RDR wave that is starting to build up momentum in South Africa. RECM CEO Jan van Niekerk explains the deal in this context, saying the risk of litigation, together with regulatory exams, is resulting in many independent advisors selling their books to large life offices or returning to financial services companies as agents. In his view, “Proper, independent financial advice is a dying commodity in South Africa.”

Certainly, the fact that large financial institutions are making very attractive offers to purchase Independent Financial Advisor (“IFA”) businesses is putting the status of truly independent advice under the spotlight. Van Niekerk suggests that their deal with Wells Faber is a way of preserving independent advice. He is reported to have said that RECM was not looking for a distribution network or a referral source for its asset management business, but rather “a method of always providing objective advice to its clients“.

An admirable ambition, but in reality RECM is now on the way to creating its own financial institution. Perhaps, at this stage, they are a little smaller than many of the life companies and financial services companies, who are on the acquisition trail, but nevertheless, it is walking and talking like an institution.

So what’s the relevance of this to us? Our first concern is that RECM, one of the managers we use in a number of client portfolios, is no longer just focusing on asset management. The second concern is the fact that a deal such as this is being positioned as helping to stem the extinction of the independent advisor. No matter what Van Niekerk says, Wells Faber can no longer be deemed independent. A smallish institution, RECM, now owns it. This may not help save the ageing and disappearing species known as the IFA.

Our view is that IFAs need to remain independent and that we need to support them in remaining as such. We do this by providing our independent investment advisory and discretionary fund management services. This enables IFAs to meet the requirements of RDR, without making massive infrastructural investments. We also see scope to help IFAs to remain independent by assisting them with practice management related issues, such as succession. Currently, we help facilitate succession, within and between IFA businesses, by advising on issues such as valuations and deal structure, and bringing parties together where appropriate.

Van Niekerk argues that “Either [WellsFaber] won’t be independent and the market will sniff us out and the value of the business be negatively impacted, or our actions, over time, will show it to be independent and it will flourish.” Given both Van Niekerk and Viljoen’s investment and business acumen, the value of the Wells Faber business undoubtedly will grow, but this may not show it to be independent.

There is no doubt the industry needs a thriving community of IFAs, most importantly because we believe that is what will best serve the individual client. Independent un-conflicted advice will always be in the best interests of the client, which is why we are committed to supporting and saving our IFA clients from “extinction“.




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Regulatory Information

MitonOptimal International Limited is registered in Guernsey (Registration No. 51561) and is the overlying holding company of the companies that make up the MitonOptimal Group.
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