10th July 2026

Paul Harper Search: The Private Equity Issue – Friend or Foe?

Over the past few years, we have seen a significant influx of private equity into the financial advice sector, particularly in the period following the pandemic. It was clear to anyone observing the market during COVID that financial adviser firms performed relatively well. The primary reason was their ongoing revenue model, with clients typically paying a percentage-based fee deducted directly from invested funds. As markets rise over time, this revenue tends to grow.

Most importantly, this income stream proved to be highly robust. While many clients stopped paying for unnecessary services during the pandemic, very few switched off their adviser fees.

As a result, private equity houses and family offices became increasingly interested in the advice market. Many encouraged entrepreneurial individuals to establish buy-and-build businesses, funding acquisitions that started with a single adviser firm and expanded by acquiring others.

This can be a successful model, but, like all models, it has advantages and drawbacks. Earlier in my career, I was Sales Director of a venture capital-backed business, where I saw first-hand the challenges that arise when PE or venture capital firms overpay for acquisitions.

In theory, a PE house or family office brings capital that allows directors to turbocharge growth. By acquiring similar businesses, companies can scale rapidly. It is an attractive story, and in some cases, it works well.

As businesses position themselves for acquisition-led growth, they should, in theory, achieve economies of scale. This can help attract talent from competitors who want to be part of a growing organisation, while also allowing costs to be removed to support further expansion.

In financial planning, the initial assumption was that income would continue regardless of changes within the business. In many cases, acquisition strategies were built on the belief that income would effectively continue indefinitely.

This assumption proved flawed. One of the first major challenges came with the introduction of Consumer Duty. While ongoing adviser fees were always intended to pay for ongoing advice, many firms had become complacent. In some cases, advice had not been delivered consistently, and in others it had not been adequately recorded. Many businesses underestimated the Financial Conduct Authority’s willingness to apply regulation retrospectively.

When Consumer Duty was implemented, advice firms were required to evidence the reviews and advice they had delivered in previous years. While this might appear straightforward, the reality was very different. In some cases, poor record-keeping was the issue. In others, firms had acquired businesses whose historic records were insufficient, often because no one expected to have to retrospectively prove advice given many years earlier. By the time Consumer Duty arrived, the original business owners were often long gone.

There were also cases where firms had taken ongoing adviser fees for granted. I have seen businesses where a small number of advisers were responsible for servicing a very large number of clients. While this may look profitable in the short term, charging fees for services that are not properly delivered inevitably leads to accountability issues. Once private equity entered the market, potential liability became a major concern.

Without being overly cynical, it could be argued that consolidation suits regulators. Fewer, larger firms with deeper pockets make enforcement, fines, and retrospective consumer protection easier. As seen with PPI mis-selling, largely associated with banks, we are now entering a period where regulators are closely scrutinising advice delivered under their oversight.

Perhaps firms should have been more cautious. Barclays, for example, paid £42m for poor financial crime controls and £284m in total for poor treatment of retail lending customers. These figures, however, may be dwarfed by Consumer Duty-related redress. True Potential, one of the major PE-backed buy-and-build firms, has reportedly set aside £100m for potential redress for similar issues.

Beyond regulatory risk, PE-backed firms have also faced a classic bubble problem. Acquisition prices rose sharply, and while this benefited vendors, it often resulted in overpayment. Combined with a period of rising interest rates, this created a perfect storm. Companies were required to service higher interest costs on borrowed funds, something not always fully appreciated. PE backing does not remove debt obligations; it amplifies them.

Private equity itself often relies on layered funding structures. When I worked within a VC-backed business, we had primary, secondary, and tertiary funding, each with its own cost and expectations.

Integration Models

Companies have adopted different approaches to integration. Some pursued full integration from the outset. A good example was one of the largest acquirers, Fairstone  where firms could sell a small initial stake, perhaps 10%, with a view to full integration later at a pre-agreed multiple. During this period, vendors retained most of their equity and could exit if they wished, while buyers deferred the bulk of the payment until integration was complete. This model worked well for both sides.

Another approach involved partial integration with a phased merger. Firms committed to brand changes and revised bonus structures over time. While attractive in theory, this often led to dissatisfaction among advisers. In some cases, advisers who had little or no equity stake chose to leave. In some well-publicised cases, PE-backed groups struggled to retain advisers and clients, lacked the capacity to replace them quickly, and ultimately faced severe funding pressures.

A different model was the regional hub approach used by firms such as Amber River. The central company acted as a central advisory hub, while regional businesses remained separately authorised and regulated. This reduced risk and offered a slower and less disruptive integration, but created long-term challenges around unifying multiple large entities. It looks, however, likely that this approach has paid off and the integration can has been kicked down the road for the next PE owner to address.

Another early approach was “easy entry, delayed pain,” where vendors retained their brand, staff, and operating model. While attractive initially, this simply deferred the integration challenges to a later date.

Other Challenges for PE-Backed Firms

One major issue has been expertise. Some firms recruited senior management from outside financial services. While external experience can be valuable, it is critical that leadership teams fully understand regulatory risk and industry nuance. In some cases, poorly informed senior appointments created further problems.

Financial advice is a regulated and complex profession. Regulation can be retrospective, technical expertise is essential, and the adviser population is ageing. Recruiting experienced advisers capable of taking over and growing client banks is increasingly difficult. While I have seen some companies trying to separate the “hunters” from the “farmers”, which might have worked well in other industries, I have seen that approach almost invariably fail in the post RDR world.

Advisers are also far from homogeneous. Many reacted badly to takeovers, particularly where promised equity or incentives failed to materialise.

I have seen cases where the business owner reaps the reward while their key management team and advisers are locked into a new owner without receiving previously promised financial rewards, causing significant resentment. It is amazing how many business owners’ memories of “handshake” promises they made to their staff change when the money starts being discussed.

Not surprisingly, resentful advisers often choose to leave after the firm is sold, and in many cases, they were able to take clients with them at the end of their restrictive covenants. Advisers often have deeper relationships with clients than acquirers anticipate.

Restrictive covenants typically last less than 12 months, after which advisers can re-approach clients. It is not uncommon for clients to follow advisers to new firms, including self-employed arrangements, with only limited financial consequences for the acquiring business.

If you are hiring or would like a confidential discussion about your career please contact Paul Harper of Paul Harper Search on 07768 952212 or email paulh@paulharpersearch.co.uk

Business Development