Roger Brosch discusses regulatory change and technological advances

Smaller firms are facing increasing difficulties in the form of greater regulatory demands and technological advances, while some “don’t have any idea what MiFID II means for them,” Roger Brosch, Foster Denovo CEO, has warned.

For smaller firms, Roger Brosch said regulatory change and technological advances had become expensive to invest in and difficult to keep up with.

“The second Markets in Financial Instruments Directive (MiFID II) will start to cause lots of headaches for people who are trying to run things themselves because of what you are now expected to be able to show,” he explained.

“Whether it is data protection, say, or expressing charges in a particular format – for everybody to reinvent the wheel individually is going to be difficult.”

Brosch said the Financial Conduct Authority (FCA) was now taking a closer look at small firms, who in the past might have slipped under the radar as the regulator focused on larger businesses.

“I talk to firms today and they really do not have any idea what MiFID II means for them,” he added. “As the FCA peels back the onion, there is greater need for consolidation purely for the ability to regulate the sector as effectively as they do.”

‘Culturally Compatible’ M&A

Brosch said the business had plans to grow over the next four years – partly through organic growth and partly through acquiring ‘culturally compatible’ firms.

Roger continues, “we are not looking to be a consolidator,” he said. “We want to buy going concerns that put the client at the heart of all we do, and have propositions that are compatible with ours.”

Brosch said the quality of the firms entering the consolidation marketplace has increased in the last 12 months or so. Three or four years ago firms were still struggling to navigate the rules brought in with the Retail Distribution Review, he explained, but now firms have transitioned successfully.

According to Brosch, the regulatory demands and technological advances plaguing smaller firms are driving consolidation in the advice market.

“There is a huge demand for development, to enable people to grow,” he said. “Generally advisers are struggling with that – whether it’s good-quality back-office capability or technology or the resourcing of central paraplanning and client experience.

“People have been bogged down by regulation and administration and by a lack of efficiency through their use of technology and they are looking for help to grow and develop.”

Read the article on Professional Adviser here.