The pace of consolidation in the IFA market is set to speed up markedly, according to the chief executive of listed IFA AFH Financial Group, who believes that the post Retail Distribution Review world is too much for many.

Alan Hudson told FTAdviser that in addition to the normal stream of IFAs retiring, many younger partners are seeking the support of a larger network.

He said that while some businesses got through RDR “the principals of those businesses are beginning to realise the enormity of the task ahead, recognising they’re sub-scale”.

Mr Hudson added that it is difficult to get hold of capital, and “as a result are looking to crystalise some value and join a business where there is some certainty for the future”.

He said: “I think the pace of consolidation is going to quicken, certainly what we’re experiencing is more and more deals coming across our desk, which allows us to be more discerning.

“It is going to be much faster than many think and the industry won’t look anything like it does now in five years time.”

Last month AFH Financial expanded into Scotland and boosted total funds under management to £820m with the acquisition of Edinburgh-based Finlay Gow Company Limited.

Also in the last quarter the firm acquired Norwich-based Omega Consulting and raised almost £3m prior to its first day of trading on the Alternative Investment Market.

Mr Hudson said that the firm’s strategy of recruiting advisers organically and giving them good support services has been behind recent growth.

He said: “I think that is a key differentiating factor between us and some of the other consolidators which have just been put together to buy other businesses, taking advantage of what is going on in the sector.”

According to Mr Hudson, consolidators fall broadly into three categories.

He said: “The first are the private equity-backed businesses who are only in it for the money, opportunities for multiple arbitrage, it’s all about the financial engineering and not about the financial planning.

“Then there is the businesses where the primary motivation in purchasing IFAs is to grab their funds under management and migrate them onto their own arrangements, St. James Place is a case in point.

“The third category is where we sit; those that are financial planning businesses first and foremost and, as a result, are attractive to those vendors who might have a jaundiced view of the first two categories.”