The role of independent financial advisers (IFAs) in the IPO process has long been a topic of debate. As a member or potential new member of Lawsons Network, understanding how to make a tangible impact as an adviser is crucial. While some firms believe independent advisers are essential for mitigating conflicts of interest and improving IPO execution certainty, recent research from Oxford’s Saïd Business School suggests the influence of advisers can sometimes be overstated.
How Advisers Can Avoid the “Placebo Effect”
A comprehensive study analysing European IPOs from 2010-2017 found that independent advisers often do not significantly affect key IPO outcomes. Once selection effects are controlled for, advisers do not consistently reduce first-day returns, improve certainty of execution, or lower gross spreads. Essentially, while advisers can provide peace of mind, their tangible impact on IPO results may be limited unless they proactively engage in value-adding activities.
As an adviser, the key to avoiding this ‘placebo’ effect is to ensure that your involvement adds measurable value beyond providing reassurance. By staying deeply involved in IPO pricing strategies and ensuring underwriting banks remain “honest,” you can help issuers achieve more accurate outcomes.
Generalist vs Specialist Advisers: How to Position Yourself
The Oxford study also highlighted differences between generalist and specialist advisers. Generalist firms, like Rothschild and Lazard, often take a more conservative approach to pricing, while specialist firms, such as STJ Advisors, tend to price IPOs more accurately, reducing underpricing. However, the choice of strategy should depend on the needs of your client. If reducing underpricing is a priority, a more specialist approach may be necessary. If broader M&A advisory services are in demand, a generalist role may be more suitable.
What This Means for Financial Advisers
For members of the Lawsons Network, this research offers valuable insights into when it might be worthwhile to engage an independent adviser. While independent advisers may not drastically improve IPO outcomes, they can serve as an external auditor, providing a second opinion and helping firms avoid overpricing their IPOs—a common concern among companies going public.
Given the nuanced impact of advisers, the decision to engage one should be driven by the specific needs of the firm. If your client is looking for reassurance and guidance throughout the IPO process, an independent adviser could be a useful addition to your team. However, if cost-efficiency and measurable impacts are the main drivers, it may be worth considering whether the adviser’s services offer enough value to justify the fees.
Next Steps for Advisers
For IFAs considering offering IPO advice, it is crucial to manage client expectations. As the research suggests, while independent advisers provide useful guidance, they should not be marketed as a guarantee for reducing underpricing or improving IPO success. Instead, advisers should focus on leveraging their expertise in guiding companies through the complexities of the IPO process, helping them navigate the regulatory landscape, and ensuring that they make well-informed decisions.
In a market where trust and guidance are paramount, understanding and setting realistic expectations will help strengthen your client relationships and build long-term partnerships. If you’re an adviser looking to maximise your impact in the IPO space or streamline your client outcomes, get in touch with Lawsons Network. Our expert team is here to help you leverage the latest insights and ensure you’re making informed, strategic decisions.
