St James's Place (SJP) plans to raise up to £1 billion to buy the operations of retired partners.
The FTSE 100 asset management company consists of 2,600 partner companies, staffed by 4,800 independent financial advisors trading under the SJP banner.
When advisors retire, their books are sold to the remaining partners using bank loans guaranteed by SJP.
This practice allows the asset manager to retain clients when financial advisors leave. But rising interest rates are making it more expensive to finance the buyouts.
Proceeds of £1 billion will help fund equity investments in partner companies.
Tough sell: A former St James's Place adviser said he had been trying to offload his client base for 18 months
St James's Place Chief Operating Officer Iain Rayner said: 'We have been thinking about how we can leverage increasing equity alongside debt to help with succession planning.
'Providing continuity of service to clients if and when advisors retire and being able to occasionally move client relationships within the partnership is very important to us.'
The London-based company, which manages around £157 billion of customer money, sets the interest rate for the loans at 3.5 percentage points above the base rate.
This has been at or below 0.5 percent for more than a decade, meaning partners paid up to 4 percent in financing costs.
But the base rate has risen to a 15-year high of 5.25 percent, pushing loan repayments to 8.75 percent, deterring buyers.
A former adviser at St James's Place said he had been trying to lose his client base for 18 months.
“There are no buyers in St James's Place,” he told the Financial Times.
“The tracker rate just killed everyone's desire to buy customers.”
However, Rayner disputed this claim, saying 2023 would be “one of our biggest years ever for partner lending.”
The company did not respond to a request for further comment.
It has been a difficult year for St James's Place, whose share price has fallen 40 per cent since January. The price is 60 percent below the December 2021 peak.
After booming during the Covid-19 pandemic, St James's Place and the wider sector have been hit by tougher economic conditions.
Nervous, cash-strapped investors are heading for an exit, and volatile markets have hurt returns.
Meanwhile, the company was forced in October to review how much it charges customers, following years of accusations that it had an unfair fee structure. Exit charges for new bonds and pension investments will be abolished for the 'vast majority' of accounts.
When the shake-up comes into effect in 2025, the move will cost the company around £150m.