Clients further down the wealth scale are becoming a liability as managers focus on the wealthiest clients to re-boot profits. But the advice gap is being filled.

As wealth managers continue prioritising wealthier clients to make up fees and fend off more profit erosion from passive platforms and robo advisors, a market of “orphan” clients is one unintended consequence of this shakeout.

But with disruption comes opportunity, and Onvestor is one such business making headway in serving this stranded client segment. This week, the firm appointed former Cofunds CEO and M&A specialist at Soprano Consulting, Stuart Dyer, to become chairman and advise the firm “on a major expansion programme.”

As the term suggests, orphan clients are generally the ones wealth managers have decided are no longer cost-effective to court or keep on the books. Such candidates could be college graduates just starting their careers, with no savings to speak of now but great potential in the longer term. By some estimates, this advice consolidation trend has put the percentage of those speaking to a financial advisor about their finances at just 10 per cent of the population. Little wonder financial watchdogs are concerned.

Onvestor said it is working with around 60 independent advice firms in the UK to provide "ongoing high-quality restricted financial advice" to their less-profitable clients across a range of areas, including pensions, investments, mortgages, and protection. The individual advisory firms decide the wealth level at which they deem clients are no longer viable, and Onvestor also provides firms with a referral advice service on some of the challenges arising from defined benefit pension schemes, an area the Financial Conduct Authority has been trying to exert more vigilance over for UK consumers as the nation heads into more uncertain retirement prospects.

As an M&A specialist, Dyer acknowledged that there has been a "massive consolidation" in the advice sector in recent years, leading companies to shift services to their most profitable customers to bolster fees and to some extent differentiate themselves in an increasingly industrialised marketplace. The result is "thousands of orphan clients" giving firms "a compliance headache,” he said.

Onvestor relieves this burden by making sure unprofitable clients carry on receiving appropriate advice, while the referring advisor continues to receive revenue for that client. Dyer belives the potential to grow the business “is enormous.”

In the first year, Onvestor guarantees to underwrite the income generated from the orphan clients it serves. After that it splits uplift from future income in a revenue share agreement with the advice firm, while Onvestor takes on the client liability. The firm also contends that by outsourcing client advice at the bottom end of the investment spectrum, businesses become more attractive acquisition targets in this continuing circle of M&A activity.

Bringing on industry veteran Dyer to help scale the business at this stage is due to "unprecedented demand from advisors of all sizes," said Onvestor co-founder Michael Basi.

“We continue to believe there is a large untapped mine of financial advisors who will benefit in working with Onvestor to solve their client viability issue while making sure profitability is not diminished,” Basi added.