Do Independent Advisers Improve IPO Pricing Outcomes?
Every year, companies go public and leave hundreds of millions — sometimes billions — of dollars on the table. Not because of bad strategy. Not because of weak fundamentals. But because of how their IPO was priced.
The first-day price pop — that celebrated surge in share price when a newly listed company begins trading — is widely treated as a sign of a successful IPO. Champagne is opened. Headlines are written. But for the boards and promoters who actually own that company, the pop tells a different story. It tells them that their shares were sold to investors at a price lower than the market immediately valued them. That gap — between the offer price and the first-day close — is money that belonged to the company and its existing shareholders. And it did not have to be lost.
IPO underpricing is not a fringe phenomenon. Across many markets, first-day returns average around 15 percent. Some deals see far more. The academic literature has documented this pattern for decades and yet it persists — because the structural incentives that produce it are deeply embedded in how IPOs are organised and who controls the pricing process.
This is, at its core, a governance problem. And like most governance problems, it has a governance solution. A growing number of companies going public are beginning to appoint independent IPO advisers — specialist intermediaries retained not to sell shares, but to represent the issuer's interests in a process that has, for too long, been dominated by those whose interests do not fully align with the issuer's.
What Is an Independent IPO Adviser — and Why Most Boards Do Not Know
Here is something worth acknowledging upfront: a significant number of boards navigating an IPO process have never heard of an independent IPO adviser. That is not a criticism — it reflects how opaque the IPO ecosystem is and how thoroughly it is constructed around the interests of the institutions that have historically controlled it.
An independent IPO adviser is, in the simplest terms, a specialist firm hired by the issuing company to look after its interests throughout the IPO process. Crucially, they do not underwrite securities. They do not distribute shares to investors. They have no book to build and no institutional relationships to protect. Their client is the issuer — the company going public — and their mandate is to ensure that company gets the best possible outcome from a process that is, in many ways, designed around other people's interests.
In practice, these advisers are typically engaged at several key stages of the IPO journey. They help the issuer select which underwriting banks to appoint — a decision with enormous downstream consequences that many boards approach without adequate independent guidance. They coordinate the investor engagement and roadshow process, ensuring that the company's story reaches the right audience in the right way. And critically, they participate in and monitor the book-building process — the period during which investor demand is gathered and the offer price is set — providing the issuer with an independent perspective on how the process is being managed.
The Underwriter Conflict: A Problem Hiding in Plain Sight
To understand why independent advisers matter, you have to understand the structural problem they exist to address. And that problem sits squarely with the investment banks appointed as underwriters.
This is not an accusation of bad faith. It is an observation about incentive structures. Underwriting banks in an IPO occupy a peculiar position: they are formally appointed to serve the issuer's interests, but they have a wide range of other relationships and incentives that can — and do — pull in other directions.
The Institutional Investor Relationship
The most significant of these competing relationships is with institutional investors. Underwriting banks cultivate long-term relationships with the fund managers and asset allocators who participate in IPOs repeatedly. These investors are the banks' recurring customers — on deals far beyond the one at hand. An underwriter who prices an IPO aggressively on behalf of an issuer, leaving little upside for institutional investors, risks straining relationships with clients they will need for the next ten transactions. An underwriter who prices conservatively — leaving the first-day pop intact — keeps institutional investors happy and keeps the deal flow coming.
The Discretionary Fee Problem
A second structural tension involves how underwriting fees are allocated within the syndicate. In many IPOs, a portion of the underwriting spread is discretionary — meaning the lead bank decides how to distribute it among syndicate members based on their contribution to the deal. This discretion creates scope for internal allocation decisions that reflect syndicate politics as much as issuer value. Without independent oversight of this process, issuers often have no visibility into whether fee structures are being managed in their interests.
What the Evidence Actually Shows
For all the intuitive logic of independent adviser involvement, what ultimately matters is whether it works. And here, recent research offers some genuinely important findings — the kind that should change how boards approach the IPO governance question.
A comprehensive study examining US and European IPOs between 2010 and 2023 — one of the most rigorous transaction-level analyses of independent adviser participation conducted to date — has produced findings that are difficult to dismiss. The dataset was assembled directly from advisory firms and supplemented by public disclosures, providing a level of granularity that commercial databases simply do not offer. What it shows is this:
Lower First-Day Returns
IPOs in which independent advisers were involved showed measurably lower first-day returns than those without adviser involvement. In practical terms, this means the offer price was set closer to where the market actually valued the company on day one. Less money was left on the table. The gap between what investors paid and what the shares were immediately worth in the open market was smaller — which is precisely what issuers should want.
For a company raising, say, five hundred million dollars in an IPO, reducing first-day underpricing by even a few percentage points represents tens of millions of dollars that stay with the company rather than being transferred to institutional investors who flipped their allocation on day one.
Smaller Offer-Price Adjustments During Book-Building
The research also found that IPOs with adviser involvement showed smaller adjustments to the offer price during the book-building phase. This is a subtler but equally significant finding. Large late-stage price adjustments — where the final offer price deviates substantially from the initial range — are a signature of a process where information was either poorly gathered or strategically withheld. Smaller adjustments suggest a more orderly, better-managed information process: one where the pricing range was set more accurately from the start and where book-building produced an outcome that reflected genuine market demand rather than late surprises.
No Impact on Underwriting Spreads or Withdrawal Rates
Two things the research did not find are worth noting explicitly. Adviser involvement was not associated with higher underwriting spreads — meaning the cost of the deal itself did not increase. And it was not associated with higher rates of IPO withdrawal — suggesting advisers do not introduce friction or caution that derails transactions. The benefits appear to be real. The costs, at least in terms of deal execution risk, appear to be minimal.
How Independent Advisers Actually Work: The Mechanics of Oversight
Understanding why independent advisers appear to improve outcomes requires understanding what they actually do — and where in the IPO process their involvement has the most impact. This is not merely academic. For boards and promoters considering whether to appoint an adviser, the mechanics matter enormously.
Earlier and Better-Organised Investor Engagement
One of the most significant contributions of independent advisers is in organising investor engagement earlier in the offering process. Traditional IPO processes often concentrate investor outreach in the roadshow — a compressed period of intense activity that leaves little room for genuine price discovery. Advisers who coordinate investor engagement earlier, during the pre-marketing phase, help ensure that the pricing range is informed by a richer and more reliable picture of actual investor demand.
Independent Oversight of the Order Book
During the book-building period, independent advisers provide the issuer with a perspective on the order book that it would not otherwise have. In a traditional IPO, the order book is controlled entirely by the lead underwriter — the issuer sees what the bank chooses to share, interpreted through the lens the bank chooses to apply. An independent adviser who participates in or shadows the book-building process gives the issuer a second set of eyes on a process that has enormous pricing implications. This oversight function alone can significantly alter the dynamic between issuer and underwriter.
Monitoring Discretionary Fee Allocation
Independent advisers also frequently play a role in overseeing how discretionary underwriting fees are allocated within the syndicate. By making this process more transparent to the issuer, they alter the incentives facing underwriting banks — banks that know their performance is being independently monitored are less able to prioritise internal relationships over issuer value. This incentive shift, while subtle, may be one of the most powerful mechanisms through which adviser involvement improves pricing outcomes.
For Promoters and Family Business Owners: The IPO Governance Gap
If there is one category of issuer for whom the independent adviser question is most pressing, it is founder-led and promoter-driven businesses navigating a first public offering. This is the cohort that is simultaneously most exposed to the structural disadvantages of the traditional IPO process and least likely to have the institutional knowledge to address them.
The promoter or founder approaching an IPO is, almost by definition, doing so for the first time. They may have spent years — decades — building their business. They understand it deeply. What they typically do not understand is the IPO process itself: how book-building works, what the order book actually shows, how underwriting fees are structured, or where the incentive misalignments lie. This is not a reflection of capability — it is a reflection of experience. The banks they appoint have done this hundreds of times. The issuer is doing it once.
The Valuation Asymmetry
This experience gap translates directly into a valuation asymmetry. When a promoter-led company appoints an underwriter and relies on that bank's pricing recommendations without independent validation, they are relying entirely on the judgment of a party whose interests are only partially aligned with theirs. The underwriter's range will be defensible — it will be based on comparable transactions, market conditions and institutional investor feedback. But defensible is not the same as optimal. And without an independent perspective, most promoters have no way to know the difference.
For family businesses in particular — where the IPO is often both a liquidity event and a generational transition — the stakes are especially high. The pricing outcome is not just a number.
What Independent Advisers Bring to Promoter-Led IPOs
An independent adviser in this context does more than monitor the process. They translate it. They give the promoter a fluent guide to a system that would otherwise be navigated entirely on the bank's terms. They provide a reality check on pricing recommendations, a second opinion on bank selection and an informed perspective on investor demand that the issuer can actually use. For first-time issuers, that translation function may be as valuable as anything else the adviser brings.
What Boards Must Do: A Governance Framework for the IPO Process
The IPO is one of the most consequential transactions a board will ever oversee. And yet, in many companies, it is also one of the least rigorously governed — not because boards are negligent, but because the IPO process is structured in ways that minimise issuer oversight and maximise bank control. Changing that requires deliberate effort. Here is what boards should be doing.
Before the IPO: Governance Preparation
Appoint an independent adviser early. The benefits of adviser involvement accrue throughout the process — not just at pricing. Appointing an adviser after the underwriter selection has already happened, or after the roadshow has begun, significantly limits their effectiveness. The board should consider independent adviser appointment as part of its pre-IPO governance preparation, not as a late-stage add-on.
Separate the bank selection decision from the banks themselves. One of the most important things an independent adviser does is help the issuer select underwriting banks without relying on those very banks for guidance. Boards should recognise that underwriter selection is a governance decision, not a technical one — and it should be made with independent support.
Ensure the board, not just management, owns the IPO oversight function. In many companies, IPO preparation is treated as a management exercise with board sign-off. This is inadequate. The board should be actively engaged — not in operational detail, but in the governance of the process: understanding the pricing framework, scrutinising the valuation range and ensuring independent oversight is in place.
During the IPO: Active Oversight
Receive independent reporting on book-building progress. Boards should not rely solely on the lead underwriter's characterisation of investor demand. An independent adviser's perspective on the order book — on the quality of orders, the concentration of demand and the signals emerging from investor engagement — gives the board a more complete and less conflicted picture.
Challenge the pricing recommendation. The final pricing decision is one of the most important moments in the IPO process — and it is frequently rushed, framed by the underwriter and presented to the board as a recommendation that is difficult to meaningfully interrogate. Boards that have appointed independent advisers are in a far better position to ask real questions at this stage.
After the IPO: Post-Listing Governance Review
Conduct a formal review of the IPO process. Few boards do this systematically. What was the first-day return? How did it compare to peers? Was the pricing range accurate? How did the book-building process perform? A structured post-IPO review — ideally supported by the independent adviser's analysis — builds institutional knowledge for future transactions and creates accountability for the process.
Build IPO governance into the board's knowledge base. The lessons of an IPO process — what worked, what did not, where the advisory relationships added value, where they fell short — are genuinely valuable. Boards that document and retain this institutional knowledge are better positioned for subsequent capital raises, secondary offerings and the ongoing governance of a listed entity.
The Future of IPO Governance: Where This Is Heading
The research on independent adviser involvement in IPO pricing is still relatively early-stage — the dataset that produced these findings covers 2010 to 2023 and is, by the researchers' own account, one of the first systematic analyses of this kind. But the direction of travel is clear and Directors' Institute believes the implications for how IPO governance evolves over the next decade are significant.
Regulatory Attention Is Coming
Regulators in both the US and Europe have shown increasing interest in IPO market structure — in how prices are formed, how information is generated during book-building and whether the current model adequately serves issuers. The research note on issuer-side governance explicitly flags that as regulators and policymakers continue to examine IPO market design, understanding these institutional arrangements will prove increasingly important. That is not a neutral observation. It is a signal that independent adviser involvement — and the broader question of issuer-side governance — is moving toward the regulatory agenda.
Boards and promoters who wait for regulatory mandate to adopt better governance practices will find themselves reactive rather than proactive. The smarter move — and the one increasingly visible among sophisticated issuers in the US and UK markets — is to adopt best practices ahead of the regulatory curve.
The Democratisation of IPO Governance Expertise
For much of the last thirty years, sophisticated IPO governance has been the preserve of the largest and most frequently issuing companies — those with the institutional relationships, the experienced management teams and the board-level capital markets expertise to navigate the process with their interests intact. Smaller and first-time issuers — which is to say, the majority of companies going public — have largely lacked access to that level of sophistication.
Independent Advisory as Standard Practice
Looking further ahead, Directors' Institute expects independent IPO advisory to become standard practice in well-governed IPO processes — much as independent financial advisers became standard in public M&A transactions over the course of the 1980s and 1990s. The logic is the same: where there is a structural conflict of interest between an issuer and its advisers, independent oversight is a governance necessity, not a luxury. The evidence now supports that logic empirically. It is only a matter of time before the governance community formalises it as an expectation.
Conclusion: The Price of Doing Nothing
The more important question is not whether independent advisers work. It is why so many boards, promoters and governance professionals still approach the IPO process without them — accepting structural conflicts of interest that have been documented, quantified and shown to be addressable.
Part of the answer is inertia. The IPO process has looked broadly similar for decades and the people who control it have every incentive to keep it that way. Part of it is information — most issuers simply do not know what they do not know about the process they are entering.
The IPO market is not going to reform itself. The banks are not going to start prioritising issuer value over institutional investor relationships. The structural tensions that produce underpricing are not going to dissolve because everyone in the room wants a successful deal.
What changes the outcome — what the evidence now clearly shows can change the outcome — is issuer-side governance. And that starts with boards and promoters who are willing to ask harder questions, demand independent perspectives and govern the IPO process with the same seriousness they would bring to any other decision of equivalent importance.
The question is not whether your company can afford an independent adviser on its IPO. The question is whether it can afford not to have one.
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